Small businesses are likely to find that they owe the IRS money at the end of the fiscal year. If your focus is on continual business growth, you have likely pushed more of your cash into developing your business than saving for tax season — and you may be left with a bill you cannot pay.
Money owed to IRS or to the state of California should not be taken lightly. The repercussions of not paying the bills delivered by the California Franchise Tax Board can be significant and could include the closure of your company. Here are three actions the state of California can take if you fail to pay what you owe.
1. Fees, Penalties and Loss of Benefits
Initial repercussions you may face if you fail to pay your taxes include fees, penalties, and even the cancellation of benefits you rely upon. IRS can levy penalties on any business that fails to pay their full amount due. Even individuals who fail to file their taxes on time can be liable to pay up to 25% more on their taxes as a result. That is why it is so important to work with a CPA to file your taxes on time.
Along with penalties and fees, IRS can withdraw benefits from people who are unable to pay their taxes on time. If you are behind on your taxes, IRS has the right to seize your Social Security earnings, making it difficult for you to prepare for retirement.
2. Properties Seizure and Liens
A tax lien has the potential to harm both your personal and business finances, as well as damage your credit. If you are at risk of failing to pay promptly, contact a professional tax attorney as soon as possible.
A lien is recorded in California after a demand for payment goes unanswered. The government will issue a notice of collection to you 30 days before the lien is issued, which gives you one final month to deliver on your debt. If you fail to pay in that time, the lien will give the government the first legal claim to your property. That means they can effectively seize anything you own to pay off your tax debt. If you have an LLC or incorporated business, the government will only be able to file a lien on your business property. However, a lien can prevent you from getting a business loan, refinancing your house, and selling business assets.
3. License Suspension
Another method IRS can use to penalize you for failing to resolve your tax debt with the state of California is to suspend your essential licenses. For instance, if you owe more than $100,000 in taxes, interest or penalties, and you have not set up a collection strategy, your driver's license is susceptible to suspension. You will have 60 days to enter a collection strategy with the state before the state notifies the DMV of your status to suspend your license.
Your professional and occupational licenses can also be suspended. Realtors, dentists, attorneys, chiropractors, barbers, architects, and other professionals may not be able to have their professional licenses renewed in the state of California, meaning that they cannot continue to do business or make an income in their fields.
Protecting Yourself and Your Business
The failure to pay taxes or file a tax return on time in California is a crime. The good news is that most of the time, IRS would prefer to work with a business to settle before seeking criminal charges or delivering severe penalties. This is why IRS frequently sends out notices before revoking licenses or recording liens.
If you think that you might not be able to pay your taxes on time, it is essential to seek help from a tax attorney familiar with California tax law. At Milikowsky Tax Law, we can help you to determine whether you may be eligible for monthly installment plans under financial hardship conditions, or whether you can make an offer in compromise. Reach out to us today to get the help you need.
The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.