Tax Debt Relief

Business Back Taxes: What Can You Do About Them?

written by Claudia Grant
reviewed by David J. Allen
August 29, 2022

The average small business pays between 13.3% and 26.9% in business taxes. The average US small business pays an estimated 19.8% in business taxes.

No matter how thriving your business is, this is a large chunk of profit that needs to be paid to the IRS. If your business wavers or things slow down, making that tax payment to the IRS can be challenging.

Running a successful business can be stressful, with many demands on you as the leader of the business. Before you know it, you have back taxes and are worried about your standing with the IRS.

If you miss the filing deadline, it’s obvious that you did something wrong, but it’s less clear if the IRS will give you a second chance or an avenue to fix it.

If you are worried about back taxes owed, keep reading for more information about what you can do to get back taxes help.

Business Back Taxes, What to Do

The reality is that the IRS can be quite intimidating, and you’re probably worried about the consequences of missing a tax deadline.

The truth is you shouldn’t panic. You can take actionable steps to mitigate the damage and get back on top of your business tax obligations.

The reality is that the worst thing you can do is ignore the problem. While dealing with the IRS can move painfully slow, they will still expect you to pay.

Here are some steps you can take to address your back taxes.

File for a Tax Extension

If you’ve fallen behind recently, you can file for an extension through the IRS. This typically gives you six months to organize and file your taxes.

You should know that filing an extension doesn’t get you entirely off the hook on consequences for the back taxes.

The extension won’t reduce the amount of taxes you owe or the interest and penalties you might have because you owe taxes.

It lets the IRS know you’re not delinquent and need additional time to get the taxes together. For many businesses, filing an extension is common practice.

Evaluate your tax situation

By evaluating your tax situation, you can identify areas where you may be able to reduce your tax burden and make informed decisions about your financial future.

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Stay in Contact With the IRS

One thing about the IRS is that they like communication. You will never have them calling you on the phone. Instead, you’ll be inundated with letters from the IRS about your tax situation.

If your goal is to fix the back tax situation, then you need to do everything possible to communicate with the IRS.

If you ignore their communication, the IRS will likely ramp up their efforts to get the taxes owed, and you could face more consequences. Some people feel like they can’t pay their back taxes, so they want to ignore the IRS communication.

That is not the best avenue to right your situation. Keep communication open with the IRS to work towards a viable solution.

Consider Asking for a Payment Plan

If you’ve already filed your taxes and just owe back taxes, you can go to the IRS and ask for a payment plan to get your bill paid off.

The IRS usually allows those who owe back taxes to set up a monthly payment plan. They may ask for some financial information to establish what you can realistically afford.

Be forthcoming with the IRS. Don’t try to hide financial information.

The one caveat to this option is that you’ll continue to accrue penalties and interest on any back taxes you owe until they get paid off.

 Currently Not Collectible Status

The IRS has a status called Currently Not Collectible. If you can’t currently afford to pay your back taxes, you can request a temporary status of currently not collectible.

The IRS grants this status when you can show that you can’t afford to cover your reasonable living expenses and still pay the tax bill. This puts a temporary hold on the collections of your account.

The IRS won’t continue to pursue getting money from you while you’re in this status. However, like other options, penalties and interest continue to accumulate on your back tax bill.

Contact a Tax Specialist

Before you opt to file back taxes, it might make sense to meet with an accountant or tax specialist.

First, if you haven’t used a tax specialist before, they can evaluate your tax situation and make sure there’s nothing you missed in calculating your taxes.

They can always file an amended return if they find a way to save you some money. Even if that doesn’t happen, they will be more experienced with how to proceed with the IRS.

Offer in Compromise

If you have a large tax bill that has built up over time, you may be eligible for an offer in compromise through the IRS. Not all businesses are eligible.

But in some cases, the IRS will settle for a smaller tax payment than what is owed.

An offer in compromise is challenging to get approved. It requires the business to provide significant financial documentation and completed forms. But if the IRS approves it, you can avoid paying a large percentage of your tax bill.

Consider Bankruptcy

If you’re deep in debt and the other options on this list aren’t viable, you could consider filing for bankruptcy.

This isn’t a rash decision you should make, and you should meet with a tax expert to see how much of your back taxes you could eliminate by filing for bankruptcy.

The IRS may not be forthcoming, but this option usually allows you to wipe out some tax debt. However, it can have other implications, so be sure you’re speaking with an expert before proceeding.

Get the Help You Need With Your Back Taxes

You don’t want to ignore the back taxes hanging over you as a business. You have options and must act on the problem before it worsens.

If you want more information on tax debt relief, we can help. Check out our other articles on tax debt relief.

Claudia Grant

Claudia Grant is a seasoned financial expert with a rich and diverse background. Holding a Master of Science in Taxation, Claudia's 15 years as a CPA and ten years as a financial manager have shaped her into a true industry authority. Departing from the traditional office setting, Claudia now thrives as a tax and financial consultant, catering to a wide array of companies. Her passion for sharing knowledge shines through her insightful articles, where she breaks down complex financial concepts into simple pieces. Claudia's expertise and dedication make her an invaluable resource for businesses seeking adept financial guidance in an ever-evolving landscape.
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