WHILE FOR SOME business owners filing their federal tax returns can certainly be a chore, this is one obligation you’d better not sweep under the rug.
If taxes are owed, business owners who delay filing their federal tax returns past the due date may face penalties and interest charges that could increase their tax bills by 25% or more, according to the Internal Revenue Service. For back taxes, the IRS can go after your business’s assets and — depending on what entity your business is formed as and type of taxes owed — they can even seize personal assets for business-related tax debts.
But even business owners who don’t owe any taxes may face consequences for not filing on time. For instance, they won’t receive credits toward Social Security retirement or disability benefits until they file. Plus, if they’re owed a refund, it’ll be forfeited unless they claim it within three years of the return due date.
If filing on time — that is, March 15 for corporations and April 15 for other businesses including sole proprietorships, partnerships, limited liability companies and S corporations — isn’t possible, get familiar with your other options.
Here’s a look at plan B:
Get an extension.
There are two reasons business owners fail to file on time, says Mark Luscombe, a principal analyst for the tax and accounting group at CCH, a unit of Wolters Kluwer. “You’re missing it because you don’t have the information together on the return or you can’t afford to pay the tax, ” he says.
If you know you won’t have your paperwork together on time, file for an extension , suggests Robert Caplan, a Foster City, Calif., accountant. Doing so before the initial tax deadline will generally provide business owners a six-month window — that is, Sept. 15 for corporations and Oct. 15 for other businesses — to get affairs in order, he says. Keep in mind that once the first deadline to file passes, so too does your opportunity to file for an extension.
And even if you do file for an extension, if taxes are owed, interest and penalties will continue to pile up, on top of the unpaid balance. However, with that extension, you’ll avoid the late-filing penalty, which is generally 5% per month, up to 25% of the amount due. For more on penalties, read here .
Find a way to pay.
Not having the right documents, such as Schedule K1s and 1099 forms, can cause some business owners to file late. However, often owners simply lack the funds to pay. In this situation, consider charging your tax bill. This way, says Caplan, you’ll avoid the penalty for failure to pay, which is 50 basis points (half of 1%) per month up to 25% of the unpaid amount due.
While using credit cards to pay down your tax bill can keep Uncle Sam at bay, credit-card companies typically tack interest charges on to unpaid balances. Additionally, there may be late-payment penalties and rate hikes if you miss a payment. Despite these costs, paying with plastic can offer some benefits. For instance, MasterCard offers consumers that pay taxes with a MasterCard card incentives such as airline miles and loyalty points. For more on paying taxes with plastic, click here .