June 27, 2019

Businesses are required to file annual income tax returns with federal and state tax authorities, and they may also have to file payroll and sales tax reports. Failing to file a return on time can lead to penalties, interest, and other consequences. Even if you or your business is not able to pay the full amount of tax owed, it is better to file a return on time. For most types of tax, the IRS and state authorities are willing to allow a payment plan. The most notable exception is federal payroll tax. To avoid any penalties, you should promptly consult a California tax lawyer who can advise you on your obligations.

What Taxes Does My Business Have to Pay?

Businesses in California must pay federal and state income tax. The federal form they must use depends on the type of business entity, such as a corporation, limited liability company (LLC), partnership, or sole proprietorship.

If a business has employees, it must pay payroll taxes and file a separate return with the IRS. Employers must also pay into federal and state unemployment insurance funds. Businesses that sell goods or provide services deemed taxable by state and local law must collect sales tax from customers and file reports with the state.

What Are the Tax Deadlines?

The deadline for federal and state income tax returns is April 15. Those deadlines can be extended by filing a request in advance.

For payroll taxes, also known as employment taxes, businesses must file quarterly returns and pay the amounts withheld from employee paychecks for FICA, Medicare, and federal income tax during the previous quarter. They must also pay the employer’s matching amount for FICA and Medicare. An annual return is due April 30. Businesses that collect sales tax in California must make monthly payments and file quarterly reports, followed by an annual report on or before January 31.

If your business does not file a tax return on time, the best thing to do is file it, and pay as much of the tax owed, as soon as possible. This will mitigate any potential penalties.

Penalties for Failing to File a Business Income Tax Return

Failing to file an income tax return results in penalties and interest. These are calculated as a percentage of the amount of tax owed. If a business does not owe tax, penalties and interest will be zero. It is still in a business’ interest to file a return on time. They will not be able to receive a tax refund, nor can they carry business losses forward to offset future tax liability, until they file their tax returns.

Businesses that file returns late, or not at all, are also more likely to get audited. Tax audits take up time that could be spent running one’s business, and they could also lead to penalties if the auditor discovers an error.

Penalties for Failing to File a Payroll Tax Return

The IRS can use methods of debt collection like asset seizure to enforce income tax debts, but they usually only do so once a business is seriously delinquent. Since payroll tax liability involves money held in trust for a business’ employees, the agency is much more assertive about enforcement. If the IRS determines that a failure to pay employment taxes was “willful,” they can pierce the corporate veil and impose a penalty directly on the individual found to be responsible.

If you have questions about a tax-related issue in California, the tax advisors at Enterprise Consultants Group are available to assist you. Please contact us today online or at (800) 575-9284 to discuss your case.