One of the most common questions we get from small business owners is about saving money on taxes. Probably not a huge shock.
Fortunately, there are lots of ways for small businesses to lower their tax obligations. And while some do require more legwork than others, three of the most common tax penalties are also the easiest to avoid. So it’s surprising that so many small business owners miss rule #1 for dealing with the IRS:
File and Pay Your Small Business Taxes on Time
There’s nothing complicated about filing and paying your taxes on time, but the consequences of not doing so can be expensive:
- Late payment penalty: typically ½ of 1% of your unpaid taxes, per month
- Interest on taxes owed: the federal short-term rate plus 3% with interest compounding daily
- Late filing penalty: usually 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty starts accruing the day after the tax filing due date and will not exceed 25% of your unpaid taxes. This is the big one—always file on time or file for an extension.
Know Your Business Entity & Fiscal Year to Avoid Penalties for Missed Deadlines
If your company is a corporation, your tax return or extension is due two-and-a-half months after year end. If your business is a partnership, sole-proprietorship, or LLC, your taxes or extension three-and-a-half months after year end. Don’t worry—we made a chart for you:
If you think you’ll need an extension, file for it as soon as possible—there’s no disadvantage if you end up filing on time, but if you miss the deadline, you’re on the hook for a hefty penalty.
But What Happens if You DO Miss a Deadline?
If you own a small business, you know that the world is highly unpredictable. Even with the best planning, it’s possible to miss a deadline. What then? Believe it or not, you can ask the IRS to waive the penalty. They may choose not to, but it’s definitely worth your time to ask (this is something inDinero does on behalf of our clients when the need arises).
We put together an end-of-year tax pack to help you meet your deadlines, get organized, and lower your taxable income.