The idea of paying taxes late and incurring IRS interest charges elicits a stern Don’t do that! from many tax professionals. Yet some business owners decide that it’s cheaper and more convenient than taking out a loan. So those with short-term cash management issues or personal expenditures like college tuition may make a strategic decision to pay the government late.
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Trey Taylor’s employee benefits consulting firm was debt-free last year, and he wanted to keep it that way. But 2016 was the first year Taylor was required to provide health insurance for his staffers under the federal overhaul, and he wasn’t sure how premium costs would affect his cash flow. Rather than deal with the hassle and expense of applying for a line of credit, he decided not to pay his entire 2015 tax bill in the spring and hold back $3,200 that Taylor Insurance Services owed the IRS. He had calculated that it was cheaper to pay any penalties and interest to the government.
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It allowed us to keep enough cash on hand to meet near-term expenses, Taylor says.
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A strategy of paying taxes late rather than when they’re due is contrarian — the government frowns on late payments, and penalizes procrastinators. While some companies can justify paying late because of unusual events like the one Taylor dealt with, tax professionals advise business owners not to take such a step lightly, and to consult an expert well before the deadline for filing their income tax returns.
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Certified public accountant Leon Dutkiewicz looks at intentional late payments as a one-shot deal, and something to be done only if a business is certain it has money coming in fairly soon after its filing deadline.
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My view is it’s a strategic choice, generally for somebody in business or starting a business or looking at a life event…