Late With Your Taxes? Time to Get an Advisor
Avoid Penalties and Interest, Have a Professional Do Your Taxes
Apr 15, 2009
It’s tough to get records together, have a job or run a business, spend time with the family, and still make the extra time every year to do taxes. Filing income taxes late means that there are penalties and interest on top of those penalties. Most people who don’t use a professional do so in order to avoid the expenses of the accountant or tax filing agency.
What Does It Really Cost You to File Late?
One of the worst things to do is ignore the IRS (or CRA in Canada). Currently, there are penalties of 5% of any tax owing for federal US taxes for every month the return is late (max 25%), plus interest of 3% compounded daily; 5% of any balance owing plus 1% of the full balance owing for each full month the return is late (maximum 12 months) in Canada. This will double if a return was late in any of the previous three years. In Canada there is also 5% interest (compounded daily) on late taxes.
Yet, when filign on time there is interest of 0.5% per month on any outstanding amounts owed for US taxes and 5% compounded daily for Canadian taxes (this can change every three months). That’s a lot! But at least the huge upfront penalties for late filing are avoided. If one can’t afford to pay the tax bill, try to avoid the late filing penalties filing on time.
Best Cost Saving Plan
It’s always better to file on time, even if the taxes aren't paid on time, since then there are no late filing penalties. Those are a real pain. And make installments as possible, of course. Filing on time, or asking for an extension, is the best cost savings plan. But not everyone is able to get it done in time, simply because of how busy they are, extenuating circumstances, or a variety of other reasons (divorce, accident, death). But for small business owners, there is no good excuse!
A small business owner should be able to at least get the records together and hand them over to a professional. Well, so should any individual. And one will save money by doing this, rather than being late!
The Cost of Using a Professional
Most personal tax returns are rather inexpensive. These usually start at about $55 (sometimes lower) for a personal tax return and rarely go above $200 for very complex personal taxes. Most people are in the $55 range. So if $600 in taxes are owed, then one has already saved money on the late filing fee. A small businessowner is likely to owe a lot more than $600. And costs for small business returns can be as little as $350, although they are usually $500 to $2000 (or more), depending on the size of the business and how organized the records are. But if the business owes $20,000 in taxes, then getting a professional to do the taxes and get them in on time is well worth that cost!
What about the cost of making mistakes? A professional is much less likely to make mistakes than someone doing their own taxes is. Missing deductions of any kind costs. A professional is much more likely to find all of the deductions, and may even be able to give tips and strategies that will help save taxes on future returns. Think about how that can save money, as well! A really good professional, such as a good accountant or tax advisor, will also be able to give advice in areas of business that should be able to lower business costs or increase revenues. And that will more than pay for the fees charged.
How Do You Know If the Tax Advisor is Good?
There are many out there, but not all of them are good. Most are actually preparation firms that do little more than simply fill out and file personal returns. But they are marginally less expensive for the individual than an accountant or tax advisor is. And that’s why so many people use them. One can do that. But to really find a good tax advisor, be prepared to ask a few questions. Ask the advisor if he specialises in small business or personal returns. Ask if he has experience working with home-based business or industry specific experience. And always ask if he has any ideas on how to cut down on taxes payable.
