What to do When You’re Behind on Your Taxes

A tax expert suggests actions to take if you can't pay the taxes due on your small business.
Cafe Owner Doing taxes
Your business may be eligible to set up an online payment plan with the IRS. (Photo: mavo/Shutterstock)

In the unhappy event you find yourself owing the IRS more taxes than you can pay, what should you do?

According to tax attorney, Eric Brown, partner with Green & Sklarz, there’s plenty you should do, and the sooner the better.

“Above all else, even if you cannot pay the taxes you owe, be sure to file your tax return, and file it on time,” Green said. “Many taxpayers who owe money decide not to file their return because they believe if the IRS doesn’t have the return it cannot do anything nasty to you.”

That’s not the case, and failing to file a tax return on time adds 25 percent to your tax bill right off the top in a failure to file penalty. “If you cannot pay the tax, file the return anyway,” Green said. “The IRS will work with you if you are willing to work with them.”

When dealing with the IRS, there are important factors to know:

Let’s make a deal

The IRS is willing to work out a payment plan on the taxes you owe.

According to IRS.gov, you may be eligible to set up an online repayment plan if your business owes less than $25,000 and if all tax returns have been filed. They will not consider any collection alternative if you are not making your current tax payments.

Stick to the plan

Once you have a payment plan with the IRS, make all payments on time, no matter what. If you stop paying, the IRS can and will take serious action.

“Failure to remain compliant will cause the IRS to take enforced collection action against the business,” Green said.

The IRS can levy bank accounts, liquidate assets and issue levies to companies that have reported payments to your business, and that is just the beginning.

“Notices of federal tax lien will be issued, which will destroy the company’s ability to tap credit and cause a huge public embarrassment,” Green said.

Get current and stay current

Taxpayers should know the IRS is willing to work out an arrangement, but the taxpayer must work with them, get compliant and stay compliant going forward.

“For a business that owes payroll taxes, for example, they must be depositing for the first quarter of 2016 to be current,” Green said.

Fear the state

The IRS is the collection agency for federal taxes. States have their own collection agency and tax rules. Be sure to contact your state tax collector to address any state taxes you may owe.

“Most taxpayers are afraid of the IRS, but the states are often worse to deal with. They are nastier, do not have the sophisticated programs the feds have and are more likely to use harsh measures against a taxpayer,” Green said.

If you have a tax issue, contact a competent specialist who deals in tax problems as soon as possible.

“I would recommend seeing someone local who writes and speaks on this issue, someone who focuses their practice on IRS representation. Avoid national companies or gimmicky sales pitches on late night radio or TV,” Green said.

To avoid problems with the IRS in the future, hire a professional now.

“Taxpayers should use an accountant, and make actual use of the accountant. Waiting until the year is over at return time is almost worthless – it’s too late to make changes or financial moves,” Green said. “The time to use the accountant’s expertise is during the year when changes and adjustments can be made to reduce taxes and avoid having an underpayment problem.”

“A good CPA is worth his or her weight in gold, but only if the taxpayer makes use of them intelligently,” Green said.

If you find that you cannot pay your taxes, it is definitely time to assess your business and determine why there aren’t enough funds available to pay them.

“To put it bluntly, if a small business cannot pay its taxes – payroll taxes, sales taxes, etc. – then it might not be a viable business. The business owner needs to look at the business, perhaps with their professional, to see what is really happening and how to correct it,” Green said.

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