They say that two things are guaranteed in life: death and taxes. Most small businesses in the USA, and globally, dread having to pay quarterly taxes. What happens if you don’t have the funds to make your business tax payment?
If You Don’t Pay Your Business Taxes, You’ll Owe Back Taxes
If you fail to pay your business taxes on time, you will owe back taxes. Back taxes can have a serious impact on your small business.
- Back taxes will accrue penalties and interest, so your tax debt can quickly grow
- The IRS may make its own assessment of the taxes you owe, and it will likely be higher than what your tax preparation would determine. The IRS does not work out deductions and tax-saving measures for example.
- Business assets may be seized by the IRS to pay your owed taxes.
- The IRS will withhold any tax refund you’re owed until your back taxes are paid.
- Any income earned while you owe taxes will not be reported to Social Security, which can affect your retirement plans.
- It may be harder for your business to obtain loans or other forms of financing if you’re required to submit tax returns.
If your business fails to pay its taxes, you will receive tax notices from the IRS. If these notices are ignored, an IRS agent will be assigned to your account. The agent will visit your place of business to try and resolve the issue.
If you fail to cooperate, the IRS can levy the assets and potentially force the business to close. While rare, the IRS can file criminal charges if it feels tax evasion is occurring.
What are Your Options?
What options do you have if your small business fails to pay taxes?
Work with the IRS
Sometimes, the simplest solution is to simply work with the IRS to find a way to pay back the owed taxes. If you owe less than $50,000 in penalties, taxes and interest, you can work out an installment plan with the IRS.
If you simply need some more time to pay your taxes, you can fill out the Online Payment Agreement application, which can extend the deadline 60-120 days. Keep in mind that you will still pay penalties and interest.
Another option is to make an Offer in Compromise to settle with the agency. Businesses must meet certain criteria to get approved, and interest and penalties will continue to accrue during processing.
It’s also possible to use a credit card to pay tax debts, but high interest rates and processing fees make this a cost-prohibitive option. Some debtors resort to refinancing their home or taking out a personal loan to pay off the debt. This may be an option if you can afford to make the monthly payments. Interest rates are generally lower than with a credit card.
If your tax debt is insurmountable, you may have to file for Chapter 7 or Chapter 13 bankruptcy to discharge the debt.
While it is possible for small business owners to handle tax issues on their own, it’s often better to hire a qualified tax professional for assistance.