This guest post is brought to you by Melissa Hollis at inDinero
There are two keys to avoiding tax penalties—having a solid year-round accounting system and being on time. While this article is primarily about the latter, I’d be remiss if I didn’t emphasize that creating and following good, clean accounting and bookkeeping practices regularly. Establishing a process early on makes a world of difference allowing you to be strategic about your taxes rather than just keeping as many receipts as you can fit in a shoebox and dropping them off at your local CPA’s office come tax season.
How you handle income taxEither way, building a simple but structured annual calendar for both your business and personal tax returns can help you stay organized and avoid paying more than you have to.
The expensive consequences of missing an income tax deadline
Simply put, if you do not pay your tax liability by your original return due date, you’ll get hit with three penalties at once:
- Late payment penalty: typically ½ of 1% of your unpaid income 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 income taxes for each month an income tax return is late. This penalty starts to accrue the day after the income tax filing due date and will not exceed 25% of the remaining tax liability.
Although somewhat counterintuitive, this is still the case even if you’ve extended your filing due date. You’re expected to estimate your tax liability and pay what you can in good faith. So in addition to your business’s extension deadline, you’ll also still need to mark your calendar for the original due date. You’ll determine these dates based on your type of business entity and fiscal year.
If you haven’t already heard, the income tax deadlines look a little different in 2017
Those who have filed business tax returns before will notice what’s been causing a bit of a buzz in the CPA universe. Starting in 2017, partnerships, who used to submit tax returns by mid- April (at the same time as individuals filed their returns), will now file in mid-March with other businesses. Conversely, C corporations who used to submit tax returns by mid- March will now file in mid- April.
January 31, 2017
- All businesses must file payroll forms: Mail in payroll forms for all employees (W-2s, W-3s, 940, 941) and any contractors who you paid $600.00 or more (1099-MISC).
February 28 or 29, 2017
- All businesses must submit an annual returns summary to the IRS using Form 1096.
- Companies incorporated in California with locations/employees in San Francisco county file San Francisco Payroll Tax Report
March 1, 2017
- Companies incorporated in Delaware file annual Delaware report and pay the franchise tax.
March 15, 2017
- Partnerships and S Corporation pay and file their federal and state tax returns using Form 1065 and 1120S, respectively, or pay and file for the extension.
- Last day to pay employee bonuses for 2016 performance (for business who use the accrual method of accounting).
April 17, 2017
- C Corporation and Sole Proprietorships pay and file their federal and state tax returns using Form 1120 or Schedule C of Form 1040, respectively, or pay and file for the extension.
- Last day to make a 2016 contribution to a traditional or Roth IRA.
May 17, 2017
- Tax-exempt organizations file an informational tax return using Form 990, or file for the extension.
- Companies incorporated in Texas file annual report and pay the franchise tax.
June 15, 2017
- Companies, partnerships, and individuals that have a foreign financial account with more than $10,000 must file an FBAR (Foreign Bank Account Report) report.
September 15, 2017
- The final deadline for extended Partnership, C Corporation and S corporation to file tax returns.
October 16, 2017
- The final deadline for extended individual returns.
These dates are based on the use of the calendar year (starting January 1 and ending December 31) as a business’s fiscal year. If your business does not use the calendar year, consult this article to learn which ways an alternative fiscal year can affect your business taxes, and how you can adjust your tax return calendar.
Why did they switch the partnership and C Corporation due dates? And why does this help?
This change to the partnership tax return deadline ultimate helps the partners of that company the most. Because partnerships must take care of their filing responsibilities in March, there’s a whole extra month left for them to distribute information their partners may need for their individual returns in April. In a partnership, every partner must receive a Schedule K-1 disclosing their earnings for the year—similar to a W-2 for an employee. In turn, the partner must claim those earnings as income or lack thereof as losses on their tax return.
There’s still time to save time and money on business taxes, with the right strategy
It’s probably not shocking that most of the questions we get from small business owners revolve around saving money on taxes. And fortunately for them there are many ways small businesses can lower their income tax liability.
To get started we’ve put together The Entrepreneur’s Tax Pack of three key resources for a pain-free tax season. This packet includes a checklist for claiming deductions, a workbook for organizing information you’ll need for your return, and a comprehensive guide of strategies you can implement to avoid potentially painful fees and penalties.
Do you have questions about a specific tax deadline or how it pertains to our business taxes?
Feel free to comment below (or contact [email protected] if it involved more sensitive information)!