This is a simple one – file and pay your DC taxes on time as the penalties are enormous! If you extend your form 1040 on April 15th, file it 5 months later on September 15th and find you owe say $ 1,000 the IRS will charge you a failure to pay penalty of ½ percent per month for a total penalty of $ 25. DC charges 5 percent per month for the same penalty or a total of $ 250 – TEN times what the IRS charges!
DC charges you a failure to file penalty and ignores the fact you may have a valid extension. Why does DC charge such an egregious rate? Pretty simple, it’s a way to raise a lot of money without it being characterized as a tax increase. Since many business owners extend their personal returns if they are waiting on k-1’s, they can unknowingly incur the maximum 25% penalty. Another reason why DC has justly received the reputation as being very business unfriendly.
DC also charges high penalties if your biannual LLC or corporation reports are filed late. The licensing agency (DCRA) does not issue notices for when these reports are due, or even if they are filed late – they simply revoke your standing. Businesses are often unaware of this until the time they need a bank loan or are selling a piece of property. Not surprisingly, getting your LLC or Corporation back to good standing with DC is not a smooth process either. It’s important to ensure you file the bi-annual reports on time and avoid all the monetary and time headaches that result if you do not.
And if your business license return is 1 day late, DC charges a $ 250 late fee; if you’re 30 days late the penalty soars to $ 500 – more than the entire cost of the two year license! This penalty is simply crazy, most taxing authorities will impose penalties that gradually increase over time, under the reasonable theory that a business filing a report say 6 months late should be penalized proportionately more than a business filing only a month late. Not DC, you hit the maximum penalty in only 30 days, not business friendly to say the least:
Of course DC will state that it’s up to the business to address its filing requirements timely. I agree with that, but the penalties still need to be reasonable. But how timely does DC address its own affairs? Take a look at the above notice: the Mayor listed (Vincent C. Gray) had been out of office over 3 months when this statement was printed, guess that wasn’t enough time for DCRA to update its own paperwork. But if your business is just a few days late in getting to something, guess what happens …