As tempting as it might be to leave your business tax returns for the year until the bitter end, this almost always results in more stress than anything else.
The truth is, taking a proactive approach to your business tax returns will pay off in several ways, and we're going to tell you about them in this post.
For one, it can help you avoid penalties and interest charges from the IRS. The IRS imposes a failure-to-pay penalty of .05 percent per month on the unpaid portion of your business tax return, up to a maximum of 25 percent.
So, if you can pay your business taxes on time, you can save yourself some money in penalties and interest charges.
It can also help you avoid penalties from your state or local government. While the specifics vary from state to state, most states have some sort of penalty for late business tax payments.
For example, New York State imposes a penalty of five percent (up to 25%) on late business tax payments, plus interest charges.
Another reason is that it gives you a chance to see how much money you have to work with for the year.
(There's also a lot of benefits to accurate cash flow forecasting that we cover here)
This can be helpful in many ways, including helping you plan for future business expenses. Quite simply, when you have more clarity about your books and your finances, you can make better decisions for your business. For example, you may decide to invest in a new piece of equipment if you know that your business is doing well and you have the capital to spare.
(Financial clarity is also helpful for determining how much tax business owners should be paying versus withholding. Learn more about that here)
Another important reason to take a proactive approach to business tax returns is to reduce your audit risk. The IRS tends to focus its attention on businesses that seem to be following the rules, so making sure everything is in order can make you less likely to be audited. This doesn't mean you're guaranteed to avoid an audit altogether, but it does put you in a better position.
(Read about being audit-proof in this post)
Be proactive in your business tax return preparation, and get your refunds as quickly as possible. The IRS wants to issue all refunds within 21 days of receiving a complete return, but only if you submit all the necessary information. By doing so, you'll avoid any delays and get your refund as quickly as possible.
Here are a few good reasons to take a proactive approach to business tax returns. By doing so, you can avoid penalties and interest charges, get a better understanding of your business finances, and get your refund faster. It can also help reduce your audit risk. So, if you're not already taking a proactive approach, now is the time to start.
Two Roads offers many financial services for small businesses, including taxes. And we can help! We have the expertise you need from minimizing taxes to tax preparation year-round (not just at tax season!).