Outsourced CFO | How To Avoid Penalties On Late Filed Taxes
One of the most important things that business owners should keep in mind when they are paying taxes says outsourced CFO, is to not file the taxes late. The penalties that are incurred by filing late, can make things very difficult for business owners. Since 50% of all business owners go out of business within five years, and 29% of those failed businesses will cite that they ran out of cash, so by filing late and triggering penalties, business owners can create cash flow problems for businesses that may be very difficult to recover from.
Business owners often think that by delaying when they file because they canít pay the taxes that they owe, they can use the additional time to generate revenue in their business, in order to pay taxes or avoid incurring interest charges, but are several reasons why this is a bad strategy says outsourced CFO. The first reason is business owners start accruing interest on the amounts that taxes are owed from the date that those taxes are owed, and not on the date that they file.
In corporate taxes, business owners start incurring interest charges on the taxes that they owe at three months, which is three months before their taxes are even due. Business owners should not be afraid of the interest charges that they are incurring, because itís such a small amount at 1% each year. The other reason that this is a bad strategy, is because the penalties for late filers are so high that it may be so severe, business owners could great cash flow problems for themselves so bad that they may have to close their business. Late penalties start for the first year at 5% of the balance owing and 1% per month, if business owners are late filing multiple years at a time, they over 10% of the balance owing +2% per month. Not only do these amounts add up fast, depending on how much and taxes that they owe, but also will business owners are going to be incurring interest on the outstanding balance at 6% per year on top of the penalties are already receiving says outsourced CFO.
If business owners are worried about not being able to pay their taxes at the time filing, they should file their taxes anyway, because the penalties only thing so much worse. Also, Canada revenue agency will allow business owners to have a payment plan if you have a hard time paying their corporate taxes, so it makes the idea of filing late because they canít pay taxes not even a problem. By taking the payment plan from CRA, business owners are having cash flow problems in their business can mitigate those with the payment plan Says outsourced CFO.
Business owners should understand that they need to file their taxes on time, regardless of how much they owe because the penalties that they will incur will make any debt situation far worse. As long as they keep the line of communication open with CRA.
Many business owners believe that if they canít pay their taxes at the time of filing, that by delaying filing them can by them time in order to generate revenue to pay their taxes on a later date says outsourced CFO. This is not a great strategy for businesses, because they can make their cash flow situation worse by triggering penalties. Since 50% of entrepreneurs close the doors to their business in five years, and 29% of those entrepreneurs say that the reason why they close their business because they ran out of cash. Triggering penalties only filed taxes, makes a bad cash flow situation far worse.
In order to avoid late charges, business owners should first understand when there corporate taxes are due says outsourced CFO. The corporate taxes are due six months after the businesses fiscal year end. Business owners can choose any fiscal year end they want, many entrepreneurs believe that their fiscal year end is 12 months after they get a GST number, or incorporate, but this is untrue. They can choose any date they want as their fiscal year end, and which ever date that is, they should keep in mind that there corporate taxes will be due six months after that. If they have their fiscal year end be June 30, their taxes will be due December 31. They can strategize with their accountant to see when the best fiscal year end for their business should be.
Once they know when their corporate year-end is, business owners should know what to late penalties are, in order to avoid filing late. If they are late filing the first year, business owners will be charged a penalty of 5% of the amount of taxes that are owing +1% each month. If they are filing late multiple years, each year that they are late after the first, is assessed a penalty of 10% of the balance of the taxes that are owing +2% per month. Not only do these penalties add up very fast says outsourced CFO, they also have to pay interest on the outstanding balances of 6% per year on top of the penalties. This is a huge amount of money that a business owner will have to suddenly pay just by filing their taxes late.
Business owners often believe that they starting incurring interest charges on the date they file their taxes, so they think by filing late they can avoid interest charges. Unfortunately says outsourced CFO, this is not true because business owners start incurring interest charges on the year taxes that they owe three months after their fiscal year end, even though their taxes or not do for another three months. Those interest charges are only 1% per year, there so small that business owners shouldnít avoid filing taxes out of fear of this interest charges. They should file their taxes, on time out of fear of the interest charges.