Outsourced CFO | Penalties For Filing Taxes Late
Paying taxes is the reality that business owners will never be able to escape says outsourced CFO. Many business owners who are running into cash flow problems, often believe that by filing their taxes late, they can delay when they start owning those taxes, and can increase their cash flow in their business. Unfortunately, business owners should understand, that not only does filing their taxes late not delay when they have to start paying those taxes back, but business owners also start incurring penalties, which will definitely make their cash flow situation worse. 29% of businesses that failed to say that running out of money was the reason why their business failed, and incurring penalties unnecessarily can definitely contribute to the reason why business owners may run out of cash in their business says outsource CFO.
So what should business owners do if they are having a cash flow problem in their business, and they are not able to pay their taxes asks outsource CFO. The best advice is for the business owner to file anyway. They will end up owing the interest regardless, because the interest starts being owed regardless of the filing date, so business owners are not saving themselves any money. But by filing on time, they can avoid the penalties that come with it. Business owners can automatically save 5% in penalties simply by filing their taxes on time, even if they have no money to pay. They will be able to work out payment plans with the Canada revenue agency, so there’s nothing to fear by filing on time.
Business owners should understand what the penalties are for late filing, so they know what they can avoid by filing on time says outsourced CFO. If an entrepreneur is only one year late, they will then owe a penalty of 5% of the entire balance owing, and then 1% per month. If they are late more than a year, business owners will owe 10% of the balance owing, and 2% per month. Each year that they are late gets added on, so the penalties get steeper the more years that a business owner is late.
Business owners should understand what the filing deadlines are, in order to avoid filing late. For their corporate year end, the filing date is six months after their fiscal year end. So if their fiscal year end was December 31, they need to have their filing done by June 30. Outsourced CFO says it’s important to know the corporate year end, and that the taxes are due six months after that, in order to avoid incurring penalties. By understanding what the deadline for personal taxes are, business owners can also avoid penalties there as well. April 30 is the deadline for almost everybody, except for business owners of incorporated businesses, outsource CFO says that deadline is June 15 though the deadline is June 15, they will start accruing interest charges from April 30.
If business owners are unable to pay their taxes, they believe they can delay the day that they owe them, by delaying when they file says outsourced CFO. Unfortunately, if business owners are late and filing their taxes, there are penalties that they start opening. Those penalties are so high, that business owners who are having time paying taxes, make their bad situation for worse by filing late and start getting penalties added to be amount that they owe. The penalties can add up fast, business owners should ensure that they file on time, even if they can’t afford to pay the taxes, because they can always work out payment plan with CRA, but it’s much harder to do once they start accruing penalties.
Many business owners believe that their fiscal year end is set by when they incorporated, or when they get it GST number. However this is not true, the fiscal year end is triggered by the day that they actually file their taxes. Outsource CFO says business owners can strategize this to utilize the year and in order to minimize taxes. They should make their first year end be the last month that they were not turning a profit in their business. This way, they owe no money in taxes on that first year. This is especially beneficial, if brand-new business owners hadn’t yet filed taxes ever before in their business, and they know what they are at least one year late. By strategizing what they they can make their year end, business owners can minimize the penalties.
However, outsourced CFO says that if business owners already know that they are late, but Canada revenue agency hasn’t yet started calling them, or sending demand letters, business owners can do what is called voluntary disclosure says outsource CFO. This is where the business approaches CRA to inform them that they are late. By volunteering to disclose that they are late taxes, business owners can request to have those penalties waived. Most often, CRA will allow the penalties to be waived. Business owners need to understand however that the interest charges will not be waived. This can be extremely beneficial to business owners who know they are late and want to be proactive in avoiding a late fee.
Business owners who owe taxes, can work out payment plans with CRA especially of the old personal or corporate tax. They should know however that if they owe GST, CRA is far less forgiving with payment plans. The reason for this says outsourced CFO, is because Canada revenue agency the use GST as a trust account to. This is not the business owners money, they collected it from their clients on the half of the government. Instead of handing the money over to the government, they kept the money and use that to fund their business. The government does not look kindly on business owners that use the government’s money to fund their own business. Being aware of this, business owners should ensure that they pay their GST timely to avoid this situation. We would absolutely love to get to partner with you.