Paying small business taxes with plastic
As they become more reliant on business credit cards for everything from tracking expenses to earning rewards, small businesses are also increasingly using plastic to pay their taxes.
|Taxes, credit, debt and you|
Based on data from Visa, credit-card spending on tax payments and preparation by small businesses surged 80 percent over from 2006 to 2007. Additionally, the Visa report found that tax-related transactions averaged three times the amount of other purchases on Visa business cards over the 12 months that ended in February 2007.
The Internal Revenue Service has allowed taxpayers to make credit card payments for more than a decade, and has partnered with credit card processors and tax preparation software developers to offer electronic payment. Businesses can make a credit card payment for past-due tax using this option.
Paying taxes with a business credit card can help businesses that are limited by cash flow problems due to a significant number of accounts receivable. Such small businesses may need to rely on plastic while they wait to get paid.
Those who champion the use of a business credit card for tax payments also explain that it is better to owe money to the credit card issuer than to the IRS. Money owed to the IRS can result in a tax lien and have a very damaging effect on an individual's credit score.
Meanwhile, late fees on taxes depend on how significantly the business underpays and how late the payments are received by the IRS, and are based on an interest rate used by the agency. Although the interest rate used by the IRS is low (ranging from 3 percent to 4 percent as of Feb. 26, 2010), business credit card supporters note that a zero percent balance transfer credit card may be more attractive.
Still, not everyone is gung-ho about paying taxes with a credit card. Critics cite bad tax preparation planning as the reason so many small businesses are forced to rely on credit cards when it comes to paying the IRS.
These critics caution that current interest rates on credit cards can be higher than the penalties charged by the IRS when business owners make their quarterly tax payment late.
Small business owners and the self-employed usually pay quarterly estimated taxes on April 15, June 15, Sept. 15 and Jan. 15 (Dec. 15 if the business is incorporated).
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