Paying taxes on time is a top priority when it comes to running a successful business. However, it’s not uncommon for small business owners to owe more money than they have on hand. Whether this is due to cash flow problems or getting a bigger tax bill than expected, the good news is the Internal Revenue Service (IRS) offers business owners a number of options if they can’t pay in full at tax time.
File on Time, Pay What You Can
It is essential that you file your return by the deadline to avoid a late filing penalty, and pay as much as you can to reduce interest charges. You will still owe interest on any unpaid amount, but the sooner you pay and the more you pay, the less you will owe in interest and penalties. If you can pay 90 percent of what you owe, you may qualify for an extension on the balance with no interest or penalties applied.
Make sure the tax owed is accurate and that you haven’t missed taking deductions or credits. When it comes to tax preparation, a good accountant will make sure your business is in compliance with tax laws, your return is precise, and help save you time and money in the short and long term.
The IRS is a fairly reasonable creditor, and most agents are more than willing to work with you to find the right plan for your circumstances. Let the agency know about your situation, and provide them with any information they request. They may be able to provide some relief such as a short-term extension, an installment agreement, an offer in compromise, or by temporarily delaying collection until you are able to pay.
Paying by Credit Card
The IRS accepts credit card and debit card payments through certain providers. The interest and fees charged by a bank or credit card company could be less than IRS interest and penalties, so this may be a viable option depending on how much business tax you owe. You may also pay by credit card when you file through certain tax preparation software programs that have e-file and e-pay built in, although the fees may be higher.
IRS Tax Payment Options
There are basically three alternative options to paying your business tax debt immediately:
- Apply for an IRS Installment Agreement to make monthly payments
- Offer in compromise to reduce the amount of tax debt you owe
- Delay the collection process temporarily
Option 1: Installment Plan
Depending on how much you owe, you may qualify for an IRS installment plan. This formal arrangement allows you to pay off your taxes partially each month, just like an installment loan. Interest and some processing fees apply, but if you make the minimum monthly payments on time, you won’t pay penalty fees.
You don’t have to wait for the IRS to send you a bill before requesting a payment plan. The best way to find out if you quality is to use the Online Payment Agreement tool on the IRS.gov website. You can also file Form 9465, Installment Agreement Request, with your tax return. If you qualify, you can set up a direct debit agreement to avoid missing payments and incurring additional penalties. Compare the offer from the IRS against other credit options, including credit cards, to make sure you’re getting the best possible rate.
Option 2: Offer in Compromise
In some cases, the IRS allows you to settle your tax debt, meaning they will reduce the amount you owe. In order to accept this form of tax relief for small business owners, called an offer in compromise, the IRS considers your ability to pay, business expenses, income, and asset equity.
To get an offer in compromise approved, you must be current with filing and payment requirements. The process starts with online pre-qualification to confirm your eligibility, and applying is no guarantee of approval. The rules are complicated and you must provide a comprehensive disclosure of your financials, so it’s a good idea to consult your tax professional before applying.
Option 3: Temporary Delay
If you can’t pay your business tax debts when they are due, the IRS may temporarily delay the collection process. That means they will hold off on collecting your tax payments, but the debt is not forgiven. You can request a delay collection by calling the IRS at (800) 829-1040 or call the phone number on your tax bill. If your tax debts are temporarily delayed, you will be charged penalties and interest until the amount is fully paid.
Consider a Working Capital Loan
Summit Financial Resources offers flexible working capital financing for clients to use as they see fit, whether that means purchasing inventory or covering delinquent taxes. We can approve a business loan or line of credit quickly with an interest rate lower than some late tax filing situations. You can pay your taxes in less time than it took you to file them.
If you get a bill from the IRS, don’t ignore it. Contact the agency right away to talk about your options. The sooner you start working with them to resolve your tax debt, the sooner you can go back to focusing on running and growing your business.
The information provided here is not intended to be tax advice. If you have questions about tax payment alternatives, contact your tax advisor or the IRS at (800) 829-1040.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.