Filing your taxes on time is important, but it’s not always easy.
If you’re a creative business owner, you may have a lot of different income sources and deductions to keep track of. It’s no wonder that many creative business owners end up filing extensions and/or paying tax penalties. In this blog post, we’ll review the different types of income tax penalties and how to avoid them. We’ll also discuss some of the unique challenges that creative business owners face when it comes to taxes.
What Types of Income Tax Penalties are there?
There are three main types of income tax penalties:
- Failure to file penalty: This penalty applies if you don’t file your tax return by the due date. The penalty is 5% per month up to a maximum of 25%.
- Failure to pay penalty: This penalty applies if you don’t pay your taxes by the due date. The penalty is .5% per month up to a maximum of 25%.
- Underpayment of estimated tax penalty: This penalty applies if you don’t pay enough in estimated taxes throughout the year. The penalty is typically around .5% and capped at 25%. (But you get one free pass the first year it would have applied.)
How Can I Avoid Income Tax Penalties?
The best way to avoid penalties is to file your tax return and pay your taxes on time. But if you can’t file your return on time, you can always file an extension. Just keep in mind that you will still need to pay any estimated taxes that are due by the original due date.
If you can’t pay your taxes by that date, you can contact the IRS to set up a payment plan. However, you will still be charged interest on the unpaid balance.
Challenges for Creative Business Owners
Creative business owners often face unique challenges when it comes to taxes. For example, they may have irregular income, a zillion W2s or 1099s to track down, or they may have a lot of different deductions to tally up.
One of the biggest challenges for creative business owners has to be estimating their taxes. It can be difficult to predict how much income you will earn throughout the year, especially if you have irregular income coming from multiple sources. But another thing that pushes clients to file extensions is just getting more time to track down their deductions. They’re often pulling information from various sources, and are sometimes getting conflicting information from various people about what they can even write off or not.
Revel Can Help You Avoid Income Tax Penalties
Revel can help creative business owners avoid income tax penalties by helping them with focused tax planning and tax preparation. We can help you estimate your taxes throughout the year and help suggest better ways to keep track of your deductions. We’ll also help you file those tax returns on time! Additionally, we offer transparent tax pricing so you can have peace of mind knowing what to expect. No surprises, just straight-up honesty.
If you’re ready to join forces with Revel CPA and experience the benefits of transparent pricing and dedicated support, we’re ready to make it happen. For more info and to calculate your tax pricing click here.
Filing your taxes on time and paying your taxes on time is important, but it’s not always easy. Bottom line: even if you can’t pay in full, at least file the returns so you avoid the late-filing penalty on top of your payment-related interest and penalties. And if you’re a creative business owner, Revel is here to help you navigate these and all your other tax-related questions!
