Running a business is a lot of work. You enjoy what you do, but sometimes the less-exciting administrative tasks, like payroll and taxes, can feel burdensome. Your business is humming along and you’re excitedly drumming up business.
Then March 15th goes by and you’ve forgotten to file your taxes. You now owe the IRS back taxes. If running a business wasn’t hard enough, now you have the added stress of getting in trouble with the IRS.
The tax filing deadline for businesses is usually on March 15th or April 15th depending on your business type. Back taxes are those not paid by the deadline. If you owe taxes, there can be serious consequences to your business.
Need help filing your business taxes?
Contact Larry L. Bertsch, CPA & Associates, LLP today!
What Happens When a Business Owes Back Taxes?
When your business owes back taxes, don’t postpone payment. When you owe the IRS taxes, the consequences can quickly escalate in severity. Withholding taxes can lead you into paying more than you would have if you filed on time. It will be harder to get future business loans, your savings are impacted, and you’ll lose out on Social Security earnings.
Getting threatening letters from the IRS and interacting with the IRS can be intimidating. However, you don’t need to panic. IRS collections is a slow-moving process, giving you time to get things in order. It can take many months before you have to confront the IRS on your back taxes. Additionally, the IRS’s proverbial “bark is worse than its bite.” It often threatens to close businesses, but it rarely does. Many times, an IRS will shut a business down for unpaid payroll taxes.
Contact the IRS
If you’re delinquent on your taxes and you want to stay in business, it’s important to be in touch with the IRS. If you don’t communicate with them, they will surely reach out to you. As mentioned previously, the IRS is a slow-moving machine. They may leave you alone for a while, but don’t think you’ve slipped under their radar. The cost of not contacting the IRS with your situation or ignoring their letters can have dire consequences.
Provide Your Financial Information
It is important to be honest and forthcoming with the financial information they ask for. However, it is not legally required for full disclosure of your financial information. Revealing too much may put you at a disadvantage when it comes to payment plans. Full disclosure of financial information may be required only when the IRS serves you with a formal summons.
The IRS will be off your back when you pay them what they’re due. The IRS has various repayment options available so you can pay down your back taxes regardless of your financial situation.
Paying Your Back Taxes
If you’re behind on your taxes, the best thing you could do is to pay the taxes back. There are multiple repayment options available.
Set Up a Payment Plan
With a payment plan, you can pay off your back taxes in affordable, monthly installments. If you can’t pay off your debt in full, a payment plan may be your best option. Payment plans can be short- or long-term, depending on how much you’re able to pay each month. You may even qualify for an offer in compromise. If you select a payment plan, however, the interest and penalties assessed on your back taxes will continue to accumulate.
Get an Offer in Compromise
An offer in compromise is a way you can significantly reduce your tax debts. This involves making a deal with the IRS to settle your unpaid taxes for less than the amount you initially owed. This process is a lengthy undertaking that requires a business to fill out a form, provide detailed financial information, provide an initial payment, and request the IRS accept a portion of its tax debt. The IRS will likely accept the offer in compromise if it believes it is unlikely to collect future taxes and that the little bit now will be in their best interest. A reputable Las Vegas tax accounting firm can help you with an offer in compromise.
Request Uncollectible Status
If your financial situation is so bad you can’t pay off a portion of your back taxes, you can request to have uncollectible status. If granted, the IRS will leave you alone for a certain length of time. During this time, the IRS will not harass you. However, you will still be on the hook for your unpaid taxes and the penalties that accumulate.
File for Bankruptcy
If there is no other way you can solve your tax delinquencies, you may consider filing for bankruptcy. With bankruptcy, you can reduce or eliminate some of your back taxes. Bankruptcy is complicated to navigate and should be only as a last resort. Forging bankruptcy is a federal crime and bankruptcy remains on your credit report, making it difficult and expensive to secure loans.
What Are The Penalties For Owing Back Taxes?
The above steps available to address your back tax issue may still sound intimidating and inconvenient, but the consequences for failing to pay back your taxes can be severe and hurt your business.
Forfeiture of Your Refund
Owing back taxes can mean the IRS can refuse to give you the refund you would have received had you filed your taxes on time. Even after you’ve repaid all your back taxes, you may not receive a refund. If your business relies on this refund to fund business operations or to purchase equipment so your company can scale, you may be out of luck.
Fines and Interest Payments
Unless you are out of business, out of money, or will be unemployed for an extended amount of time, the IRS will be hovering and harassing you for money. To make your unpaid tax situation more unbearable, the IRS will assess fines and interest to the unpaid funds. The longer you hold off paying your taxes, the larger your debt will be.
Seizure of Assets
Failure to pay back taxes can grant the IRS legal powers to seize your business and personal assets such as wages, bank account, office, office furniture, and house to pay down the taxes you owe. The IRS doesn’t need a court order to close your doors. It also doesn’t need to give you a warning, though in many cases, it will issue a “demand letter.”
Revocation of Your Passport
If you don’t pay back your taxes, the IRS can revoke your passport. This means you won’t be able to leave the country to hide or start afresh. It will also make international business travel impossible. The IRS via the secretary of state revokes passports if a business owner owes more than $53,000 in taxes and no repayment installment plan is in place.
Purposely ignoring IRS notices or evading taxes can lead to your arrest. Imprisonment is often the result of extreme tax situations and does not happen frequently. Imprisonment can have devastating impacts on your business. If you work for yourself, it can close your business. It can also diminish your company’s brand.
Need a Tax Accountant to Help You With Back Taxes? We’re Here For You.
Tax preparation is a complicated, time-consuming process that intimidates business owners. You already don’t have enough hours in a day to complete all your business operations. Where are you going to find time to do your taxes and do them correctly, no less? A tax accountant in Las Vegas can help.
At Larry L. Bertsch & Associates, our certified and experienced Las Vegas accountants can tackle your most complicated tax return accurately and promptly. You’re busy enough managing your business. Contact Larry L. Bertsch & Associates today and let us take the stress and burden of your tax filing to prevent back taxes.