by J. Stephen Pope
Here are seven reasons for not being late filing your income tax returns.
1. Avoid Late Filing Penalties
Late filing can result in substantial and continuing penalties. This is in addition to any interest that is due.
In Canada, for instance, being just one day late can result in a penalty of five percent of the amount due; these penalties are doubled for habitually late offenders. As well, there is a continuing penalty of one percent per month (two percent for chronic delinquents) of the amount payable.
2. Receive Better Service from Your Accountant
The earlier you get your paperwork to your accountant, the sooner he can start preparing your tax returns. More importantly, there will be more opportunities to explore and implement tax saving strategies. On the other hand, if you file late, you tie your accountant's hands. For example, he may hesitate to retain profit in your corporation if such profit will be subject to substantial penalties.
3. Avoid Criminal Charges
Of course, if you don't file tax returns at all for a few years, you may also face charges of tax evasion.
4. Prevent Bankruptcy
Generally speaking, persons who don't file tax returns on a timely basis also lack adequate records for managing their business. Since they don't keep their bookkeeping and accounting up-to-date, they only think they know how they're doing and how they stand financially. This, of course, is a recipe for financial disaster.
5. Enjoy Better Relations with Tax Authorities
Late filers also receive the unwanted attention of the taxation departments. Non-compliance can result in audits, aggressive collection action and legal proceedings. In addition, if you ever do have extenuating circumstances that might call for some leniency or extraordinary consideration on the part of the tax department, you are more likely to receive it if you have a flawless history of co-operation and compliance.
6. Obtain Financing
You'll have difficulty obtaining financing if you can't provide your financial institution with current income information. Assessment Notices from taxation authorities give banks more assurance that the income claims you make are true. As well, if you haven't filed your current income tax returns, what hidden tax liabilities exist? What is the state of your record-keeping? How do you run your business without adequate financial information? Your bank may hesitate to loan you money or refinance under these circumstances.
7. Reduce Stress and Worry
Many people who are late filing their tax returns feel guilty about it. At the back of their minds, they worry about taxation authorities contacting them, audits, asset seizures, criminal prosecution, penalties and interest, and so on. Some of these worries can become magnified beyond what the actual situation warrants. Save yourself unnecessary stress by filing your income tax returns on time.