This year, it’s more important than ever to stash cash away and pay your taxes on time.
As business owners, we love to have investable cash on hand. In my early days of entrepreneurship, I would convince myself that money market interest rates were high enough that it’d be okay if my estimated taxes weren’t paid on time and in full. Surely, the IRS interest rates on any underpayment would even out given the ROI am going to get in other areas…
We can convince ourselves that we can and will make more money reinvesting that cash into our businesses. This could mean hiring staff, implementing next level tech, inventory and equipment acquisition, etc.
While I will still take that bet every day, we have to hedge our entrepreneurial nature. Especially when state and IRS interest rates are this high.
The reality is that the IRS interest rates are almost always higher than money market rates. In 2024, this is magnified as the IRS’ and state rates are the highest they’ve been since 2007. As interest on the underpayment of quarterly taxes due and/or taxes due at the April 15th deadline compounds daily, it’s as important as ever to get your tax estimates done as accurately as possible and their payments made on time.
IRS Interest Rates for 2024
According to the Internal Revenue Code, IRS interest rates are determined quarterly and are calculated from the federal short-term rate. This quarter, interest rates are as follows:
- Individual taxpayers: An 8% rate for underpayments (assessments) and overpayments (refunds).
- Corporations: An 8% rate for underpayments and 7% for overpayments. If you’ve overpaid by more than $10000, this is reduced to 5.5%.
- Large corporations: Underpayment rates for amounts exceeding $100,000 are set at 10%, with 8% for overpayments.
These rates apply to unpaid tax, as well as any penalties. With the current money market interest rate of 5.33%, it’s clear that paying your taxes late this year is not an option.
However, these rates are not the only factor to consider when it comes to tax planning. Several new state-level tax reforms could also affect your 2024 financial strategy.
Interest Rates In Georgia
Georgia law accrues interest at a rate equal to the Federal Reserve System plus 3 percent. As such, the state’s interest rate is currently set at 11.5%. This is a full percentage point higher than 2023.
As such, we advise Georgia businesses to speak to one of our CPAs to see how this change affects your tax liabilities and compliance.
California’s Interest Rates
California’s reforms include changes to the interest rates for over- or underpaying your taxes. Here, the rates are as follows:
- Individual taxpayers: 7% for under- and overpayments.
- Corporations: 7% for underpayments, and 5% for overpayments.
North Carolina’s Interest Rate Landscape
North Carolina will adhere to the IRS interest rates of 8% for both underpayments and overpayments. This is a full percentage point higher than the previous year, and applies to both individual taxpayers and corporations.
New York’s Interest Rate
In New York, recent amendments to corporate tax rules are effective retroactively to 2015. This includes a change to the interest rates on tax underpayments. As of January 2024, interest rates for tax underpayments of General Corporation Tax (GCT), Unincorporated Business Tax (UBT), Banking Corporation Tax (BCT), and Business Corporation Tax are set at a whopping 12%. This is a full percentage increase from the first quarter of 2023. In addition, individual tax underpayments and overpayments are set at 10.5%.
Virginia’s Interest Rate Environment
Virginia’s tax code dictates that the state interest rates will be 2 points higher than the federal IRS interest rates for under- or overpayment of taxes. Therefore, the rates for the first quarter of 2024 are:
- Individual taxpayers: A 10% rate for under- and overpayments.
- Corporations: A 10% rate for under- and overpayments.
As we’ve emphasized above, it is crucial to budget for and pay your taxes on time this year, to avoid paying the highest interest rates in over a decade. When it comes to adapting your strategies to align with tax reforms and changes, consulting with an accountant can help you ensure compliance.
State Tax Reforms in 2024
Several states across the country will experience tax shifts this year, affecting individual and corporate taxation. This, in turn, can affect your business’s bottom line and financial planning.
For example, under the new gas taxes, Oregon’s increase of 2 cents per gallon makes it one of the 10 states in the country with the highest gas taxes. This could greatly affect the transport and delivery industries.
In Kansas, a food tax reduction and plan to eliminate grocery taxes by 2025 could have significant ramifications for restaurants and food delivery businesses.
Several property tax adjustments across states also have possible consequences for individual taxes and the real estate industry.
One of the most noteworthy tax reforms for this year includes amendments to state income taxes, including cuts for residents with lower income tax rates. For example, Georgia now has a flat tax of 5.49% for the year, while North Carolina has reduced its tax rates.
Being aware of these amendments can help you navigate the state tax landscape and your related finances, especially if you have tax nexus across multiple states. If you’re ever unsure about tax amendments or their effect on your financial management, a CPA can advise you.
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