Even if the business is incorporated, the withheld portion of the tax--withheld income tax and withheld Social Security tax (this excludes employer matching Social Security tax)--can be assessed against a corporation's "responsible persons" personally.

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More than 60 percent of self-employed workers (whose income tax is not withheld) either under-report income or over-report deductions.

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Moreover, Olson says the chronic uncertainty deprives taxpayers of the ability to do legitimate tax planning--even to know how much tax to have withheld each year.

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Pitfalls to Avoid: Having too much tax withheld means providing a no-interest loan to Uncle Sam.

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Many who get caught in this no-win situation use the withheld tax money for something else like paying suppliers or the rent.

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While it might seem crazy to assert that you can have taxes withheld from a distribution that was negated by a 60-day rollover, but the IRS allows you to do a tax-free rollover of a distribution that has been sent to the IRS as withheld income tax, by using substitute funds (see Reg 1.402(c)-2, A-11).

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