Your business taxes must be filed and paid before the due date. Otherwise, you’ll be forced to pay back taxes. This is especially important for the small business owner, as back taxes can cause a great deal of damage to long-term prospects.
Here’s what you can expect if you fail to pay your business taxes on time:
- Back taxes often come with a 5% interest rate, along with possible fines. This could increase your debt levels significantly in a short period of time.
- If your business owes any taxes, the IRS will withhold any refunds your business qualifies for until the total amount of outstanding debt has been cleared.
- If a company owes the government back taxes, the IRS may determine the amount you owe in a way that’s much more costly than it would be if a tax preparing service calculated it.
- In some cases, the IRS can put a tax lien on a company’s assets to pay this debt.
- For people who are self-employed, any money you earn while the tax debt remains outstanding will not be communicated to Social Security. This could reduce the amount of money you have for retirement.
- It often becomes much more difficult to qualify for loans and other forms of financing that insist on having your tax returns.
- If your business has an ongoing tax lien and the IRS suspects you of purposefully avoiding paying your business’s back taxes, a tax lien can result in criminal prosecution.
What Should You Do If You Owe the IRS Back Taxes?
Here’s what you’ll have to do if you receive word from the IRS that you failed to pay your business taxes:
Don’t try to wish the problem away by hiding from it. It’s all too easy to stash the IRS notification away and put off confronting the problem, but things will get worse for you and your business the longer you wait.
Put repaying the IRS at the top of your priority list. In order to pay your back taxes, you might have to put off paying your company’s suppliers. If this turns out to be the case, do so without hesitation. The IRS can do a lot more damage than a supplier can if you fail to pay what you owe them.
Contact a tax expert and ask them for help. The tax professional you use—often a tax preparer or your accountant—can advise you on the best ways to handle the back taxes and minimize the damage.
Take constructive action. Don’t wait to contact the IRS if you owe back taxes. Reach out to them immediately and give them all the information they need. At this juncture, it’s imperative that you demonstrate how willing you are to work with the IRS to clear the debt.
What Other Options Do You Have?
If an error caused you to miss the filing deadline, file the past due returns just as you’d normally do.
If you simply weren’t prepared to file your return on time, ask the IRS for an extension. This won’t decrease the amount you owe, but it will give you and your tax professional some breathing room while you get your return together.
If you did file your return but were unable to pay the total amount of what you owe the IRS, request an extra 120 days to pay the balance in full. You can make this request using the IRS Online Payment Agreement Application.
If you can’t pay the debt in 120 days, check to see if you qualify for an installment plan. This is an option for companies that owe less than $25,000 in various forms of business taxes, penalties, and interest. Another requirement is that you be able to pay the back taxes within twenty-four months. Use the Online Payment Agreement Application to apply, and you’ll receive an answer immediately. If your request is approved, plan for automated debit payments from your bank account so you won’t have to stress over missing an installment.
If you don’t qualify for the installment plan or can’t pay the full amount in 24 months, you still have other options. If you don’t qualify, contact the IRS to submit the necessary paperwork. If you can’t pay within the allotted 24 months, check to see if you’re eligible for the Offer in Compromise plan.
This is a last resort option that lets you clear the debt for less than the total amount you owe if the IRS can’t reasonably expect to receive the entire amount from you. The IRS will take many things into account when deciding this matter. These include your financial situation, expected income, expenses, and total assets. In order to qualify, you must be up-to-date on all your returns, and you cannot be bankrupt. Check here to find out if you’re eligible.
Putting It All Behind You
After you’ve cleaned up the mess your back taxes caused, take every measure you can to prevent this from happening again. Even if you can’t pay the total amount of your business taxes, it’s still imperative that you at least file your taxes by the due date. Lastly, make use of the IRS Calendar tools to ensure that you never fail to meet a tax deadline again.
About Kenesha Coleman
Kenesha Coleman earned a Bachelor’s of Business Administration - Accounting and a Master of Professional Accountancy from the University of Wisconsin-Whitewater in 2007 and 2008, respectively. She is a licensed Certified Public Accountant (CPA) and an IRS Enrolled Agent (EA). After graduate school, Kenesha went onto work at the Internal Revenue Service’s Large Business & International division as an Internal Revenue Agent where she served in this position for eight years. As an Internal Revenue Agent, she was responsible for the examination (audit) mid-large size businesses with assets starting at $10 million. Kenesha has worked with a large range of entity types including C Corporations, S Corporations, Partnerships as well as a variety of industries including manufacturing, tech, e-commerce, personal services, financial services, insurance, professional service, real estate and health care. With all the knowledge and experience Kenesha gained from being a Revenue Agent, she wanted to help and educate businesses better navigate the world of tax. So in 2016, Kenesha left the IRS to serve as a Tax Supervisor with RSM (formerly known as McGladrey), the nation’s 5th largest public accounting firm. As a Tax Supervisor she serve as a trusted advisor to small and mid-market businesses by being effective in providing strategic tax planning and compliance services to business owners thus increasing their bottom line. In 2017, Kenesha was offered an amazing opportunity to continue providing effective tax services but to a company that was helping the world on issues she personally related to. She transitioned to being a Senior Tax Analyst with AbbVie, the manufacturer of the world’s best-selling pharmaceutical drug Humira and the 9th largest pharmaceutical company in the world. Simultaneously, Kenesha began ColemanTax, a virtual tax and accounting firm that works exclusively with independent professionals and small businesses. ColemanTax has traditional accounting firm values bringing innovative and modern practices to tax compliance. Its mission is to use tax technical expertise and experience gained from working as a Revenue Agent for the IRS, in public accounting and a Fortune 150 Corporate Tax department to maximizing tax savings. ColemanTax is able to provide the tax expertise and services of a big tax firm in a comfortable small firm atmosphere with lots of personal attention.
In addition to Kenesha’s professional endeavors, she is very active with giving back to accounting community. She currently serves as a director on three not-for-profit boards: Wisconsin Institute of CPAs (WICPA) Educational Foundation Board, National Association of Black Accountants (NABA) Central Region and Milwaukee Area Technical College Accounting Advisory Board. Kenesha is a graduate of the AICPA’s Leadership Academy 2018 and serves as a member of the AICPA’s Young Professionals Committee.
Kenesha has been awarded with NABA’s 2015 Chapter President of the Year award and 2016 Central Region Outstanding Service award, WICPA’s 2018 Woman to Watch award and WICPA’s 2019 Community Service award.