Small Business Taxes – A Cautionary Tale

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If you need help, ask for it

This guest post comes from SBT’s favorite accountant, Harold Littlejohn. Why is he our favorite? Read on to find out.

-Seth

Nate and Seth at SmallBizTriage.com are extremely busy guys. So busy that when they converted their Washington-based Smallbiztriage.com business to an LLC (Limited Liability Company) in 2013, they must have missed opening a “snail mail” from Uncle Sam (Tip: Never open an email from the IRS…..they don’t contact taxpayers via email) that would have reminded them that the filing of their Form 1065 LLC partnership tax return for the tax year 2013 was due on April 15th of 2014.

Lo and behold, life went on, business went real well for Nate and Seth, and April 15th came and went without their 1065 being filed.

This is where my years of tax experience shine! Thanks to a little-known IRS rule, if you or your business has a clean record with no late filing demerits over the most recent three years, they will forgive a late filing penalty. But you must request it in writing.

So when SmallBizTriage generated a hefty late filing penalty in their first year of business, I immediately banged out a letter to beg, on their behalf, the King (read IRS) for pardon. But I was worried…..this has worked for my clients in the past, but they had track records of three years of timely filing, but SBT didn’t.

So imagine my delight when I received an email from Nate that Uncle Sam had forgiven them and removed their late filing penalty!

You see, even the giant behemoth known as the IRS has a heart in there somewhere after all!

To be frank, the IRS’s lifeblood, or their “business model” if you can call it that, does depend on “customers,” I mean taxpayers, filing returns and paying the tax that is due. Think of it this way….they have a customer filing every year and paying taxes. That customer misses a deadline one year.

With no forgiveness, that taxpayer/customer might be afraid to file late and could slip into the “non-filer” category that is the thorn in the side of the IRS’s well-oiled revenue machine.

So by offering forgiveness every few years, they keep the money flowing in and filing goes on for another several years and hopefully the taxpayer will never forget to file on time again.

Many persons and even professionals don’t know of this rule. Wait….if a professional is perfect, his clients never miss a deadline, so he wouldn’t NEED this forgiveness exception. Ha!

In my experience, there’s a lot that sharp businesspeople like Nate and Seth don’t know about tax rules and regulations, so here’s a few pointers to help you out during the journey you have chosen as a small business owner:

• Tax returns, tax payments and extensions are due April 15 for individuals, partnerships and LLC’s.
• March 15 is the deadline for tax returns and extensions for S corporations and calendar year C Corporations.
• If your partnership or LLC is late with its filing, your partnership or LLC owes no tax, but it will be penalized $95 per late month PER PARTNER! If you have lots of partners, you will be funding lots of drones, tanks and fighter planes!
• If you can’t file by the deadline, at least file an extension and pay the tax you might owe.
• If you can’t file or pay the tax by the deadline, at least file an extension timely. The penalty for late payment of tax after April 15 is ½ of a % per month with an extension, but 5% per month without one. That can add up fast and take the money you could have used to pay a professional to file your extension!

You can’t be expected to know your own business PLUS all these tax rules. So contact me for some help this coming tax season. I might save you a lot of money, and isn’t that half the battle of being in business?

And if you have already made the big boo-boo and you are late, contact me with the tax problem, as I am human and I have experience with forgiveness of the occasional late filing penalty!