Small and medium-sized businesses face unprecedented challenges in 2020. If you have also received notice that you owe back taxes to the IRS, it may feel like the burdens are getting too big to shoulder.
The IRS reports that more than 8 million Americans owe over $80 billion in back taxes. There are smart steps to take when you have back taxes due. Perhaps the most important one to keep in mind: ignoring notices from the IRS is not an option. Interest and penalties can add up quickly. If you have a reasonable cause for filing and paying your taxes late, you may be able to avoid these extra costs.
2019 tax filing deadline extended
The good news is the deadline for filing 2019 taxes for businesses and individuals was extended to July 15, 2020, due to complications caused by the pandemic. If you’re wrestling with back taxes, it is for tax year 2018 or earlier.
You may not have the means to pay the amount the IRS says is owed, but it is important to initiate a plan to resolve the issue. Doing so can help your business stay solvent and relieve a great deal of stress. Additional risks of not addressing unpaid taxes include seizure of business assets and difficulty securing business loans.
Steps to take
Accountants and business financial advisors recommend essential steps if you owe back taxes that you are unable to clear up immediately.
Request an extension to file for 2019 – If you owe business taxes for 2019 (or haven’t figured that out yet), it’s imperative to request an extension. You can get an extension to the fall, which simply provides more time to complete that work.
Contact a tax attorney – Working with a knowledgeable tax lawyer is the best way to learn your options and develop a solution, including a payment plan.
Contact the IRS – It’s helpful to let IRS officials know you are working on resolving the issue. If you plan to work with a lawyer, that person can advocate on your behalf.
Request currently not collectible status – If the IRS determines that you are unable to enter into a payment plan and still cover reasonable living expenses, the “currently not collectible” status doesn’t stop interest from accruing, but it will place a temporary hold on the IRS collection efforts.
Explore bankruptcy – The rules regarding bankruptcy and discharging business back taxes are complex. Everything is not dischargeable, but an experienced tax attorney can help you understand what may be erased through bankruptcy.