Is Filing Small Business Tax Returns Late the End of the World?
Filing small business tax returns late can feel like a total disaster. Here’s what happens if you’re swept up and it happens to you.
We all remember the Mayan ‘end of the world’ prophecy for 2012. But one date can instill the same amount of dread when you’re a small business owner: your tax filing deadline. And the penalties for filing late can mean figurative financial tsunamis, red skies, and earthquakes for your business.
Of course, it’s unlikely that the earth will crack open and swallow your business if you’re late filing your taxes (not impossible, but very, very unlikely). But the penalties for not filing on time can certainly feel like the Riders of the Apocalypse are riding in.
Paying any taxes your business owes isn’t necessary until September 1 (this year only because of COVID-19), but you’ll still need to file on time so you can tell those four shifty-looking characters and their horses to get off your lawn. If you haven’t filed your small business taxes by your due date (see below) the monetary penalties you can face can give your business a very hard time, especially when you’re grappling with current events that sometimes don’t feel that far off from the fictional scenarios we’ve mentioned.
So, what’s my due date?
The first part of surviving the “apocalypse” is to figure out where the safe places are. That means determining which tax filing deadline applies to you and your small business.
If you’re self-employed or a sole proprietor, the ark has already sailed: the due date for filing your taxes is June 15th and has not been changed due to the pandemic. However, you don’t have to pay your taxes until September 1.
If your business is incorporated, your survival plan is a little easier. The CRA will allow you to delay filing your T2 tax returns until September 1, 2020, if you otherwise had to file by June, July, or August of the same year. The same applies if your business has a year-end from September 18 to December 30th.
What if I don’t owe the CRA anything?
Oh no. We’ve all seen that movie with the guy who insists nothing bad is going to happen and there’s no urgency. Then he gets eaten by a dinosaur. Don’t be that guy!
Absolutely file on time, even if you don’t think you owe the CRA anything for the past tax year. If you file late, there’s always the possibility that the CRA could find an error in your tax return and charge you a penalty. And if this happens, you can be charged the late-filing penalty on top of what you now, unexpectedly, owe.
What’s the damage for filing late?
Apocalypse survival tip: don’t be late to the safe zone, or the zombies will start nibbling on your toes. The same goes for your small business. When you file late, expect to pay a penalty of 5% over what you already owe. And for every additional month that you’re late filing, you can expect to pay another 1% for up to 12 months.
You’ll also have to contend with paying daily interest on the amount you owe and you might even suffer from additional fees if you’ve been late filing during the past three years.
Dishonesty doesn’t pay
No one likes the hoarder in disaster movies, and the same applies to the CRA. It’s always best to share supplies (in this case, taxes) to ensure that everyone has enough to survive. Not doing so has consequences, in disaster movies and in real life.
Making any false statements on a tax return can result in a penalty of half the understated tax, or at least $100.
Failing to report income of at least $500 for any tax year can mean that your small business will have to pay a penalty of 10% of the amount you failed to report, and half of the difference between understated tax that would have come from the amount you failed to report. You’ll also have to pay half of the tax withheld from the income you failed to report. And if you failed to report income for more than one year, the amount could go even higher.
However, redemption is always possible: telling the CRA about any income you failed to report might result in lower penalties.
If you’re in need of a bookkeeping Indiana Jones type that can help keep your small business afloat all year round, contact us today.