Many small businesses and in particular new businesses are not prepared for their tax obligation. And at the end of the year, they can’t pay taxes. Businesses are supposed to pay estimated quarterly taxes in April, June, Sept, and January, but many small businesses do not or underreport or underestimate their taxes to a significant degree.
If a business can’t pay taxes, it’s very important to:
- File the tax return anyway
- Avoid enforced collection with the IRS
- Establish an extension or payment plan
- Consider settlements or deferred payments
Things to Take Care; When You Can’t Pay Taxes
File All Business Taxes
The very worst thing a business can do when faced with taxes they can’t pay taxes are not file. Be mindful that the IRS cannot make an agreement with you until you’ve filed a tax return. If you owe past years as well, it is better to enter a single rather than multiple agreements because the IRS’s leniency with you will lessen with each agreement made within a particular time frame. If the IRS identifies your debt and your business has not filed its taxes, the IRS can move aggressively and put you in a bad situation.
Call the IRS to Research Your Account
If there are any uncertainties at all whether you’ve filed all necessary returns this year or in previous years, contact the IRS. The IRS will research your account and determine where any mistakes where made. You’ll then be given a grace period in which you can file the necessary documentation.
Challenge IRS Assertions
If the IRS asserts more than the amount you claimed on one or more business returns, do not accept this assertion at face value. Challenge it. The IRS has made mistakes and will again. The IRS won’t necessarily take advantage of all tax breaks available to you the way a good accountant would. If you determine the IRS is correct, amend the returns. You may also be able to reduce or eliminate penalties through abatement.
Consider a Loan
Evaluate the facts:
- How much can you afford with your existing assets when you can’t pay taxes?
- What would the impact of a tax lien be?
- What would the impact of additional interest and penalties be?
A loan is almost always the best option if it’s feasible. Even if you or your business is not in a position to acquire an unsecured loan, consider a collateral loan. These assets may be at risk anyway if there is a federal tax lien or the business is otherwise at risk of going under due to its obligations.
Obtain an Agreement with the IRS
If a loan or other non-IRS avenue is not feasible, you can enter an agreement with the IRS. Be mindful that while the IRS can and often is quite lenient, that leniency will reduce as you take advantage of it. In other words, a business that needs to enter a deal each year will face far less friendly terms than the business that faces hardship and requires a payment plan to get through.
Acquire Expert Assistance
There can be many options available to your business if can’t pay taxes, including:
• Payment plans
• Deferred payments
• Waived penalties
Which option is best depends on your particular situation.? Depending on the size and scope of your tax obligation, it often helps to acquire professional assistance from an accountant who specializes in back taxes. It can have a significant impact on how much you owe over the long-term.