Outsourced CFO | The Importance Of Filing Taxes On Time
Many business owners believe that it is a prudent cash flow strategy to pay their corporate taxes late, says outsourced CFO. The reasoning behind it is that they can use the amount of taxes that they owe in order to generate revenue in their business, file their taxes later once their cash flow balance has been restored, effectively using the taxes that they owe to fund their revenue generating strategies. This actually is a bad idea for a number of reasons says outsource CFO.
The first reason why this is a bad idea is because if business owners are having cash flow issues, they should contact CRA, and work out a payment plan. Outsourced CFO says that CRA can allow businesses up to six months to pay their corporate taxes, therefore making it completely unnecessary to avoid paying taxes as a way to increase cash flow. Business owners may be able to avoid problems enough by having the payment plan in place, that it simply not necessary to avoid paying taxes.
The second reason why avoiding paying taxes to fund cash flow says outsource CFO, is because the penalties that they incur simply by being late filing, are so astronomical, that is not in the business ownerís best interest to be late. A late penalty that a business owner has to pay is 5% of the balance that is owed and then an additional 1% every month. If business owners are late more than one year, every year that they owe, they can be assured that they will have to pay 10% of the balance owing per year and 2% each month. The more years that business owners behind, the higher the penalties are, and these can add up fast, depending on how much taxes are owed. Business owners should also be aware that there is also interest on the outstanding balance at 6% per year in addition to the penalties that they will receive. These penalties are so steep that especially business owners that are having cash flow issues should avoid these penalties at all costs.
Many business owners mistakenly believe that filing late will allow them to avoid paying interest charges. Because they believe that the interest that they owe on their taxes starts from the day that they file outsourced CFO says this is simply not true. Business owners start owing interest on the taxes that are due three months after the fiscal year end of the corporation. Thatís correct, business owners are accruing interest before their corporate taxes are even do. The interest charge is only 1% per year, and is so small, that this shouldnít be a deterrent to business owners. Even if it was a deterrent, filing late is not going to help them avoid that charge.
Business owners can make a much larger impact on their business by contacting their accountant, and working on cash flow strategies ahead of time, and avoid running into the issue of paying their taxes late Says outsourced CFO.
Without prudent financial planning, business owners can run into a cash crunch in their business, which may leave them scrambling for solutions says outsourced CFO. One of those misguided strategies has sometimes been for businesses to delay filing their taxes in order to deal with that constraint cash flow. Unfortunately all they end up achieving, is making their cash flow works by triggering penalties.
Business owners should understand what the filing deadlines are, in order to avoid penalties. The personal tax deadline is April 30 for almost everybody throughout Canada says outsource CFO. However, there is an exception to this deadline. People or spouses of people who own unincorporated businesses, have a June 15 filing deadline. This can actually help business owners strategically file their taxes. Since the threshold for proprietorship is exceptionally low says outsource CFO, people who made any additional cash in their household that was not to run through a corporation, can help them meet that threshold for proprietorship. Did they shovel someoneís walk or mow their lawn for money, may be took payment for some baking that they did. Even if it was not a regular occurrence, and they only made $50 in a year, outsourced CFO says that this can help a business owner meet the threshold for proprietorship, and then utilize the June 15 deadline as their year-end for personal taxes instead of April 30, and file later, but avoid filing late charges.
They should also understand, that if they do owe taxes personally, they can contact Canada revenue agency says outsource CFO, and work out a payment plan where they can pay their personal taxes over six months. This can help them avoid cash flow problems, while being proactive about paying the taxes that they do owe.
Business owners should know that the year and for their corporations is very different than the year and personally, and outsource CFO says that business owners with incorporated businesses, have their taxes due six months after the corporations fiscal year end. If they owe taxes corporately, business owners can also contact CRA to work out a six month payment plan.
Even though corporate taxes are due six months after the fiscal year end, business owners should know that GST is completely different says outsourced CFO. GST is due three months after the fiscal year end. Which means that GST is due three months before the corporate taxes are due. Business owners need to wrap your head around not, in order to avoid late paying GST. Late paying GST carries its own penalties, and businesses that are in arrears with GST, may not find CRA so forgiving. Instead of being able to have six months to pay that off, business owners are only allowed three months to pay that off, and CRA is much less tolerant when it comes to excusing business owners who havenít paid their GST.