We’re all accustomed to meeting the April 15 deadline for filing our income tax returns, but for many businesses, tax time comes sooner – the middle of March, in fact.
Corporations that follow a January-to-December fiscal year have to meet an initial due date of March 17, 2014. Most years, those corporate tax returns are due on March 15, but that falls on a Saturday this year. So the actual deadline is the first business day after the 15th.
This applies to all corporations, both the Subchapter “S” corporations and the regular “C” corporations. “S” corporations are typically small businesses, whose profits are passed to their owners and subject to the owners’ personal tax rates.
If a corporation needs additional time to file, it’s easy to get an extension until Sept. 15. However, this extension does not give you additional time to pay what taxes you may owe. That means it’s important to calculate the tax due and pay it along with the filing-deadline extension.
If in doubt about how to compute the tax due before corporate return is completed, consult with your accountant or tax professional.
This is important, because failure to pay can involve significant penalties.
For an “S” corporation, with no tax due, the penalty for late filing is $195 per month times the number of shareholders, for up to 12 months. If any corporate taxes are due, the penalty also includes 5 percent of the unpaid tax for every month or part of a month, up to a maximum of 25%.
If a payment is more than 60 days late, the penalty is $135 or the amount due, whichever is less.
For “C” corporations, the penalty for late filing is based on whether any income taxes are due. A penalty of 5 percent of unpaid tax for each month or part of a month is imposed when the return is late, up to a maximum of 25% of the unpaid tax. If no taxes are due when the return is due, it is still imperative to file an extension or file the return, when due. This is essential for the corporation to preserve any tax elections it may choose to make. For example, the election to carry losses forward instead of back to prior years needs to be locked in by timely filing of either the return or an extension.
To further complicate keeping up with due dates, the state of North Carolina has a due date of April 15, 2014 for corporations that operate on a calendar year. As with federal returns, corporations can file for an extension with the state, which will allow until Oct. 15, 2014 to file the complete return. Penalties for the late filing of North Carolina corporate returns are based solely on whether any taxes are due. Returns filed after the due date are subject to a penalty of 5 percent of the tax each month, or part of the month, the return is late. The maximum penalty is 25 percent of the additional tax.
Returns filed after the statutory due date without a valid extension are subject to a late payment penalty of 10% of the unpaid tax. If the corporation has an extension of time for filing its return, the 10% penalty will apply on any remaining balance due.
That means there is a simple bottom line for corporate taxpayers, at both the federal and state levels. Don’t miss the deadlines!
Even if you cannot pay the tax due, at least file the return when it’s due or file for an extension. That will at least eliminate some of the penalties. Also, to avoid any dispute about whether the extension or the return has been filed on time, we recommend that you send it by certified mail if you don’t file electronically. Either method guarantees you have a record of when the return was mailed or submitted online, which is the government’s standard for timely filing.
My goal is to give my clients and the public useful information, explained in plain English, about their finances and taxes. If you have a question you’d like me to answer in a future article, please let me know.
Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at [email protected] or 910-793-1181.
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