- Tax delinquency is a serious offense and can have detrimental consequences for you and your business.
- Late taxes can result in penalties or liens against your business.
- Stay in communication with the IRS if your taxes are not filed on time. Working with a CPA can help you avoid future issues with late filing.
There are options, resources and professionals out there to help you get your business in order if you are past due on your taxes.
Tax season is a nearly universal source of stress for business owners. It's especially fraught with anxiety if you have unpaid taxes. The longer tax delinquency goes on, the more daunting the prospect of catching up becomes, especially as interest and penalties accumulate. You may feel your only option is hiding from the IRS, since any form of contact would constitute an admission of guilt or might remind the IRS to audit your business.
It is in your best interest to remedy the situation as soon as possible, and that may seem meaningless when actually doing so appears out of the question. However, you may be surprised to learn the process is not necessarily as difficult as you'd guess. You may not even be in that much trouble (and if you are, it's crucial to address that).
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How filing taxes late can impact your business
Tax delinquency may have costly and altogether unpleasant consequences, but these consequences only become worse through neglect, and you have some control over their severity. According to the IRS, not filing taxes on time triggers their collection process and can result in penalties. Penalties can include levies or liens against your business. Surcharges can also be applied for each month that the taxes go unpaid.
Here are some tips for getting back on course when your business is behind on its tax payments.
Communicate with the IRS
While it may seem like a faceless monolith, the IRS comprises people who are trying to do their jobs and face considerable resistance in doing so. You may feel you're at their mercy, but they face obstacles, too, as they attempt to collect unpaid taxes. With that in mind, IRS officials appreciate when business owners are cooperative and communicative, and will often respond in kind. You have some recourse when you've fallen behind in tax payments.
IRS notices are usually rife with frightening numbers and threats of additional fines. If you already had trouble paying the original owed amount, it's understandable to feel overwhelmed when presented with mounting costs. However, the amount billed does not necessarily reflect what you'll ultimately have to pay. When you demonstrate a willingness to work with the IRS, you're already on the path to reducing what you owe. In fact, you may even be able to negotiate your debt down to the original owed amount.
Be sure to respond to their requests for information (especially if you've been ignoring them), and be transparent about your situation. You may not want to acknowledge openly that you owe them money, but they're already aware of that. They feel the need to investigate when it's practically necessary – i.e., they need further information and you don't provide it. And if an investigation is the only way they can make successful contact with you, they won't look upon you very favorably.
Determine what options and resources are available to you
It's helpful to remember that, above all, the IRS wants to collect the money you owe. That's what best serves its purpose as an agency and the tax system as a whole. The IRS may be intimidating, and it can make your life much harder, but it's not interested in being punitive for the sake of it. The IRS is well aware it can only collect money if it actually exists. Accordingly, it provides options to make payment feasible for people in difficult situations.
If you can't pay everything you owe, you may consider credit options, including a payment plan through the IRS called an installment agreement. If you can make those payments on time, you won't receive any additional penalties. (However, be forewarned that an installment agreement still carries interest, as well as its own processing fees.) If an installment agreement is not feasible, and you can demonstrate that paying the amount you owe would legitimately endanger your business, you may qualify for an offer in compromise, an agreement to settle your debt for less than the owed amount.
Whatever route you ultimately take, it will make a difference to pay what you can as soon as possible (ideally when you file). Determine what's currently doable, considering your income, assets and other debts. Interest and penalties are calculated based on the remaining unpaid tax, so you can meaningfully reduce the total amount you pay, even if you only seem to be chipping away at it.
Consult a tax professional to avoid a repeat situation
Business owners tend to fall behind on taxes for a simple reason: They think they can't afford to pay the amount owed. If taxes are yet another unmanageable business expense, there's a larger issue with your cash flow you need to address and adjustments you need to make.
Thankfully, there's a good chance that working out a resolution with the IRS will not dramatically affect your day-to-day operations. You just need some assistance figuring out what your options are.
You may be in a financially precarious situation and want to avoid incurring any additional costs by hiring an accountant. However, you'll ultimately be much better off consulting a professional to figure out a sustainable plan that allows you to pay your taxes on time. Enlisting the services of a professional can eliminate much of the uncertainty and anxiety surrounding your business's taxes. Next time tax season rolls around, it might even feel routine.