Millions of dollars in penalties are doled out by the IRS each year, the majority of which are attributed to businesses that failed to file taxes or pay payroll taxes. With this in mind, it’s important to understand compliance to ensure your company steers clear of costly violations. There are unforeseen circumstances that could trigger an IRS penalty to your business, as well as instances like borrowing against payroll taxes owed to make up a payroll or service debt and missed deadlines.
Not paying business taxes causes serious consequences for you and for your business. Read on to learn about the many penalties that could happen to you and your business if you don’t pay your business taxes.
If you don’t pay your business taxes on time, the IRS will send a notice and outline a due date (typically 30 to 60 days) for you to respond to the notice. Ignoring these warnings could result in additional penalties, fees, or even a knock on your door from an IRS agent.
Late Penalties and Fees
If your company does not file taxes or does not pay the full amount, then you may be subject to a 10-15% penalty, which applies to every month the payment is delinquent, up to a maximum of 25%. An additional penalty of $135 and interest equal to the federal short-term rate plus an additional 3% may apply. Even paying late by one business week or less could result in your business incurring a 2% penalty.
Federal Levies, Seizures and Tax Liens
The Federal Payment Levy Program enforces the right to suspend certain benefits from business owners, including Medicare provider and supplier payments, military retirement benefits, select federal salaries, and certain individual earnings from Social Security.
One of the more impactful actions of the IRS is property seizure. In the case of unpaid business taxes, the IRS is permitted to levy the assets of businesses. If you fail to pay on time or pay in full, the IRS may seize company equipment, cars, and even your business property itself.
If you neglect your tax bill, the federal government may choose to place a tax lien against your business. This means that the IRS is superior over your debtors in the event that you become insolvent. If you try to sell your assets, the IRS will collect the funds before you can receive them.
Liens could also affect your credit score. This will depend on your payment history, debt-to-income ratio, and the type of model used to calculate your credit score. Even if you do pay off your lien, it could stay on your record for up to ten years.
A tax lien can become a criminal matter if the IRS determines that your business attempted to evade payment through fraudulent means, including filing false tax returns or falsifying deductions on those returns, not reporting cash receipts accurately, creating fraudulent invoices, and hiding income. These actions are considered criminally intentional acts, and should not be confused with unintentional neglect.
Willfully failing to pay taxes is a considered a felony charge that is punishable by a fine of $10,000, five years in prison, or both. These charges are often reserved for egregious cases where the business owner diverted money for personal use instead of taxes.
Avoid These Penalties to Keep Your Business Safe
It is best practice to pay your business taxes on time to prevent any penalties or legal action from the IRS. If you do not have money to pay the entire amount, paying at least a part of the deposit could reduce the amount of penalties owed. Here are some resources to get started.
There are obvious benefits to hiring a professional tax attorney. They can explain to you the options you have in greater detail, such as installment plans and extensions. Talk to our professionals at Milikowsky Tax Law about how to manage your unpaid business taxes.