Outsourced CFO | How Missing Tax Deadlines Can Trigger Penalties
Outsourced CFO says that one of their favourite quotes is from Jim Collins, who is an author and he has said, ìyou must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, and at the same time, have the discipline to confront the most brutal facts of your current reality, whatever they might beî. Business owners who are low on cash may believe that by delaying when they file their taxes, that can help them deal with constrained cash flow. But all this does, is ends up making their cash flow situation worse, because now they are getting assessed with huge penalties.
Business owners should understand what the penalties are simply for filing their corporate or their personal taxes late says outsourced CFO. By being late once, people can get assessed 5% of the balance that they owe as well as an additional 1% each month. If they are more than one year filing late, people will get assessed a penalty that is 10% of the balance that they owe plus 2% per month. Not only do they get these penalties, but they also must pay additional interest on all of their outstanding balances at 6% per year. All of these amounts can spell out disaster for business owners who are already running into cash flow problems in their business.
people should understand that they need to file their taxes on time, even if they donít have the money to pay. The reason for this, is because even if they donít have the money to pay their taxes, filing late will increase the amount of money that they owe the government. Many people believe that they will be able to save interest charges by filing late, however the day they start incurring interest has nothing to do with the day that they file their taxes says outsourced CFO. People get assessed the same interest regardless of whether itís corporate or personal taxes, but filing on time will ensure that they are hit with penalties. People should regard filing their taxes on time as saving 5%, instead of having to pay interest. The interest that they get assessed is only 1% per year anyway, so itís not like people save much money by filing late anyway.
If people do all money and they have no way of paying it all at once, whether itís when they file, or not, outsourced CFO says they need to be aware that thereís payment options available by Canada revenue agency. All you have to do is call CRA and ask for a payment plan. CRA is authorized to give payment plans of up to six months in order to pay personal and corporate tax arrears. People should take advantage of this, in order to file their taxes on time, and then work out a payment plan for CRA. Even if they can pay on time, people can utilize this in order to increase their cash flow.
When business owners are short on cash says outsourced CFO, often they come up with creative ways to increase their cash flow in order to generate revenue in their business. While this can be effective, giving it by delaying when they file their taxes in order to help them generate revenue in their business does not work, and only forces them to have to pay additional amounts in penalties.
The penalties that a business owner will incur simply by filing their taxes late is having to pay an additional 5% of the taxes that they are currently owing plus 1% per month. Outsourced CFO says that if a business owner happens to be late filing their taxes a number of years, each additional year after the first get assessed a penalty of 10% of the taxes that they currently owe plus 2% additional each month. So it doubles the penalty amount that they have to pay, simply by filing late. Not only does this add up fast, especially if a business owes high amount of taxes, but also business owners get assessed additional interest on top of the outstanding balances. They will be expected to pay 6% per year in addition to the penalties which is up from 5%, which is what it used to be.
Business owners should know that there corporate taxes are due six months after their fiscal year and says outsourced CFO. If a business owner has not sent their fiscal year end yet, they may be able to use that in order to avoid penalties. If the business has been operating for 18 months, clearly they have missed their first fiscal year end. However, if they have not yet filed taxes, they can choose their fiscal year end to be whatever date they want. Usually, when the entrepreneur opens their business for the first time, they go through a period of several months where there not generating a profit in their business. If they donít generate a profit, they donít owe taxes. So business owner should work with their accountant to figure out the last month that they were not profitable in their business. They should make that month their fiscal year end. That way, even though they are filing their year end late, the penalties are a percentage of what they owe. If they owe nothing, 5% penalty of nothing is still nothing. The business can then carry on operating, ensuring that they filed taxes on time in the year after that, therefore avoiding paying any penalties.
Business owners should understand that not are how bad their situation is in their business, they start making their situation better as soon as they file their corporate taxes says outsource CFO. They can avoid penalties simply by filing on time even if a business owner canít pay their taxes. Penalties are more significant than interest, says outsourced CFO.