Outsourced CFO | Paying Taxes On Time To Avoid Penalties
There are many ways that business owners have tried to cope with constrained cash flow in their businesses in the past says outsourced CFO. One of the more ineffective methods that business owners have tried, is by filing their corporate taxes late. They do this for a variety of reasons, from avoiding paying the taxes until later or to avoid paying interest. There is no reason that a business owner benefits from filing their corporate taxes late.
Business owners should file their corporate taxes on time, even if they donít have the money to pay says outsource CFO. The reason is because business owners are going to be paying the interest anyway, the interest that they get charged starts accruing from the very first day that they owe it, regardless of when they file. Business owners actually start accruing interest on the taxes that they owe starting at three months after their fiscal year end. This means that they start adding interest before their corporate year-end is even do. Because of this, it doesnít matter when business owners file their corporate year-end, they are getting the interest charged to them. However, business owners should understand that this interest is not a significant amount for them to worry about having to avoid pain. Until they are late filing, the interest that they accrue on their taxes is only 1% a year. Even if they owe a large amount, this additional interest does not add up to very much money.
The late charges, on the other hand says outsourced CFO, are extremely detrimental. Even by filing their year end late, business owners get slapped with a penalty of 5% of the balance that is owing, and accrue interest at 1% per month. If they are behind in filing by more than a year, for every year on top of the first year that they are late says outsource CFO, their penalty is 10% of the taxes that are owed plus 2% interest per month. Not only can these additional penalties add up very fast, business owners also start accruing interest at a faster rate on the outstanding tax that they owe. They have to pay and addition of 6% of interest per year on top of the amounts that they owe plus penalties. This can be a significant amount of money, especially if they owe a lot in taxes.
By understanding when their corporate tax return deadline is, can help businesses ensure that they are not filing their year end late. Many business owners believe that their fiscal year end is 12 months after they incorporate, or after they get a GST number, but business owners are able to choose whatever date they want as their year and says outsourced CFO. And whenever that date is, business owners need to have their corporate taxes filed six months after that date. Regardless of what it is, six months later is when their taxes will be do for the rest of the life of that business.
50% of all businesses close the door to their business within five years says outsourced CFO. 29% of those entrepreneurs will cite that their business failed because they ran out of money. There are many reasons why businesses may run out of money, but they can ensure that one of those reasons is not because they incurred massive penalties because they filed their corporate taxes late. Business owners need to understand what the penalties are with filing corporate taxes late, in order to avoid making that error in their business.
The penalties for filing late are severe and immediate says outsource CFO. For the first year and that is late, business owners get assessed a penalty of 5% of the taxes that they owe plus 1% of interest every month. If business owners have not filed for a number of years, after the first year, each subsequent year gets a penalty of 10% of the taxes that are owed, plus 2% interest per month. Not only do these amounts add up fast for business owners says outsourced CFO, but they also start earning higher interest on the outstanding balance of 6% per year in addition to the penalties. These additional penalties are far more money than any business owner should have to pay, especially because they are extremely avoidable.
Many business owners believe that they start accruing interest on the taxes that they owe when they file their corporate year end, however thatís not true. They actually start accruing interest on their taxes three months after their corporate year-end. Whether they file their taxes or not, they start accruing interest on those owed taxes from the third month. However, the interest they accrue is so miniscule, that they shouldnít worry about it adding much cost to their bottom line. Besides, they owe it whether they file their taxes or not, the only difference is that by not filing taxes, businesses also get massive penalties. The interest on taxes that are owed, but not filed late are only 1% per year. Regardless of how much tax is owed, does not equal a very large amount.
If business owners are truly having a difficult time with cash flow, a much more prudent strategy is to contact Canada revenue agency and work out a payment plan. They will be able to offer six months for businesses to pay off their corporate taxes that they owe. That alone, may be enough to help business owners avoid problems in their business regarding cash flow. And at the very least, it is a much better strategy than risking accruing extremely steep penalties that is even worse for their bottom line. Business owners can strategize with their accountant ahead of time to ensure that they are minimizing the taxes that they are paying, in order to avoid cash flow problems from the beginning says outsourced CFO