In the world of business taxes, there are three pricey tax penalties businesses can avoid, and—as is true with so many of your tax responsibilities—they all come down to one thing: paying your taxes on time.
Psst! Looking for 2018 due dates for your 2017 tax return?
Head over here.
Taxes get a bad rep with business owners for being difficult and time consuming. So much so that many of leaders fail to see the influence they actually have on their business and personal taxes if they just plan ahead.
But we get it. Dealing with taxes and the IRS can feel intimidating. In reality, taking some time to build a comprehensive, year-round strategy will help to stay ahead of the otherwise chaotic mess taxes can be.
By looking forward instead of backward you position yourself and your business in a good spot to avoid penalties and make the right choices. Lowering these costs then gives you more money to put back into in revenue-generating activities for your business.
Before we dive in, a quick note about your business’s fiscal year:
Because of the unique nature of different businesses, some companies must use a fiscal year as opposed to the regular calendar year (starting January 1 and ending December 31). This can be true for seasonal businesses, certain industries, and when specified by a parent company.
For this blog, the dates and deadlines we’ll go over assume a calendar year end.
But if you’re using a fiscal year, don’t worry! This blog gives a deeper description of how choosing a fiscal year over a calendar year affects your business taxes and a helpful chart for adjusting your calendar accordingly.
That said, let’s first look at what dates taxpayers should be looking at now (aka in 2016) to plan for tax filing next year.
The 2016 Tax Deadlines for Business Owners
While your 2016 filing is due in 2017, there are clear tax law requirements as well as strategic steps you should take on a quarterly basis throughout 2016:
A Look at Business Tax Responsibilities in Quarter 1 of 2016:
At this point in any given year, most businesses are primarily focused on their prior year tax return. So January through March/April of 2016 are spent looking back on 2015 and making sure they’ve either filed or extended their 2015 tax return by March 15 (if they’re a C or S corporation), April 18 (if they’re an individual or LLC/partnership), or May 15 (if they’re a nonprofit).
That said, while it may feel very early in the year, profitable businesses will also need to get a jump start on their 2016 filings.
Was your business profitable in 2015? Is it going to be profitable in 2016?
Businesses that are profitable are responsible for paying estimated tax on their income. Paying this tax correctly and on time will prevent profitable taxpayers from paying tax penalties when they go to file an annual return. When taxpayers underpay on their estimated quarterly income taxes, they may pay penalties even if they receive a refund.
The following date is when the first installment of a taxpayer’s four estimated income tax payments are due:
April 15, 2016 – 2016 First quarter tax estimate due for profitable corporations.
Typically taxpayers will need to provide year to date financials statements unless using the safe harbor method*. Necessary financial statements include a balance sheet and profit and loss statement.
*What the safe harbor method means for federal tax responsibilities:
Safe harbor gives profitable businesses the option to use their prior year tax liability to determine their quarterly tax responsibility. While this is specific to federal taxes, safe harbor rules can vary on a state level. By choosing to use the safe harbor method instead of calculating their payment based on current year profitability, taxpayers end up paying 25% of prior year’s tax each quarter, or, if income was greater than $150,000 in the prior year, 27.5% of prior year’s tax each quarter.
Paying this amount will help taxpayers avoid interest and penalties, but it’s not always in their best interest. In some cases, taxpayers with a much smaller tax liability in the current year as compared to the prior year will end up overpaying. We highly doubt individuals and organizations are interested in giving the IRS an interest-free loan until they claim a refund the following year. If a business’s 2015 tax liability ends up being pretty substantial it’s a good idea to ask a tax professional to calculate the quarterly tax owed each quarter.
Understanding Estimated Income Tax Payments:
While employees who receive W-2 wages have a certain amount withheld from each paycheck, self-employed earners don’t have any withholdings. So unless they make estimated payments throughout the year, they will be liable for the entire year’s income tax when they file their annual tax return. As you can imagine, this can be very cumbersome whether you are or aren’t planning or expecting it. Unfortunately, because of the various tax brackets and additional self-employment taxes applicable to self-employed individuals, calculating how much to pay each quarter can be very complicated, which is what makes the safe harbor method so popular for self-employed earners who don’t have access to tax experts.
Feeling less in the dark already? Let’s keep moving!
The end of quarter one is a great time to refine strategies. With a good chunk of performance data, taxpayers can now look at how Q1 performance measured up against their financial goals for the year. (Use the reports mentioned in this webinar to get started.) From there, planning where to allocate resources (spend and save) can help taxpayers devise what the tax situation will look like for 2016. A few things to consider:
- If my business is profitable, where can I make spending decisions that will lower my taxable income but also generate more business?
- Does it make sense to hire more people or start a new project?
- Are there other business activities I could be doing that will align with my business goals and are also eligible for tax credits?
- OR are there activities my business is already doing that could be eligible for tax credits if I make a few key changes?
Take the time to give these considerations lots of attention, research, and inspection. Talking to a tax expert can give you an outside opinion as well. Need a tax expert? Start here.
