It’s no secret that running a business takes a lot of time and effort because of day-to-day responsibilities. As a result, business owners sometimes fail to pay taxes on time. In some cases, this is simply because of unaffordable tax bills.
While missing a tax deadline can be inconvenient, it’s vital to pay your taxes as soon as possible. If you don’t, you could face penalties and interest charges on your unpaid tax bill. Your business may also suffer as a result of having poor cash flow. No one likes to be penalized for something as simple as forgetting to pay their taxes on time, but there are steps you can take to minimize your penalties.
In this article, we’ll walk you through the process of what to do if your business is behind on taxes. Read on below to learn more.
What Can Happen If a Business Has Back Taxes?
Here are some of the things that can happen if you owe back taxes on your business’ name:
- As long as your taxes remain overdue, your interest and penalties can pile up fast. For example, the IRS can assess a minimum fine of $205 and a maximum sentence of 25% of the amount of taxes owed, plus interest. That’s just for late filing. If you remain delinquent, it can add up to 0.5% to as much as 25% of your unpaid taxes per month.
- Some taxpayers are not at all sure that they have overpaid their taxes. To avoid any confusion, many taxpayers wait for their tax returns to be reviewed by the IRS before filing their returns. Unfortunately, the Internal Services Revenue (IRS) does not allow citizens to claim refunds. If the rebates aren’t claimed after three years, the government will see it as a “contribution” to the US Treasury, and you won’t get your refund.
- When the IRS finds out you haven’t paid your taxes, the IRS will send you a letter. If you don’t submit your payment within 10 days of receiving the letter, the IRS will file an enforceable business tax lien against your property, meaning your business assets can be seized. If you’re an unincorporated business, even personal assets can be taken, such as your home.
- It’s important to note that this does not apply to everyone behind in paying their taxes. According to the IRS, taxpayers who owe more than $51,000 but are conversant in an installment agreement or who have agreed to pay through an Offer in Compromise are not at risk of losing their passport. This only applies to taxpayers who have not made any attempts to pay their tax debts.
- You could get arrested for not paying your taxes if you’re avoiding paying taxes or if you’ve protested taxes in a manner that the IRS determines to be illegal. This is the most extreme punishment for back taxes.
What You Should Do
Obviously, the mentioned penalties are all daunting. Don’t worry, though, because there are some steps that you can take to avoid them from happening. These include:
- In most cases, business owners who have vast amounts of back taxes file business bankruptcy. Filing for business bankruptcy is never something you should take lightly because it immediately ceases all operations once it’s filed. However, it’s an excellent last resort for business owners who owe a lot of back taxes.
- You can file for an extension regarding filing your tax return, which gives you and your tax preparer until the fall to file your return instead of the usual March or April due date. While this doesn’t reduce the amount you owe or stop interest from rising, it will give you a lot of breathing room.
- If you owe a significant amount in back taxes, it’s recommended that you get in touch with a CPA or tax attorney experienced in settling tax debt. They can help you get your business-related tax affairs sorted out, so you’ll be in good hands.
- If the IRS determines that you cannot cover your reasonable living expenses and pay your taxes, they might place your account in “currently not collectible” status. You still owe the tax, including penalties and interest, but the IRS won’t try to collect what you owe. Instead, they’ll review your financial situation every year and expect you to pay when you can.
Business owners are often caught up with their day-to-day responsibilities, where they end up failing to pay taxes. The information above tells you what to do if you can’t pay up, so don’t panic. What matters most is that you can pay when you can.
Axiom Tax Resolution Group offers services for tax debt relief in Birmingham, AL. We believe that business owners must have options if they can’t pay taxes, and our tax professionals will ensure that this goal is met. Contact us today for a consultation!