Outsourced CFO | Filing Taxes Late Has Businesses Incurring Penalties
Many business owners often run into the problem of cash flow in their business says outsourced CFO. Since 50% of all businesses are forced to close the doors to their business in five years, and 29% of those entrepreneurs say that running out of money was the reason why they had to close their business. Since cash flows such a huge problem for so many businesses, they often use creative and ill-advised methods in order to help increase the cash flow in their business. One of the ways that business owners try this, is by delaying when they file their taxes.
Business owners think that if they delay when they file their taxes, they can buy time on when they have to pay those taxes to the Canada revenue agency. Unfortunately, business owners should file their taxes even if they donít have the money to pay right away. The reason for this, is by filing late, business owners will incur penalties. Even if the business owner doesnít have the money to pay, they can avoid paying penalties by filing and paying at a later time says outsourced CFO. Business owners can always call Canada revenue agency, and arrange a payment plan for their corporate tax arrears. As long as business owners are keeping the line of communication open with them, they will be able to work out a payment plan. Not being able to pay taxes immediately shouldnít be the reason why business owners donít file.
Another reason business owners delay filing, and so that they can avoid interest incurring interest on their taxes says outsourced CFO. Unfortunately, this doesnít work because business owners are getting charged interest on the amount of the corporate taxes that they owe, regardless of when they file their taxes. Interest starts getting accrued three months after their corporate year end, which is three months even before the corporate taxes are due to be filed. Also, business owners should not fear the amount of interest that is being charged, because it is so small, itís not going to make a big impact on the amount they owe. This interest is 1% per year on the amount owing. Meanwhile, the penalties are much higher. Business owners can immediately save themselves penalties by filing on time.
It can add up very fast says outsourced CFO, by filing the first time, business owners will get assessed a penalty of 5% of the balance owing and 1% each month. If they owe more than one year of taxes, business owners will get assessed 10% of the balance owing and an additional 2% per month. These percentages can fast, especially depending much tax business owes. The business owner will also get assessed interest on the outstanding balances at 6% per year which is added on top of the penalties that are already receiving. Business owners should understand that by filing on time, there saving themselves 5% on the taxes they owe automatically.
When entrepreneurs are short on cash, they often try to come up with creative ways to increase their cash flow says outsourced CFO. One of the ways that they have tried doing this in the past, is delaying filing their taxes. There are couple of reasons why business owners would do this, one is to save interest on the taxes that they owe, and another is because they arenít able to pay their taxes right away, so they delay filing, until they can come up with the money to pay.
Business owners should understand, that if they donít have the money to pay their taxes at the time of filing, they should still file them anyway says outsourced CFO. The reason for this, is because will be able to automatically save the penalties that they would get assessed with if they filed late. If they are unable to pay their taxes right away, they can always enter into a payment plan for their corporate arrears with Canada revenue agency. All you have to do, is contact them after they have filed to arrange the payment plan option. Sometimes, this can be all the business owner that is running into cash flow problems needs in order to help keep their cash flow positive. By having a regular payment plan over the next six months in order to pay their taxes, they can significantly help the business.
Business owners also believe that by filing their taxes late, that they are saving interest, however outsourced CFO says that business owners start incurring interest on the taxes that they owe before their corporate taxes are due. Corporate taxes are due six months after that businesses fiscal year end. Regardless of when the business owners year end is, they need to have their taxes filed six months later. They start accruing interest on the taxes that they owe at three months after their fiscal year ends. Business owners are not saving any interest or any money, by filing their corporate taxes late.
If business owners want to avoid getting hit with a penalty, but they have already made the error of not filing on time, as long as Canada revenue agency has not started pursuing them for filing their taxes, a business owner can always contact them first, and do what is called a voluntary disclosure says outsourced CFO. This is when a business owner contacts CRA, in order to tell them that they are late. Business owners are proactive and tell them that they are late, and agreed to pay the interest charges, CRA will often believe the penalties associated with late filing. This can help business owners avoid penalties if they have made a mistake.
There are several ways that business owners can increase cash flow in their business, but filing their taxes late as a way of increasing cash flow in their business not only is a poor strategy, and also can ends up with them paying far more in penalties, and damaging their cash flow even more.