Outsourced CFO | Incurring Penalties For Filing Taxes Late
One of the last things that a business owner should do in their business says outsourced CFO is filed their taxes late. Many business owners who are short on cash believe that by delaying buying their taxes, can help them deal with constrained cash flow. Unfortunately all this does is make their cash flow situation worse because they start incurring penalties. Business owners should understand that there are many other ways to increase cash flow in their business, that has a lot less risk associated with it then filing taxes late.
In order to help understand why they should avoid filing taxes late, outsource CFO says business owners should understand what those penalties are. To be one year late, a business owner will get assessed a penalty of 5% of the entire balance owing, and then 1% per month. If there late more than one year, each year that they are late, gets assessed a penalty of 10% of the balance owing, and then 2% per month. This can add up incredibly fast. Business owners needs to understand, that even if filed taxes before, filing the first time they can trigger penalties for all of the years that they are late.
However, if a business owner has never filed before, and they are over one year late, they may be able to strategize with their accountant in order to minimize penalties says outsourced CFO. Many entrepreneurs believe there fiscal year end is 12 months after they incorporate their business, or 12 months after they get a GST number, but that’s not true. Businesses fiscal year end is sent when the business owner files their corporate year-end. This way, if the business owner is late in filing, that means they haven’t yet sent a corporate year-end. What they can do, is strategize with their accountant to make their corporate year-end be the last month that they did not turn a profit in their business. This way, all of the penalties they incur for the first year, or on the amount that they owe. If they made no money in the first year, they owe zero. 5% of zero is still nothing by strategizing this way, business owners can avoid paying penalties on the first year. If they are less than two years late, then they can ensure that they miss paying penalties by strategizing went to make their first year end.
However, if business owners have tried filing late as a way of improving their cash flow, and have realized their error before they start getting demand letters from the CRA, they may be able to save getting penalties says outsourced CFO. It’s called voluntary disclosure, and if the business owner approaches CRA to tell them that they are late, they may be able to get those penalties eliminated. A business owner will still owe the interest, but voluntary disclosure is a way that business owners can admit their mistake to CRA, and avoid paying the penalty for it.
There’s so many cash flow challenges that business owners face when they open their own business since outsourced CFO, that having a good strategy ahead of time to minimize cash flow problems is important. Business owners without a cash flow strategy, end up thinking that they can improve their financial situation by doing things such as delay filing their taxes as a way of increasing cash flow. Not only does this not work, it can make a business owner’s situation far worse, because late filing means that they incur penalties on top of what they owe as well as interest. The penalties get worse with more a business owner doesn’t file. Business owners can avoid this problem, simply by understanding why it’s important to file taxes on time.
The first thing that business owners should understand when it comes to filing texts, is knowing what those tax deadlines are. For corporate taxes, they are due six months after the business owners fiscal year end. They start accruing interest at three months, but the penalty is slapped on to the company, after they miss their filing deadline of six months after their fiscal year-end. The interest that they will pay starting at three months is 1% and is a very small amount. However, the penalties for filing late are 5% of the balance owing, and then an additional 1% per month on top of that interest says outsourced CFO.
The personal tax deadline is April 30 for almost everyone, including business owners of corporations. However, if someone or their spouse has an unincorporated business, the filing deadline is pushed back to June 15. Like the corporate taxes, the interest starts getting accrued from April 30, but outsource CFO says that is only 1% and very minimal. People can use this June 15 filing deadline planning opportunity very easily. Since the threshold for the able to claim a proprietorship is extremely low – perhaps even as low as $50, people can claim that they have a proprietorship, if they made any additional money that was not claimed in a corporation. Therefore, if the person takes any money for any reason, like mowing a neighbour’s lawn, or for helping run errands, they may be able to claim a proprietorship, and then utilize this June 15 filing deadline says outsourced CFO.
Business owners should understand that filing late incurs penalties, and even if they are not able to pay their taxes straightaway, filing on time can help them avoid paying those penalties. They start making their bad situation much better as soon as they file. CRA is generally happy to help work out a payment plan on personal and corporate arrears, so business owners should not fear CRA, and avoid filing. They should file on time, and then talk to Canada revenue agency strategies on how they can eliminate those arrears. By using that payment plan, business owners who were having a cash flow problem, can relieve that cash flow problem. We love it when our customers come to us with new problems because then we get to solve it for them and watch their business grow.