Even if you pay your estimated quarterly taxes every three months, you may still owe more taxes than expected for the full year. In some cases, this happens because your business earned more than you initially estimated it would. While unexpectedly high revenue is usually good news, it may not be enough to absorb the full amount of the surprise tax bill.
If the tax filing deadline came and went and you were unable to pay what you owe, you can’t afford to ignore this problem. Eventually the IRS will contact you, and the problem will only get worse the longer you wait.
The best thing you can do is to seek assistance from a tax professional. They can evaluate your situation and advise you about your best options — and you do have options. Here are some of the most common ways to handle past-due business taxes.
If You Requested an Extension
If you successfully requested an extension before the tax deadline came, you’ve started off on the right foot. This helps you avoid paying extra fees and penalties you otherwise would be charged for filing late. When you request an extension, you must include an estimate of the amount you think you owe, and note what you already have paid in your quarterly payments.
The extension’s length will depend on the type of business you own, but it may extend the deadline by four months or more. While you still must pay what you owe, you will have more time to verify the amount you owe and gather the funds for payment.
Negotiate to Reduce the Amount Owed
Even with an extension on your taxes, you may not be financially able to pay your full tax bill by the new extended deadline. If you can demonstrate that paying the amount of tax you owe would place undue hardship on you or your business, you may pursue a deal known as an offer in compromise. An offer in compromise effectively reduces the total tax owed to an amount you can pay within a reasonable timeframe.
When determining your eligibility for an offer in compromise, the IRS takes into account your ability to pay, income, expenses, and asset equity. Before you apply for an offer in compromise, hire an experienced tax professional who can help you make your case to the IRS.
You cannot ask for an offer in compromise if the tax deadline passed without you filing an extension, or if your business is in an open bankruptcy proceeding.
If You Didn’t Request an Extension
If you didn’t request an extension before the tax deadline and the date has passed, your business now owes the IRS a tax debt. It’s important to resolve this tax debt as soon as you possibly can. Depending on how your business is structured, the IRS may hold you personally responsible for your business’ tax debt. There are a few ways you can confront your unpaid taxes.
Set Up a Repayment Installment Plan
If you know you cannot pay your entire tax bill in one lump sum, you can request a repayment installment agreement. Under such a plan, you receive extra time to pay your tax debt as long as you make at least the minimum monthly payments. Depending on the situation and the amount owed, an installment plan may last from 120 days to 72 months. Interest and penalties accrue on to the total you owe, so if you can pay more than the minimum each month, it’s highly recommended that you do so.
Apply for Temporary Reprieve
If your financial situation is dire enough, you may qualify for “currently not collectible” status with the IRS. In this case, the IRS determines that you cannot pay the tax you owe at this time without incurring serious financial hardship. This status is temporary, and penalties and interest still accrue on the amount owed, but the IRS refrains from taking stronger action against your business. This gives you extra time to gather the amount you owe to pay back your debt to the IRS.
Get a Professional On Your Side
All of these options exist because the IRS is well aware that for various reasons, some businesses cannot pay their taxes on time each year. The IRS is willing to work with you if you are proactive and transparent about your situation. Hiring a tax professional to represent you can help you achieve the best results, as they understand the nature of tax laws and tax debts and can advocate on your behalf.
If you didn’t pay your business taxes on time, don’t wait for the IRS to take action against you. Set an appointment with a qualified tax attorney who will help you understand your options and represent your business fairly as you negotiate a solution with the IRS.