If your business owes taxes to the IRS after the filing deadline, you have tax debt. Even if you filed early and paid a portion of the bill, the remaining balance is considered tax debt. Many small business owners fear that the IRS will seize their businesses if they owe back taxes.
If you have a small business in Southeast Wisconsin, let Nolan Accounting help you with your financials. We can help with your daily payroll and bookkeeping tasks, payroll, and tax prep, including helping you come up with a plan to pay your back taxes.
Most small businesses with tax debt can work something out with the IRS, as long as they are aware of how to deal with them. If you owe back taxes, keep the following in mind:
Tips for Managing Back Taxes
Communicate with the IRS
If you’re behind with your business taxes, it is critical to communicate with the IRS. They may leave you alone for a while, but they will come back around. If you ignore them, the consequences can be serious. The IRS will continue to add penalties and interest to your debt- and you may ultimately lose your business.
You have time to catch up
The good news is, the IRS collection process is slow to get started, and, once it does get started, it takes time to react. This means that you have time to build your strategy for paying off your debt. In the beginning, you’ll receive lots of computerized tax bills and possibly phone calls. However, you likely have some time to catch up before they assign a real person to your case.
That being said, just because no one is knocking on your door doesn’t mean you can sit back and relax. You still need to make an effort to pay what is owed.
Give the IRS your financial information
While you are not legally obligated to give your financial information to the IRS, unless you are served a summons, it’s a good idea to cooperate if you are contacted by an IRS agent.
Threats are usually worse than actions
The IRS may threaten to shut your business down. If a business is shut down due to back taxes, it’s usually back payroll taxes.
Ask for a discount or payment plan
If you believe it might help, ask for a discount on the full amount if paid in full. On the other hand, you can request a payment plan. Most of the time, the IRS will agree to this- but keep in mind that penalties and interest continue to accumulate.
Get an “Offer in Compromise”
Approximately 25% of businesses are able to make a deal with the IRS to settle their tax debt for pennies on the dollar. However, requesting an offer in compromise is a formal, lengthy process. You will be required to fill out a form providing details about your financial situation and request that the IRS accepts a portion of what you owe.
If the IRS believes that it will be unable to collect more in the future, they are likely to accept the offer.
Request “uncollectable” status
If you are in a grim financial situation, you can request to be placed in “uncollectable” status. If the IRS agrees, they will leave you alone for a period of time. You still owe the taxes and penalties, but they will not continue collection efforts.
Consider filing bankruptcy
Though it’s not ideal, filing for bankruptcy can reduce or eliminate some of your tax debts. It is a complicated process, but it may be worth exploring if you’ve exhausted other options.
Let Nolan Accounting Help with Your Business Accounting
If you are a small business owner in Southeast Wisconsin, consider letting Nolan Accounting help you with your accounting needs. We can help you stay on track with your tax payments to avoid accumulating tax debt. If you’re already struggling with tax debt, we can help you create a plan to deal with it.