Eight Smart Reasons to File Your Taxes on Time
It's tax time. Yay, right? You might be starting off tax season by thinking of how you can put off filing your return — or maybe you're not thinking about it at all. If so, consider a new approach.
Though there may be some isolated cases in which it's necessary to extend the deadline (see sidebar), filing on time makes good business sense. If you don't, the consequences can be severe. Besides, who wants to be on the bad side of the IRS? Here's why it's wise to stay on top of your tax obligations.
1. Save your company's money (because filing late is expensive).
If you want to misspend your own money, that's your privilege. But it is your fiduciary responsibility to act in the best interests of your business — especially if you're responsible for other peoples' livelihoods.
That said, filing and paying your taxes late can involve two unwanted charges: penalties and interest on the amount due. The typical late-filing penalty charged is 5% of the unpaid taxes for each month (or part of a month) your return is late; interest charged is the Federal short-term interest rate plus 3 percent. Right now, the minimum penalty for late filing of a 2023 return is $485. Think about how your business can better spend that money.
Note: If your state assesses income taxes, consider those rules and regulations. They vary widely nationwide.
2. If your business is strapped for cash, filing on time can ease your burden.
As bad of a rap as the IRS often gets, it will work with responsible taxpayers to create a payment plan agreement — with interest — to get your bill paid with as little stress to your business as possible. Don't get to the point where you'll need to incur legal and other expenses that can impede your plans for growth.
3. Get your accountant's office when they're most available (and not burnt out).
Last-minute or late filings cut down the time your accountant's office can spend with your return — or they might not be able to do it at all until well after the season's passed. What's more, taking the time to do your return correctly, helps you plan for next year's taxes. Next January, you'll be happy your thought about that.
4. Maintain cashflow (and lower your stress level).
You'll need to pay the penalties and interest discussed above eventually — and if you haven't set up a responsible plan, your daily normal cashflow will likely take a hit. If your business is just starting out, cashflow is enough of a challenge without adding extra risk to the mix.
5. Avoid the most severe consequences.
Letting your delinquency continue over time, may result in liens and levies. Consider the nightmare of watching your essential business real estate and equipment — and even your bank accounts — being seized. Such actions can put you out of business.
6. Protect your professional credit profile and reputation.
The relationship between tax delinquencies and credit reporting is complicated. The IRS does not report unpaid tax bills to credit bureaus. But no, you're not totally off the hook. If the IRS places a lien on any or all of your business assets over time, that's a matter of public record that a lender (as well as customers, prospects, and business partners) can obtain easily. More indirectly, if you tap an unusual amount of your available credit to pay your federal tab, that will drag down your credit score.
Did you know?
Are you a government contractor?
If you're already doing business with the Federal government, you should be maintaining a solid financial relationship with all its agencies, including the IRS. It's no surprise that agencies within the government require that you're paid up on all taxes.
7. Don't complicate future business (and possibly personal) financial moves.
Looking to rent or buy a new space for your business? Secure a loan to expand your operations? Even if your credit remains great, how far will you get without tax returns to prove your solvency? And if you're a sole proprietor or an LLC, you'll also be tarnishing your personal financial profile — and be liable for those business taxes.
8. Due a refund? Don't jeopardize it.
Yes, some businesses do get refunds. So if you're due some money back and you don't file in a timely fashion, you're hurting yourself that much more. The only "good" part about filing late when you're due a refund is that you won't get dinged with a late-filing penalty. (After all, you're lending the government money.) However, there are limits to the IRS's good will. Refunds not filed for within three years are forfeited and that "loan" has now become a gift. Do you really want to do that?
If you're procrastinating on tax payments because you're strapped for cash, don't let that be the reason for falling behind. Your accountant (or you directly) can contact the IRS to file for a legitimate extension and create a payment plan. By doing so, you're protecting you're your hard-earned business accomplishments and your professional reputation,
Did you know?
Why Not File?
In rare cases, you may have a legitimate reasons for filing a late income tax return. That said, try to avoid these situations unless absolutely necessary.*
Some rare cases include when you're...
Crunched for cash.
Lacking essential documentation on purchases or open deals.
Anticipating tax-code changes that may reduce your tax obligation.
Involved in an existing IRS case. You want to withhold payments pending resolution of the dispute.
*No matter what your reason, always consult with your accounting and/or legal counsel before making a tax-filing decision.
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
