If you’re a business owner, federal and state taxes are likely one of many items on your list of expenses. But what happens if you get a tax bill you can’t afford to pay? You’re not entirely out of luck and won’t be forced to shut the doors to your business.
While there could be negative consequences, there are options to consider if you can’t pay your business taxes. You can also consult with a tax relief firm to explore your options and identify the best possible solution.
Understanding Business Taxes
There are several types of business taxes to be mindful of.
Types Of Business Taxes
- Income Tax: referred to as a “pay-as-you-go tax” by the IRS and computed based on your annual earnings
- Estimated Taxes: the amount you anticipate you’ll owe, payable in installments throughout the year
- Self-Employment Tax: includes Medicare and Social Security tax and is payable by individuals who are self-employed and earn at least $400 annually
- Employment Taxes: entails social security taxes, Medicare taxes, federal income tax withholding and Federal unemployment (FUTA) tax
- Excise Tax: applicable to select businesses, including those in the fuel, air transportation, gambling and communication sectors (Note: This list is not all-inclusive).
Federal Income Tax Due Dates
- Schedule C (Small Businesses): April 15
- Partnership Income Tax Returns: The 15th day of the third month following the tax year-end (i.e., March 15, 2023, if the tax year-end is December 31, 2022)
- Corporate Income Tax Returns: The 15th day of the third month following the tax year-end (i.e., April 15, 2023, if the tax year-end is December 31, 2022)
- S Corporation Income Tax Returns: The 15th day of the third month following the tax year-end (i.e., March 15, 2023, if the tax year-end is December 31, 2022)
- LLCs: April 15 (single-member LLCs) and March 15 (multi-member LLCs unless a tax year-end besides December 31 is selected)
What Are the Consequences If You Can’t Pay Your Business Taxes?
Here are some possible consequences if you fail to pay your business taxes on time:
Interest and Penalties
The IRS may assess interest on unpaid taxes and one of the following penalties:
- Failure to file penalty: results from failing to file your tax return by the filing deadline or extension due date (if applicable)
- Failure to pay penalty: results from failing to pay the total amount due
- Failure to pay proper estimated tax penalty: results from failing to pay the amount you owe if you’ve made estimated tax payments to the IRS throughout the year
You’ll also be charged a fee if you remit payment to the IRS, and it cannot be processed due to insufficient funds.
Forfeiture of Tax Refund
When you file subsequent returns, the IRS will apply the refund (if applicable) to your outstanding account balance. This pattern will continue until you no longer owe back taxes for your business.
Foreclosure of Property
The IRS has a right to file a business tax lien on your property if you receive a notice demanding payment for unpaid taxes and fail to respond within 10 calendar days. Personal property is also at risk if your business is incorporated. And if you fail to reach out to the IRS to make arrangements, the IRS may enforce the lien and levy or seize your property.
Revocation of Passport
Your passport could be revoked if you owe federal tax debt (including penalties and interest) of more than $55,000 or if the IRS has filed a Notice of Federal Tax Lien or issued a levy.
Criminal Charges
If you willfully evade taxes or fail to respond to a notice from the IRS, you could be arrested. However, this is very unlikely and only happens in rare circumstances.
What Are Your Options to Pay Your Taxes When You Can’t Afford It?
IRS Payment Plans
Businesses with $25,000 or less in federal income tax debt (including penalties and interest) can apply for a long-term payment plan. Also referred to as an installment agreement, these plans come with a $31 setup fee if you elect to pay monthly through automatic withdrawals from your checking account. The fee increases to $130 if you choose to schedule monthly payments on your own.
You can apply online for an installment agreement. Here’s what you’ll need to complete the application:
- Your company’s Caller ID included on the balance notice from the IRS
- Your company’s Employer Identification Number (EIN)
- The two-digit month and four-digit year your company was established
If you haven’t yet received a tax bill from the IRS and would like to apply, be prepared to enter the tax form you filed for your company and the applicable tax period, the amount you owe and your company’s address from the most recent return.
Offer In Compromise
The IRS may also agree to an Offer In Compromise to settle your unpaid tax bill. It’s an arrangement that allows you to pay less than you owe to resolve your tax debt if the IRS has reason to believe that paying in full will create a financial hardship. But you must meet stringent criteria and navigate the complex application process to be considered.
You could be eligible if you’re current on all tax return filings, estimated tax payments and aren’t involved in an open bankruptcy proceeding. If you have employees, it’s also mandatory that you make the required tax deposits for the current and past two quarters before applying.
Delay Collection
Contact the IRS and request that your account be categorized as “Currently Not Collectible.” If the IRS reviews your financial situation and decides you cannot remit payment, your request will likely be approved. Still, you will owe the tax debt and accrue interest and penalties until you pay the bill in full.
Hiring a Tax Relief Expert
It can be stressful if you owe back taxes to the IRS or your state taxing authority and can’t forward to pay the balance in full. But with a tax expert on your side, you’ll know what options are available to you to find relief. Furthermore, you’ll be equipped with the knowledge to make an informed decision that could be the difference between keeping the doors open to your business or being forced to shut down operations.