Quarter 2 Business Tax Responsibilities for Your 2016 Tax Filing
As with quarter one, profitable business taxpayers must provide a second installment of estimated income tax for 2016:
June 15, 2016 – 2016 Second quarter tax estimate due for profitable corporations.
Taxpayers can still use the Safe Harbor method (did I mention you can use it year-round?), but at this point you may have a better idea whether your taxable income is looking lower than where you were a year before. If that’s the case, you can instead determine your tax estimate and provide the aforementioned financial statements
What Quarter 3, 2016 Tax Responsibilities Mean for Business Owners:
Tax activities pick back up in quarter three, especially for taxpayers who have filed for an automatic extension for their 2015 tax filing. The only date to keep track of for 2016 filing purposes is the due date for the third installment of estimated income tax for profitable businesses:
September 15, 2016 – 2016 Third quarter tax estimate due for profitable corporations.
September 15, 2016 is also the day taxpayers who have requested the automatic 6-month extension** must file their income tax return for 2015 taxes and pay any tax, interest, and penalties they’re responsible for.
**Are there pros & cons to filing an extension?
Timing is everything when it comes to taxes. Luckily, the IRS throws taxpayers a bone each year and lets most business owners and individuals request an automatic six month extension. This pushes back the due date for taxpayers (individuals, corporations, partnerships, etc.) to September 15 or October 15.
This extension of a time to file IS NOT an extension for paying any tax liability due. A business must pay their full tax liability by their original due date or else interest and late payment penalties will apply.
This IRS lifeline should be used to buy enough time to ensure that a taxpayer has everything that their CPA needs for maximum efficiency. If there’s even a slight inkling that extra time would be helpful, filing for the extension as soon as possible is a good idea. After all, if someone was to miss the filing deadline, they might incur penalties, but even if they’ve requested the extension (just in case), filing on time, isn’t an issue!
Think about it like this: if you have a major life crisis you might miss your deadline or file on time, but make mistakes because you’re in a rush. Without filing an extension you’ll face penalties and owe interest on any taxes you missed or weren’t aware that you had to pay. You can ask for those repercussions to be waived, but that leaves you at the mercy of the IRS.
Quarter 4, 2016: What End-of-Year Tax Responsibilities Look Like for Business Owners
Your fourth quarter becomes crunch time. Not only do taxpayers have one final installment to make on their estimated income taxes, but this is also the last stretch of time left to put that tax strategy into action:
December 15, 2016 – 2016 Fourth quarter tax estimate due for profitable corporations.
Whew! Doesn’t it feel good to be done with those for the year?
As the year comes to a close, there’s one date to keep in mind that can add an extra tax-savings punch to your tax saving activities:
November 29, 2016 – AKA Giving Tuesday, the Tuesday that follows Thanksgiving, BlackFriday, and CyberMonday each year.
Giving back is a great opportunity for businesses to enhance their company culture, community impact, and make the most of charitable tax deductions. While the ultimate due date for making charitable contributions that count toward your annual tax return is always December 31, Giving Tuesday helps businesses get about a month ahead of that due date.
This annual holiday has also become a household name among Black Friday and Cyber Monday, gaining enough momentum to establish its own hashtag, #GivingTuesday.
From supporting causes in local communities to nation-wide non-profits, building an end of year giving strategy gives organization an extra boost of good will and by lowering taxable income, making it one of the ultimate ways to spend to save.
Consult this article for the details and limitations to be aware of when giving back and how to make the most of your charitable contributions.
How a Business’s 2016 Accounting Method Matters for Filing Taxes in 2017:
Businesses determine their tax responsibility each year based on their net profit revenue. But this can look different based on the accounting method a business uses, cash or accrual. While this article dives deeper into the comparison of each method and lists the pros and cons for businesses choosing between the two, the tax implication is somewhat simple: At what point does a business need to recognize its revenue and expenses?
Assuming an example featuring two identical companies, each using a different method, this what the difference between cash and accrual accounting looks like:
- The company using the cash accounting method will record transactions at the time payment is received or made (when cash changes hands).
- The company using the accrual method will record revenue or expenses when they are earned, regardless of whether payments have hit or left the financial accounts.
These different methods have respective revenue timing strategies when it comes to taxes:
Cash Basis Taxpayers:
Cash basis taxpayers should review income and expense items before year-end to determine if an item of income can be delayed until the following year or an item of expense accelerated to the current year.
Accrual Basis Taxpayers:
Accrual basis taxpayers should also review their income and expenses. However, in contrast to the cash method, an essential point of having accrual financials is to show what actually happened so they are much less manipulatable. It doesn’t matter when payment was made or when invoice issued, it matters when value is earned.
How you may be able to save: Remember that any spending that you do once the year is over in retrospect of activities that took place in the tax year can still be applied to that year’s tax return (we’re looking at you, holiday bonuses – See below).
With that there’s one year of tax responsibilities down, now all that’s left is the actual process of filing your 2016 tax return in 2017. The question then becomes: Which 2017 dates should business owners know about when planning for their 2016 filing?
