3 reasons to knock out your taxes this week
5 min read
May 26, 2022 • Block Advisors
The tax filing deadline for 2021 was Monday, April 18, 2022, and has come and gone. If you were one of the estimated 15.2 million US taxpayers to request a filing extension, the October 17, 2022 extended filing deadline may feel a lifetime away. Or perhaps you missed the extension request deadline entirely and are wondering ‘what’s next?’
If you’re feeling overwhelmed, you’re not alone. It’s completely normal to feel overcome at the prospect of wading through the tax filing process as a small business owner, entrepreneur, or creator.
Block Advisors is here to encourage you to wrap up your 2021 tax season sooner, rather than later. Even if you filed a tax extension elsewhere, you can finish with us! Below are three excellent motivators to meet with a Block Advisors tax professional ASAP to finish what you started.
#1 Every day you delay costs you and your business.
You probably know it can be costly to skip out on filing your business taxes. But even if you have every intention of turning in the paperwork and paying what you owe, sometimes you can’t file by the tax filing deadline. Ideally, you’ve already taken the necessary steps to submit a filing extension using IRS Form 4868 or IRS Form 7004 and made a good-faith payment towards your estimated taxes or set up a payment plan. If you haven’t started your federal tax return at all, it is even more important to wrap up your taxes ASAP.
Why? Two words: Penalties and interest.
The IRS will assess a Failure to File Penalty if you missed the filing deadline and did not request an extension. The penalty is 5% per month of your unpaid balance, to a maximum of 25%. There is also a Failure to Pay Penalty of 0.5% per month (also to a maximum of 25%) of the unpaid balance. Interest is charged at the federal short-term interest rate plus 3% (the interest rate on underpayments is currently 4% and goes up to 5% starting July 1).
Note that the monthly late filing penalty is 10 times higher than the late payment penalty (5% vs. 0.5%) – another reason to file as soon as possible if you missed the deadline and don’t have an extension, even if you can’t pay the balance due just yet. If you make arrangements with the IRS to pay your balance, such as through an installment agreement, the Failure to Pay Penalty drops to 0.25% per month. Block Advisors can work alongside you to set up these arrangements with the IRS.
Even if you’re not expecting to owe Uncle Sam this year, you may still need to file an individual income tax return. The IRS can assess non-filing penalties on corporations and partnerships that don’t file returns, even if the business does not have a balance due.
According to the IRS, taxpayers potentially lose close to $31 billion in assessed penalties each year. Around $7 billion of that is levied against individual taxpayers and others for failure to pay. Read more about how to address IRS penalties on your business return.
At the end of the day, the longer you wait to file your business return, the more you are at risk of being subject to these pricey fees. Plus, it means waiting longer to secure every tax credit and deduction available with the help of your Block Advisors tax pro.
#2 Stabilize your company’s cash flow, streamline financial planning, and prevent identity theft.
Finishing your taxes is crucial to your business’ year-round financial health. It can provide insights into your estimated taxes for next year. The impact of being able to predict future cash flow is clear when it comes to business and personal finance decision-making.
Wrapping up your tax filing is also a critical piece of finalizing your tax record if you plan to grow your company in the future or apply for personal or business loans, mortgage loans, or financial aid. Financiers often ask business owners to provide copies of their tax returns as proof of income to qualify. Self-employed individuals and independent contractors are especially likely to receive a request like this since they lack W-2 Forms and pay stubs to verify their taxable income.
Finally, filing your taxes protects your identity. Someone else may try to file using your TIN or EIN if you haven’t filed. It happens more than you might think. In recent years, the number of federal income tax returns with confirmed identity theft has ranged between approximately 600,000 and 1.4 million returns according to the IRS. Finishing your filing will prevent this from taking place or give you a heads up to start the recovery process if someone attempts to steal your identity.
#3 Move forward on the right foot.
If your entity is structured as a pass-through business, partners and S corp shareholders are unable to file their personal returns until the business return is filed. Holding off on your business return can keep you and your company stuck in the past tax year. And, as explained earlier, your business could be hit with non-filing penalties even if you don’t have a balance due.
Furthermore, completing your filing gives you a good snapshot of your business finances from your Profit and Loss statement (See: How a P&L statement provides business insight). When you have a complete understanding of your business books, you are empowered to focus 100% of your attention on the future of your company, rather than the past.
Lastly, having a tax form record is important for moving forward in personal matters as well. You may need to share your business and personal income tax records during divorce, child support, or other hearings.
Get tax and bookkeeping assistance year-round.
It’s best to address late tax return filing sooner rather than later to get your business bookkeeping back on track and optimize your tax position for the calendar year. Even if you filed a tax extension elsewhere, you can finish with Block Advisors.
Connect to a Block Advisor certified small business tax pro in your neighborhood today for help finishing your taxes ASAP.