Choose Your Tax Year

Continuing our theme of taxes, another key tax choice you need to make when starting up is your fiscal year. You can choose to have your company’s fiscal year end at the end of any month, but be aware that federal taxes are due 2.5 months after the end of your fiscal year, not 3.5 months as personal taxes are.

So if you elect a calendar year (January through December and ending on December 31st) as your corporate fiscal year, your federal return will need to be filed March 15, not April 15. And as with personal taxes, a six-month extension is available by filing IRS Form 7004, which will probably extend the filing period for your state income tax as well. State income taxes are required for corporate entities in every state with some notable exceptions, including Nevada and Wyoming. Remember that an extension is for filing the tax return, not for paying the estimated taxes due. (You extend, you still pay.)

However, if you’re making quarterly estimated payments to the IRS, this shouldn’t be such a shock at the end of the year. While federal tax payments for Social Security and Medicare are required to be made quarterly with IRS Form 941 (unless you’re informed by the IRS they find your paperwork too much nuisance for too little income from you, and you file annually with a Form 944), you can also choose to make payments on a monthly, biweekly or weekly basis. Sometimes it’s less painful to pay more often and in smaller increments.

Be sure to work with your CPA on these matters to get them right. Failure to pay or even falling behind on your payroll tax obligations can lead to personal liability and serious penalties.

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