The most overlooked business deadline – and its real cost 🚨

Hi,

Most business owners treat the tax return as the only accounting requirement to remember. 

There is another one, however, that we often do not even know about, and it gets forgotten. This is the annual (biennial) report. 

Leaving this undone can cause a multitude of issues: 

• Penalties from the state for missing deadlines
• Inability of your company to be verified as valid by state regulatory agencies, clients, lenders, etc. 
• Loss of good standing status with your state 
• Loss of legal separation/protection between your company and you as an individual

To summarize, there are two main annual filings to remember: 

• Your tax returns
• Your annual (or biennial) report 

What is the difference? 

Tax returns and annual reports are unrelated. Your tax return goes to the IRS, reports income, follows your fiscal year, and can be extended. 

Your annual report goes to the Secretary of State, reports your registered agent, officers, and principal address, often contains no income figures, cannot be extended, and is required whether you earned ten million dollars or nothing at all.

California calls it the Statement of Information. Texas calls it the Public Information Report. Nevada calls it the Annual List. Miss it and the state does not send you a bill. It dissolves the company.

What that actually costs:

• California: a $250 penalty, then suspension. A suspended entity cannot sue, cannot defend a lawsuit, cannot enforce its own contracts, and loses the exclusive right to its name. Add $800 in minimum franchise tax for every year of the gap and a $2,000 per year penalty on unfiled returns. Three years of drift commonly rebuilds in the $8,000 to $18,000 range.
• Delaware: a $200 penalty plus 1.5% interest per month, compounding on tax and penalty, until the charter is voided.
• Texas: under Tax Code 171.255, once corporate privileges are forfeited for a missed report, every director and officer becomes personally liable for each debt the business incurs, as if they were partners rather than shareholders. That figure has no ceiling. It is whatever the business owes. Reinstating the entity does not erase it.

The penalty is the smallest part. A company out of good standing has contracts the other side can void, cannot bring or defend a suit in that state, releases its name to any competitor who wants it, and fails the first search a lender, insurer, or buyer runs.

None of this appears on a tax return and the state will not call to remind you.

If you are unsure whether the annual report was filed, reply to this email by Friday and we will schedule a complimentary 15-minute call with our senior tax advisor. Send us each entity’s legal name and state of registration, and we will run a preliminary status check and explain any next steps.

Sincerely,

—

George Dimov, CPA

Licensed and Insured

(833) 829-1120 toll free

(212) 994-8081 Fax

www.dimovtax.com