Answer: File your tax return on time.
But seriously, maybe you did get a little behind on filing your company’s tax returns and it’s past the tax due date, but you’re not all that concerned because your company suffered a loss and you as the business owner won’t have much of a tax liability if any to report on your personal tax return anyway. Well, not so fast!
While individuals and C Corporations are charged a penalty percentage of outstanding and unpaid tax liabilities, S Corporations and Partnerships are penalized $195 per month per shareholder/partner for up to 12 months. It doesn’t matter whether the S Corporation or Partnership had a positive taxable income or not.
Example: If the S Corporation has four owners, the monthly late filing penalty will be $195 X 4 = $780. The maximum penalty of 12 months in this case will be $780 x 12 = $9,360 for the business.
It’s important to know that a business venture doesn’t need to be formally organized as a Partnership to be considered one. In most cases an unincorporated business venture such as a Limited Liability Company with two or more participants would be considered a Partnership for tax purposes and, thus, subject to the $195 per month per participant late filing penalty.
There is a possibility that the Internal Revenue Service will waive the late filing penalty for first-time offenders, but they must be able to demonstrate “reasonable cause.”
As always, we are here to help you navigate the complexities of the tax world. Please let us know if we can be of any assistance to you. You may reach us at our Kennesaw office at (770) 428-6229.
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised quick service restaurants and other franchised businesses.