Pay Business Taxes on Time—Even If You File for an Extension

 

We talk a lot about tax deductions and credits on this blog. From home offices to bonuses to charitable tax deductions, there are so many ways to help our clients save on taxes! So it can be easy to forget that so many small businesses overpay each year just because they miss their tax deadlines.

Never miss a deadline when you use this guide to build your own 2017 tax calendar.

The IRS really wants you to file and pay your taxes on time. The penalties for not doing so quickly add up:

1. Late payment penalty

Typically ½ of 1% of your unpaid taxes, per month

2. Interest on taxes owed

The federal short-term rate plus 3% with interest compounding daily

3. 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.

 

Not all of these penalties are the same. For most businesses, the late filing penalty is the big one. Fortunately, the IRS allows businesses and individuals to file for an extension. This gives you an extra six months to get your books in order, work with a CPA to claim all the tax deductions and credits available to you, and file your taxes.

 

The tax filing extension is NOT a tax payment extension

Your deadline for paying and filing (or filing for an extension) is determined by your entity type and your fiscal year and cannot be extended. Use this chart to see when your taxes must be paid.

TaxDeadlineCalendar.png
By all means, file for an extension. But also pay your taxes by the original deadline to avoid the late payment penalty and interest on taxes owed.

You may be asking yourself, “How do I know how much taxes I owe if I/my CPA hasn’t filed my forms?”

Estimate. And pay what you can. Even if you’re under, you will only pay interest on the remaining balance, and, in certain cases, you may avoid the late payment penalty. But even if you can only pay a small fraction of the amount you owe, you’ll be demonstrating your good intentions.

Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. indinero assumes no liability for actions taken in reliance upon the information contained herein.

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Summary

This article explains the IRS penalties for late business tax payment and filing, including a late payment penalty of ½ of 1% per month, interest at the federal short-term rate plus 3%, and a late filing penalty of 5% per month up to 25%. It clarifies that filing for an extension only extends the filing deadline, not the payment deadline, and advises businesses to estimate and pay taxes by the original due date to avoid penalties.

Key Facts

Frequently Asked Questions

What is the late payment penalty for business taxes?

The late payment penalty is typically ½ of 1% of your unpaid taxes per month.

What is the late filing penalty for business taxes?

The late filing penalty is usually 5% of the unpaid taxes for each month or part of a month that a tax return is late, starting the day after the due date and not exceeding 25% of unpaid taxes.

Does filing for a tax extension also extend the time to pay taxes?

No, a tax filing extension is not a tax payment extension. Your deadline for paying taxes is determined by your entity type and fiscal year and cannot be extended.

How do I know how much tax I owe if I haven't filed my forms?

Estimate your tax liability and pay what you can by the original deadline. Even if you underpay, you will only pay interest on the remaining balance, and in certain cases you may avoid the late payment penalty.

What is the interest rate on unpaid business taxes?

Interest on taxes owed is the federal short-term rate plus 3%, with interest compounding daily.

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