According to the type of business you’re operating, your deadline for paying taxes is either the 15th of March, or the 15th April every year. If you fail to pay your tax liability in time, you will start owing back taxes, which can lead to a number of not insignificant consequences, some of which are listed below:
You’ll have to pay penalties and interest on your debt
The sooner you can clear your back taxes, the better, as the majority of tax debts are compounded at a rate of 14%, and penalties for filing and paying late, can mount up to as much as a ¼ of your total debt.
Levies, seizures and more
Started back in the year 2000, The Federal Payment Levy Program (FPLP), enables the IRS to collect back taxes owed from sources such as federal payments, federal employee retirement annuities, federal travel advances and many more. They also have the right to seize property and equipment, and even to levy business assets. Additionally, the federal government may place a lien against your business, and if you try to sell assets, those funds could be collected by the IRS before they reach you.
Foreclosure
Once you’ve received a tax notice from the IRS, if you fail to pay it within 10 days of receipt, they’re fully within their rights to place a lien against either your business property, or in the case of unincorporated businesses, against personal property.
In some, more extreme cases, should the IRS determine that a business you own has been intentionally avoiding filing their taxes, or paying them, they may take criminal action. Classed as tax evasion, this felony comes with a $10,000 fine or up to five years jail time, or both.
So, what can you do if you’re behind on your taxes, to avoid the above action being taken?
5 ways to get back on track financially if you owe back taxes
- File for an extension
Filing an extension allows you to file your taxes at a later date in the year, and while this doesn’t reduce the amount you owe, it gives you more time to prepare and pay what you owe.
- Set up a payment plan
Setting up a short or long-term payment plan with the IRS can help you manage your back taxes if you’re unable to pay them in full, in one go.
- Negotiate with the IRS
If you can present the IRS with a reasonable offer based upon the amount of taxes you can pay, you could settle your tax debt for a lesser amount than what you owe, with an ‘offer in compromise.’
- Ask for ‘currently not collectible’ status
The IRS may temporarily suspend actions to collect the debt if you can prove that paying what you owe would cause you significant hardship. If they do so, your account will be placed in ‘currently not collectible’ status and your situation will be reviewed annually.
- Seek professional help
With a qualified and experienced tax professional to fight your corner, they can deal with the IRS on your behalf, and save you a lot of headache and stress. With their knowledge on tax laws and regulations with respect to back taxes, your case would be in safe hands.
By following the steps above, and never ignoring any correspondence from the IRS, you can try to settle your tax debt without putting your business into financial ruin.