Running a business is hard work. As a business owner, you have many responsibilities that can be too stressful, especially in a very busy season. However, one responsibility that you should never neglect is your taxes.
Given that as a business owner, you’re attending to too many things, there will be times that you’ll forget about your taxes, causing you to miss them and rendering you with back taxes. As common as they are, you’ll be wrought with consequences if you don’t pay your back taxes as soon as possible.
Simply put, if you owe money to the IRS, you’ll owe back taxes, and having them for too long can have dire consequences like:
- Seizing of business assets
- Difficulty getting finances
That said, if you have back taxes and want to know more about them, then you’re in luck because, in this article, we’ll talk about back taxes, how to get rid of them, and the consequences of not paying them.
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If you missed your deadline, it’s not that bad per se. You can still pay your back taxes, although with a little interest. You shouldn’t have any reason to miss a deadline since paying your taxes is as easy as ever, thanks to the modernized e-file.
With this, you can pay your taxes online by submitting an e-file that won’t take an hour. If you have back taxes that you haven’t paid yet and the original due date is way before the e-file was introduced, you must go to the IRS office and file your taxes with the original forms.
Submitting an e-file for the tax years that there’s no e-file yet will introduce many errors, not to mention paperwork and more time.
Failure to File Penalty
If this isn’t the first time you missed a deadline, you might have heard about the Failure to File penalty. Take note, however, that Failure to File is different from Failure to Pay. The penalty for failure to file can be as high as ten times what you’ll pay for Failure to Pay.
Typically, you’d have to pay at least 5% of the unpaid taxes you have each month for that tax return for that year (it doesn’t exceed 25%). The penalty will be significant if you continue to neglect. This is why tax experts often recommend filing your taxes regardless of whether you can pay the taxes or not.
We have bad news for you if you want to be slick about it. The IRS has Information Returns Processing software, which automatically flags those people who fail to file their taxes on time.
Failure to Pay Penalty
This penalty is pretty common, especially since businesses have their downtimes. In these situations, it’s not common for businesses to spend their money paying their vendors rather than paying their taxes. This is because, unlike the penalty mentioned above, the Failure to Pay penalty is just 0.5% of your monthly unpaid taxes.
Of course, the penalty begins accruing immediately, and it won’t stop unless you pay your back taxes. While there are extreme instances where a business cannot pay the penalty or back taxes, these are rare occurrences like disasters, death in the family, etc. But, if you want to sort out your taxes and their penalties, having an attorney deal with them is better.
If your company has back taxes, the IRS can withhold any future tax refunds to which you and your business are entitled unless you pay your back taxes.
If you are self-employed, you might even find your retirement savings affected. This is because your back taxes are unpaid, and your income is not being reported to the Social Security Administration.
Not only that, but the IRS would also place a lien on your business, which means you can’t get any type of business financing for your business, like business loans or even a fast loan. The IRS would also start seizing the assets of your business once they determined that you won’t be able to pay your back taxes.
They might even levy or seize the business owner’s assets and other responsible parties since they have that authority. And most importantly, in extreme cases, they also have the authority to shut down your business and seize your assets directly with or without warning. And the worst part? They won’t even need the permission or order of the court to do this.
After reading all of this, we won’t blame you if you think back taxes are scary and important. Or rather, the IRS is scary. Regardless of your opinion, you might want to do it now if you have unpaid back taxes. Not only will you avoid accruing penalties, but there’s also a chance that you’ll get a huge tax refund in the future.