Every business owner has their own set of responsibilities and obligations when it comes to filing taxes, but if you're not sure what yours are, this can lead to some serious problems. Filing your taxes correctly can be confusing and time-consuming. It's also crucial: if you don't file your taxes properly or in a timely fashion, you could end up paying thousands of dollars more than necessary.
If you have a business, filing taxes is an important part of running it. The good news? If you’re not sure how to get started, Club Capital is here to help!
Club Capital provides monthly accounting, tax, and CFO services for insurance agency owners. With 100% of our clients in the insurance industry, we are built to help you grow your agency faster with industry-specific accounting, tax, and CFO services.
Business Taxes vs Personal Taxes
You may be asking yourself, “What is the difference between business taxes and personal taxes?” It's a great question! There are several differences between the two, but in general, personal taxes include your income and expenses as an individual. Business taxes are all about your company's finances: profits, losses and everything else related to running a company.
Businesses need to file their business taxes even if they don't have any profit. This includes sole proprietorships, partnerships and corporations with no employees, any small business that generates income needs to file quarterly estimated tax payments (Form 1040 ES).
You'll also need to file an annual return (Form 1120) for your corporation or partnership regardless of whether you made money or lost money during the year.
Penalties on Unpaid Taxes
If you don't file your taxes, the IRS will charge a failure-to-file penalty. This penalty is normally 5% of the amount owed per month up to a maximum of 25%.
In addition to failure-to-file penalties, there are also separate failure-to-pay penalties which kick in when businesses neglect paying their owed tax bills by the deadline date (usually April 15th). If a business fails to pay their taxes when they're due by this date then they'll be penalized by about 0.5% each month until payment is made. The Failure to Pay penalty will not exceed 25% of your unpaid taxes.
Interest on Unpaid Taxes
If you don't pay your taxes, the IRS will charge interest on top of your unpaid taxes. Interest is calculated using an annual rate that's adjusted monthly. The underpayment interest applies even if you file an extension.
The IRS can garnish your wages to collect unpaid taxes. The amount is based on your income and tax debt, but generally it’s up to 25% of what you earn.
What’s more, the IRS may also garnish your wages if you owe more than $10,000 in taxes.
A wage garnishment is different from an income tax refund offset (the process of withholding money from a refund check), so it might take longer before they start collecting money through this method.
If you do not file your taxes, the IRS can issue a tax lien. A tax lien is a legal claim that the IRS has made against your property and assets as compensation for unpaid taxes.
Tax liens last for 10 years from when they are issued, but they can be renewed or extended if you do not pay off outstanding debts within that time frame. If you have an existing tax lien on any of your properties or assets, it's important to stay current with filing and payment requirements because failing to do so will likely result in further action by the IRS, including garnishing wages.
A tax levy is an action taken by the IRS to collect taxes from you as a last resort.
If your business has been assessed a large amount of back taxes, there's a chance that it could be hit with a tax levy. This means that any money generated by those assets must first go towards paying off those debts before being distributed elsewhere—meaning that if your company has a successful year but has outstanding debts with the government, it won't see any profit until those debts are cleared up completely.
A tax levy can be placed on your assets, business and personal property, wages, bank accounts, and other sources of income. An IRS tax levy will prevent you from using any of these assets until all back taxes are paid in full.
Hire a Professional to Help You Prepare and File Your Taxes
As a business owner, there are many things to consider when it comes to taxes. One thing is for sure, you’ll save yourself time and money if you hire a professional to help with your taxes.
A tax professional can help you avoid costly mistakes that may result in penalties or even jail time. They also know how to use deductions that could save you thousands of dollars on your taxes—and that’s just the beginning.
Tax professionals are able to see big picture trends so they can advise their clients on how best to plan for future tax seasons and make sure their companies stay compliant with all current regulations.
Club Capital Is Here To Help
For the past 5 years, Club Capital has helped insurance agents better manage their agency's finances through best-in-class monthly accounting, CFO, and tax services. Schedule a demo today!