Welcome to the Year 2017: Time to File Your 2016 Tax Return
You’ve made it! Here’s hoping your comprehensive business tax strategy helped you maximize your deductible activities in 2016, but there’s one last way to save in 2017 before you file:
How Employee Bonuses Help Lower Small Business Taxes
Many businesses pay bonuses based on performance or results. These bonuses are deductible when paid or accrued. This is where a business’s accounting method comes up again: Cash-basis taxpayers must pay out bonuses before year end to take a current year deduction. Accrual-basis can either pay or accrue before year end. Accrued bonuses must be paid out to employees within 2 ½ months of the end of year end to claim a deduction for the current year (otherwise, you can claim it next year).
2017 Tax Deadlines for 2016 Tax Filing:
Taxpayers should be aware of the following dates and deadlines that pertain to their business:
March 15, 2017 – Partnerships and S Corporate tax returns are due.
April 18, 2017 – C Corporation tax returns are due.
September 15, 2017 – This is the final deadline for extended Partnerships and S Corporations.
October 16, 2017 – This is the final deadline for extended C Corporations (and individuals).
Does something look different in 2017?
If you’ve filed a business tax return in the past, you’ll notice an interesting change for the 2016 tax year is the modified due dates for LLCs and corporations.
Historically, corporations were due March 15 and partnerships were due April 15. But starting with the 2016 tax year, (returns due early 2017) the deadlines will flip with C corporations being due April 18 and partnerships being due March 15.
This change actually makes more sense, intuitively: Both S corporations and partnerships are flow through entities, while C corporations are completely separate entities from their owners. Changing the due dates so both partnerships and S corporations (the flow throughs) are due March 15 gives the individual owners of those entities one month to use the tax information from the entity filing for their individual income tax returns, which is due in April (per usual).
It also makes more sense for the C corporation returns due date to be in April because there is no flow through aspect of C corporations, so that corporate tax filing is not necessary prior to filing the shareholders’ individual tax returns.
Do the dates of tax deadlines change often?
Tax deadlines never fall on a federal holiday or a weekend. If the normal due date is on one of those dates the actual due date will be the following business day. Weekends vary year by year, but Emancipation day (A federal holiday rarely even known by most people but is a federal holiday) is another federal holiday to be aware of.
This holiday always falls sometime in the middle of April and often falls on April 15 (the tax deadline for corporations for the 2016 tax year).
Aside from due dates, there are a few other timelines to be aware of when filing business taxes:
Taxpayers should also be aware of the dates that aren’t income tax filing deadlines, but will impact their tax liability. Use these questions to determine the dates to add to your tax checklist/calendar:
Did you start a business this tax year?
If yes, make sure you know the date that entity began operating as a business. Most costs incurred before beginning business are not currently deductible. However and with certain exceptions, these costs must be capitalized and deducted over 15 years.
Did you stop doing business this tax year?
Be aware of the date your business officially terminates (stops being in business). All transactions should be accounted for and all filings completed before the dissolution of the business. In this case, the entity will file a short year return. In these cases, the businesses are only responsible for filing a tax return for the time they conduct business that year.
When are your insurance premiums due?
Don’t forget to keep up with the due dates for insurance payments (e.g., health insurance and liability insurance). Failure to pay premiums on time could result in coverage lapsing.
Did you receive a notice from a tax authority (IRS or state)?
Any federal or state tax notice usually has a deadline by which the taxpayer must respond. Be aware of these deadlines and respond promptly. But also, don’t freak out! Here’s what to do if you receive a notice, whether it’s for a correction or an actual audit.
These questions are examples of a few different items a tax expert will want to know about a company when they prepare their return. They will also want to learn more about a business’s basic company information, entity/incorporation details, ownership information, foreign activity, and more which will allow them to identify areas the IRS will want to know more about.
To get that conversation started and accelerate communication, business owners can use this workbook to fill in those essential details of their business, their CPA will take it from there!
Build Your Own 2016 Tax Return Calendar
Once a taxpayer understands what each filing date means in regard to their tax responsibilities, they can begin to build their own calendar. This list pulls together the dates mentioned above. Now that you’ve made it this far, be sure to add the dates that make the most sense for you to your own calendar:
2016 Tax Filing Deadlines to Add to your 2016 Calendar:
-
April 15, 2016 – 2016 First quarter tax estimate due for profitable corporations.
-
June 15, 2016 – 2016 Second quarter tax estimate due for profitable corporations.
-
September 15, 2016 – 2016 Third quarter tax estimate due for profitable corporations.
-
November 29, 2016 – #GivingTuesday
-
December 15, 2016 – 2016 Final/fourth quarter tax estimate due for profitable corporations.
-
Due dates for your insurance premium payments
IF APPLICABLE:
-
The date you started doing business
-
The date you ended your business
-
Deadlines for any notices from the state/IRS
2016 Tax Filing Deadlines to Add to your 2017 Calendar:
-
March 15, 2017 – Partnerships and S Corporate tax returns are due.
-
April 18, 2017 – C Corporation tax returns are due.
-
September 15, 2017 – This is the final deadline for extended Partnerships and S Corporations.
-
October 16, 2017 – This is the final deadline for extended C Corporations (and individuals).
