by J. Stephen Pope

Here are seven reasons for not being late filing your income tax returns.

1. Avoid Late Filing Penalties

Late filing can result in substantial and continuing penalties. This is in addition to any interest that is due.

In Canada, for instance, being just one day late can result in a penalty of five percent of the amount due; these penalties are doubled for habitually late offenders. As well, there is a continuing penalty of one percent per month (two percent for chronic delinquents) of the amount payable.

2. Receive Better Service from Your Accountant

The earlier you get your paperwork to your accountant, the sooner he can start preparing your tax returns. More importantly, there will be more opportunities to explore and implement tax saving strategies. On the other hand, if you file late, you tie your accountant’s hands. For example, he may hesitate to retain profit in your corporation if such profit will be subject to substantial penalties.

3. Avoid Criminal Charges

Of course, if you don’t file tax returns at all for a few years, you may also face charges of tax evasion.

4. Prevent Bankruptcy

Generally speaking, persons who don’t file tax returns on a timely basis also lack adequate records for managing their business. Since they don’t keep their bookkeeping and accounting up-to-date, they only think they know how they’re doing and how they stand financially. This, of course, is a recipe for financial disaster.

5. Enjoy Better Relations with Tax Authorities

Late filers also receive the unwanted attention of the taxation departments. Non-compliance can result in audits, aggressive collection action and legal proceedings. In addition, if you ever do have extenuating circumstances that might call for some leniency or extraordinary consideration on the part of the tax department, you are more likely to receive it if you have a flawless history of co-operation and compliance.

6. Obtain Financing

You’ll have difficulty obtaining financing if you can’t provide your financial institution with current income information. Assessment Notices from taxation authorities give banks more assurance that the income claims you make are true. As well, if you haven’t filed your current income tax returns, what hidden tax liabilities exist? What is the state of your record-keeping? How do you run your business without adequate financial information? Your bank may hesitate to loan you money or refinance under these circumstances.

7. Reduce Stress and Worry

Many people who are late filing their tax returns feel guilty about it. At the back of their minds, they worry about taxation authorities contacting them, audits, asset seizures, criminal prosecution, penalties and interest, and so on. Some of these worries can become magnified beyond what the actual situation warrants. Save yourself unnecessary stress by filing your income tax returns on time.

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over thirty years.

by J. Stephen Pope

You’ve been feeling uneasy (perhaps even guilty) because you’ve failed to report your under the table business income. Perhaps you’ve never filed a tax return, even though you know you owe money. Finally, you contact an accountant to resolve the situation.

Although it is commendable that you are trying to correct matters, hiring an accountant to do these delinquent returns could be a big mistake. The reason why is because tax evasion is a criminal offence or felony. You might also be subject to civil action.

Would you hire an accountant to defend you in a criminal proceeding? Not likely. You would be wise to hire a qualified attorney.

First of all, lawyers have something called solicitor-client privilege (also known as attorney-client privilege or legal advice privilege). This basically means that things you tell your lawyer when seeking legal advice are confidential and can’t be used against you. Even written records can be covered by this privilege.

On the other hand, your accountant can be compelled to testify against you and all records in his possession can be demanded by the authorities.

Second, your lawyer can prepare a legally binding agreement that can protect you. In return for your coming clean, the tax authorities may agree not to charge you criminally and, in some cases, even reduce penalties or tax liability.

If your accountant tried to do the same thing, they could demand all information about you. Your accountant would not be protected by solicitor-client privilege.

If, say, your accountant filed your tax return from ten years ago on your behalf, the tax authorities could still charge you with tax evasion, despite the fact that you are obviously trying to rectify matters (albeit a bit late).

It is even possible that your accountant could get into trouble for failing to report your delinquency. On the other hand, your lawyer can’t be compelled to testify against you, being protected by solicitor-client privilege. Your lawyer may also have his own in-house accountant in order to protect you.

Your lawyer (specializing in criminal and tax law) will likely negotiate an agreement with the tax authorities before filing any tax returns.

Therefore, if there is a good chance you could be charged criminally for your failure to file tax returns or properly report income or expenses, don’t see your accountant. Instead, consult a lawyer specializing in such matters before you file or amend any returns.

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over thirty years.