Fall Tax Checkup for Small Businesses

 In Tax Filing, Tax Planning

Small business owners may not know that fall is a pivotal season in which several tax considerations need to be made. Here are some questions that small business owners should consider now that we are beyond Labor Day and the end of the year is approaching.

Did You File Your Taxes?

While the typical income tax filing deadlines are March 15 for pass-through entities (S Corporations and Partnerships) and April 15 for taxpaying entities (individuals and C Corporations), for taxpayers who have filed timely extensions before their original filing deadline, fall holds important tax filing deadlines as well. For taxpayers who have filed an automatic six-month extension, the filing deadlines for those entities are September 15 for pass-through entities and October 15 for tax-paying entities. If you do not file your return by those dates, failure to file penalties can be hefty.

Many taxpayers who are partners in a partnership or S Corporation shareholders are surprised to learn that failing to file their pass-through entity’s tax return results in a penalty from the IRS of $210 per month (or part of a month), per partner or shareholder, for up to 12 months. These taxpayers are often of the mistaken belief that because pass-through entities (Partnerships and S Corporations) do not pay income tax, if the return is late, then it doesn’t matter. But this could not be farther from the truth! The reason these penalties are hefty makes sense. If the IRS does not have these returns, how are they to determine the tax obligations of the individual owners?

As a taxpayer representative, throughout my career, I have been contacted by several taxpayers who did not file pass-through entities on time, and penalties are almost always in the thousands of dollars by the time they contact me. While I have been able to assist some of these taxpayers in reducing their penalties in many cases, taxpayers who make late filing a habit are oftentimes disappointed to find that the remedies are significantly less and harder to achieve the more it appears that the taxpayer is simply choosing not to make tax compliance a priority.

Also, consider that the state(s) in which individuals and entities conduct business may also impose their own failure to file penalties. So, if you filed an extension earlier in the year, definitely double-check whether you have filed your final returns yet, and if not, be sure to begin that process as soon as possible to ensure you can meet the extended filing deadlines, if applicable.

Did You Pay Your Taxes?

Filing your taxes and paying your taxes are two different things, and failure to do one or both of these results in two different penalties that may be assessed by the IRS and state departments of revenue. If you are sure that you filed your taxes by the original or extended tax filing deadline, be sure to double-check whether you owed any money with the forms, and if so, whether you have already paid any balances that were due.

If you have not paid your taxes and cannot afford to do so, definitely do not run and hide from the IRS or state departments of revenue. Sometimes remedies are available that can make the situation manageable by contacting the relevant agencies or hiring a taxpayer representative to do so on your behalf. Your available remedies will depend on the facts and circumstances of your case.

Are You Caught Up with Current Year Estimated Tax Payments?

Most small business owners are required to make estimated tax payments throughout the year if their entities are profitable. Generally, if you have a pass-through entity, those payments are made by the individual. If you have a tax-paying entity, those payments are made by the individual or the C Corporation. However, every state is a sovereign entity with its own tax laws, and in some states, pass-through entities may be required to make estimated tax payments as well, even if they are not subject to tax by the IRS. So, definitely determine what your quarterly tax payment obligations are for yourself as an individual, and your entity as well, with regard to federal and any/all states that are applicable. Typically, the third of the four quarterly estimated tax payments is due on September 15, so if you haven’t paid anything in yet at this point in the year, it is definitely a good idea to take a look at what your tax preparer may have put together for you at tax time, or better yet to contact him or her now and ensure that you are not well behind what should be paid in by third quarter.

Is There Anything You Can Do to Reduce Taxes This Year?

Many taxpayers check in with their CPA or Tax Attorney only at tax preparation time, and in cases like that, taxpayers oftentimes ask (upon looking at their already-prepared return) what can be done to save taxes. By that point, it is oftentimes too late to do anything to reduce taxes for the tax return they are looking at. Many optimal strategies for tax savings must be incorporated before the calendar year ends (or before the relevant transaction(s) commence) and others must be incorporated before the tax filing deadline. Your CPA or Tax Attorney is generally not going to be able to help you put those things in place with a looming deadline on the horizon as it takes time, discussion, gathering documents, and oftentimes data and cooperation from third parties to put these strategies into effect. However, there is always planning for the next tax year, and fall is a great time to do that. Be sure to check in with your CPA or Tax Attorney before the end of the year, with as much time remaining in the year as possible, to set up a tax planning engagement if you would like to optimize your tax savings before the year comes to a close.

Thanks for reading this article! If you need assistance with getting past due returns filed, penalty abatement, or tax planning before the year ends, feel free to contact me using the form below.

 

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