The idea that you have to pay income tax on business income even if you operate on a cash basis is a common misconception that people have. This is because most people don’t realize that it is often referred to as ‘deferral.’
Do you know how much income tax you pay? Most of us pay income tax in some form (either through the individual or business tax systems), but the only way to know how much tax you pay is to calculate it. This is where most people get stuck; they don’t know how to do the math!
Businesses are supposed to pay their income taxes on time by the end of the filing period. It is for this reason that they tend to hire a financial advisor from Avior Wealth Management (or a similar company) that can formulate various tax strategies. However, sometimes a business is unable to do so, and the IRS is not always able to get the money from the business. Why? The law allows the IRS to impose penalties for late or underpayment of taxes by a certain dollar amount. Some of these penalties are automatic, given by the law, while others are negotiated with the IRS on a case-by-case basis.
Many people do not pay their share of the income tax, and even if they do, they often end up in trouble with the IRS when they are audited. It is important to understand how the tax system works to avoid these situations. Those concerned about their business can read more on this topic to make themselves learned. Meanwhile, taking the assistance of a reputed financial advisor similar to Lincoln Frost, perhaps could be of help. That being the case, this article will look at the rules for non-payment of business income tax and the consequences of not paying your fair share.
What are the penalties if you don’t pay the business income tax on time?
If you don’t pay the business income tax on time, there are extra tax penalties. In a nutshell, if you owe the tax by the April 17 tax return due date, the IRS will assess a late payment penalty of 5% of the tax owed per month, up to a maximum of 25%. The late payment is based on the due date of your return, so if you don’t file on time, it will increase every month. If you file an extension, the penalties will also be assessed.
If you don’t pay the business income tax, you may be expecting a refund. The IRS’s E-file system allows you to file a tax return electronically, but some taxpayers still find it difficult to get their taxes done. Part of this is due to the penalties if they don’t pay on time, which can include a failure to file penalty, a failure to pay additional, a failure to pay interest, and a failure to pay the late filing fee. In addition, the IRS will also try to collect any tax due using other methods, such as levies on bank accounts, liens on property, and levies on income.
Here’s a silver lining for you though. Income taxes are inevitable, but the amount of taxes you end up paying can vary significantly if you are smart about them, or if you know how to hire smart people. A good financial adviser, for example, would be able to give you the most efficient strategy with regard to your taxes, so you’re not paying more than you legally have to. You can find various types of financial advisers on financialadvisers.co.uk or websites of similar nature pertaining to your location.
Frequently Asked Question (FAQ)
What do I do if I can’t pay property taxes on my business?
As a business owner, you need to prepare for many possible possibilities. What will happen if you get sick or your company’s sales don’t meet expectations? Is it time to lower your prices? Will you go into debt to pay for a family vacation? The answer to all these questions is taxes. You must pay business income tax on your profits, whether you have to or not.
If you own a business, it is difficult to ensure that you are correctly paying your taxes if you do not have a specialist skilled in accounting services on staff. Secondly, many firms do not pay taxes because they do not know how or do not produce enough money to justify the effort. Others have their taxes incorrectly calculated owing to ignorance or mistaken confidence in the accounting business.
Can you go to jail for not paying business taxes?
If you aren’t paying taxes on your business income, you may soon find yourself at the mercy of the IRS and the local tax authorities. The first thing to understand is that it’s not a crime not to pay taxes. It’s also not a crime to not file your taxes or minimize your taxes if you are a business owner. However, it is a crime not to pay taxes, intentionally not paying. The penalty for that crime is a prison sentence. The more serious and more likely, penalty is to have all your assets seized, including your business, and you will have to pay back your tax gap.
If you don’t pay your business income tax, it is not the end of the world. Yes, it will cost you money, but it will not cost you your company. For a business, the costs are easy to calculate: the amount of the tax, plus the cost of having to hire an accountant or consultant to pay it. With the proper taxes in place, a business can continue operating without these costs.