Stepping into the murky waters of past-due business tax debt can feel like navigating a minefield. With the IRS’s unyielding authority to impose crippling fines and seize assets, one could easily drown in financial and emotional turmoil.
So, what are your options for tackling late business taxes without losing your mind?
This post has you covered. We’ll unravel the complexities of tax debt and highlight free options that could help neutralize your situation (at least for now). You’ll also learn why enlisting tax attorney services is an excellent position for resolving business debts above $10,000.
Consequences of Past-Due Business Taxes
Failure to pay business taxes on time can lead to several consequences that can severely impact your company’s financial health and future. The repercussions include:
1. Interests and Penalties
One of the immediate consequences of not paying your business taxes on time is the accumulation of interest and penalties. The IRS imposes a 5% penalty for every month the tax stays unpaid, consisting of a 0.5% late filing penalty and 4.5% interest. That can quickly add up, with the maximum penalty hovering at 25%.
2. IRS Collection
One of the most aggressive tactics employed by the IRS to resolve delinquent accounts involves asset seizure. Here, the authority confiscates a variety of your assets—from bank accounts and wages to real estate properties and vehicles.
3. You Risk Losing Your Refund
If your business is entitled to a tax refund, failing to file your tax return on time can jeopardize your chances of receiving it. The IRS may apply the refund to your outstanding tax liabilities, leaving your business with no additional funds to cover other expenses or invest in growth opportunities.
4. Issues Obtaining Loans
Past-due business taxes can also negatively affect your ability to secure loans and other forms of financing. Lenders view unpaid taxes as a sign of financial mismanagement and may be hesitant to approve loan applications from businesses with a history of tax delinquency. That can hinder your company’s growth and access to much-needed capital for expansion, equipment upgrades, or working capital.
Free Options for Business Tax Debt
Below are several free options to help you manage your business tax debts more effectively.
1. Request an Extension of up to 120 Days
If you need more time to gather funds to pay off your tax debt, the IRS allows you to apply for an extension of up to 120 days. This short-term payment plan can provide the breathing room necessary to reorganize your finances. However, interest and penalties will continue to accrue on your unpaid balance during this period.
2. Apply for Currently Not Collectible (CNC) Status
Business owners who prove that paying their tax debt would cause significant financial hardship might qualify for CNC status. This option temporarily suspends the IRS’s collection efforts, allowing you time to recover financially. It requires completing a Collection Information Statement and providing documentation of your financial status.
However, your outstanding balance continues to accrue penalties and interest. Plus, the IRS can apply your tax refunds to your debt.
3. Request an Offer in Compromise
An Offer in Compromise (OIC) lets you settle your business tax debt for less than the full amount owed. To apply for an OIC, you must complete Forms 433-B and Form 656 and pay a non-refundable fee of $205. Fortunately, this fee can be waived if you meet IRS low-income guidelines.
Not everyone qualifies for OIC. IRS will first evaluate your financial situation, income, expenses, and asset equity to determine your RCP (reasonable collection potential). That’s the amount of money the authority can potentially collect from a taxpayer through enforced collection actions or other means. Your offers should match or exceed the RCP.
4. File for Bankruptcy
While filing for bankruptcy should always be a last resort, it may provide relief from tax debts in certain cases. Depending on the type of bankruptcy filed (Chapter 7 or Chapter 13), the IRS may discharge a portion or all of your tax debt.
However, bankruptcy can greatly impact your credit and financial future. We, therefore, recommend consulting a financial advisor or attorney before moving on with this option.
How a Tax Attorney Can Help With Past-Due Business Taxes Above $10k
A tax attorney can be a lifesaver for businesses struggling with past-due tax debts exceeding $10,000. They’ll thoroughly evaluate your business tax liabilities and determine the most suitable options to resolve them. They’ll walk the extra mile to help you complete the necessary documents, ensuring they’re error-free and submitted on time.
You also gain valuable insight into tax laws and regulations so you make educated decisions regarding your current situation and avoid similar issues in the future.
And if your case ends up in tax court? An attorney worth their salt will represent you and argue your case, maximizing the chances of a favorable outcome.
Final Take
Dealing with past-due business tax debt is anything but a walk in the park. But with the right support and a proactive approach, you should be able to overcome your financial situation and steer your business back on course toward success.