This is a true story of someone we know regarding corporate taxes and why it’s important to file them.
This particular person has some interesting breaks that most people don’t get. He’s retired from the military so he gets tax breaks. He’s also retired from a state job so he gets a few other breaks. He gets his military pension and is only a couple of years away from adding his pension from the state, as well as going on Medicare.
He’s also in business for himself, a S-corp instead of a C-corp, a photographer as well as doing a few other things to make money. He’s not rich by any means, but being incorporated and former military, he qualifies for a lot of tax breaks.
The problem? Because he knew that if he filed his taxes he would qualify for a refund, he didn’t file on time, figuring that any penalty would be taken out of his refund. He was good with that. He was so good with it that he went more than 2 years without filing. He told his accountant to file an extension for him, figuring that would alert the IRS and the state that he wasn’t ignoring them. Yet, he never made a payment and didn’t pull his papers together for his accountant for more than two years.
When he was finally ready and had everything together, his accountant wasn’t ready. It was after tax season, but accountants do more than taxes. So he had to wait another month before his accountant could look at his paperwork.
What happened? My was partially correct. Because of all his tax breaks he basically “pushed”. In other words, he didn’t get a refund because of the lateness but he didn’t owe much either; around $25. That sounds like a pretty lucky deal doesn’t it?
It wasn’t. Turns out there are penalties for not filing one’s corporate taxes. After 60 days, there’s an automatic $100, and it’s added monthly. On top of that are penalties and fees that can eventually reach 47.5% interest, especially if personal taxes weren’t filed either; unfortunately, these things usually go hand in hand.
This guy went from the possibility of a refund to owing the IRS more than $5,000, and the state more than $2,200. His accountant filed the taxes finally, but he wasn’t in a position to pay even a small portion, let alone the full amount.
Luckily, both the state and the IRS allows you to get on a payment plan, which he’s going to do. He’s also planning on making sure to file his taxes next year to take advantage of his tax status, but unless he’s fully paid up he’ll end up with the state and federal government keeping whatever he might have gotten back.
It’s a double edged sword when it comes to paying one’s taxes, even if you know you’re getting a refund. We can’t stress enough how important it is to at least file your taxes on time so you can avoid penalties, whether you owe or not. The penalties are never worth it, as this gentleman realized.