For a business, it’s vital to know when taxes need to be filed and paid. Having said that, it’s possible that a late filing or a late payment might occur from time to time.
While it’s best to avoid this at all costs, if it does happen, what are the consequences?
There are two situations here. First we have filing your taxes at the correct time, but missing the payment cut-off date. In this case you would have to pay the owed balance, and you would have to pay interest on that amount. If you file your taxes late, the situation gets more complicated. You would then have to pay a penalty for filing late, you would have to then file your taxes ASAP, and you would have to pay interest on the balance of tax you owe.
It’s worth avoiding both situations, but filing late is the more costly and difficult to sort out of the two.
Let’s explore a few examples, just to make it a bit clearer.
Filing Your Personal Income Tax & Corporate Income Tax Late
In this situation, you would pay a penalty for filing late of 5% of your tax amount, and you would have to pay 1% of your amount for each late month (up to 12 months maximum). So, if you are filing taxes of $100,000, and you’re late by just one month you’ll have a $600 penalty straight out of the gate, before the interest amount. For just one month, that would be around $44 extra, but remember that interest rates fluctuate.
If you happen to be late again, your penalty and charges will be more the next time.
Filing Your Sales Tax Late
It’s harder to calculate penalties for late sales tax filing, but you can get a general idea. A 1% penalty of your owed balance begins the process, and then an extra 25% of the penalty is paid for every single month you are late filing.
As you can see, it’s really not worth being late if you want to avoid unnecessary charges in an economy which is tight enough as it is!
Avoiding Late Filing Penalty Charges
Make sure that you know 100% when your filing needs to happen by and do not miss the deadline. It’s that simple.
If you have special circumstances which you know about, i.e. you simply know you’re going to be late filing, estimate how much you think you’re going to need to pay and pay that amount before the final deadline.
If you’re strapped for cash, you could opt to file and estimate. This isn’t a good choice, but as a worst case scenario it is better than not filing at all. This means your return will be filed before the deadline, and then when you have sorted your finances out, you can submit an amended return. If you find that you owe extra, you may owe a little interest on top.
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- Written by: Jag Bath