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The late penalties that business owners card is a penalty of 5% of the taxes that they owe and an additional 1% per month. If a business owner is late several years, this additional years are penalized at 10% of the taxes that they owe and then an additional 2% per month. These penalties can add up fast, but also business owners will start incurring additional interest on the outstanding balances 6% per year on top of the penalties says outsourced CFO.
Business owners should file their taxes on time anyway, even if they donít have the money up front to pay their taxes says outsourced CFO, in order to avoid paying these late filing penalties. Business owners start paying interest on the amounts that they owe starting at three months after their fiscal year end, not from the day they file. So business owners are not saving money by filing late, there actually owing more by doing so. They should consider filing on time saving themselves 5%.
Business owners also need to realize, that if they donít have the money to pay Canada revenue agency, they can contact them in order to get a payment plan going. CRA offers payment plans of up to six months for business owners who owe corporate taxes. They should keep this in mind, and follow taxes on time, and then contact CRA in order to set up a payment plan to avoid further penalties.
If business owners have missed the filing deadline, and they know they are late, what they should do rather than finishing their year-end and filing it, because they still get they get hit with penalties, outsourced CFO recommends business owners contact Canada revenue agency themselves, to disclose to them that they are late. CRA may often eliminate penalties for business owners who voluntarily disclose that they are late paying their taxes. This only works, if Canada revenue agency has not yet started sending demand letters, or phoning business owners to let them know that they are late filing their taxes. Business owners should understand that filing their taxes on time, and keeping the line of communication with Canada revenue agency open, go an extremely long way to avoiding penalties in their business. By doing so, business owners can be assured that they are not going to run into cash flow problems due to owing taxes.
Business owners often get quite creative when it comes to helping themselves increase their cash flow says outsourced CFO. However, business owners need to understand that they should not try this if they think that they can delay their taxes in order to increase their cash flow. Many business owners believe that if they canít pay their taxes at the same time that they file them, they can file late, in order to buy extra time to generate revenue in their business to pay those taxes later. Or, business owners believe that they start accruing interest on the taxes that they owe based on when they file them, so in order to save interest charges, business owners file their taxes late to avoid incurring even more in interest before they pay it. These are not good strategies, because not only do they not work, by filing late, business owners make their cash flow situation for worse and it would have been they filed on time.
First things that business owners need to understand when it comes to accruing interest on the taxes that they owe, the interest starts accruing from the date business owner starts opening the interest, which is not the day business owner files. Date that they start incurring interest, is three months after a businesses fiscal year end. Filing on time, are late will not affect how much interest they accrue. Also, outsourced CFO says that business owners need to not fear the interest charge on corporate taxes that are due, because itís only 1% interest per year. This is extremely small amount compared to the penalties they could be receiving.
The reason why this is a bad idea says outsource CFO, is because the penalties that business owners start getting hit with our very large. Late filing, means that business owners are filing after their taxes are due to be filed which is six months after their fiscal year end. If they file any later than that says outsourced CFO, business owners are late filing. The penalties they start getting hit with when they are late, is 5% of the amount of taxes that they owe and 1% per month. If they are late more than a year, each year that they are late, theyíll get assessed with a penalty of 10% of the taxes that are owed +2% per month. Not only do these amounts add up fast, but they also get assessed additional interest on the outstanding balances which is 6% per year on top of the penalties that are already receiving. This is up from 5% that use to be charged.
Business owners can avoid a lot of problems for themselves, by filing their taxes on time, even if they canít pay their taxes yet. They can always call Canada revenue agency and ask for a payment plan. CRA allows business owners to pay their corporate taxes within six months, if those business owners call CRA to arrange the payment plan.
