Just as it does with individual taxpayers, the Internal Revenue Service (IRS) expects all small business owners to file tax returns and pay taxes owed in full by the due date. Failure to do so in a timely manner can have serious consequences. That’s why it is important for business owners to keep close tabs on the multiple filing and payment due dates throughout the year and to make a concerted effort to file and pay on time.
Filing a tax return is vital. If one is not received by the government, the IRS will file one for you. The substitute return is drawn from information the IRS gathers from other sources, which most likely will not include additional expenses or exemptions you may qualify for that could reduce how much you owe in tax. Penalties and interest will be assessed by the IRS and may increase the amount of tax owed, as well.
File Return on Time
As a small business owner, it’s critical to file all tax returns on time even if financial constraints make it challenging to make the full payment. If the IRS has already filed a substitute form, filing your own return as soon as possible will help reduce your liability, as the IRS will typically adjust your account to reflect the new figures.
If no effort is made to file and or make a payment, the IRS may request that the business owner sell or mortgage assets or secure a loan in order to clear money owed. If an attempt is not made on the part of the taxpayer, the IRS may take collection action, such as levying bank accounts, income and assets, and may file a Notice of Federal Tax Lien. This type of action could have a negative effect on your credit report. Individuals who continue to be noncompliant or are repeat non-filers may face additional penalties and/or criminal prosecution.
A taxpayer who is delayed in filing may qualify for a payment plan, depending on individual circumstances. Contact the IRS to negotiate terms. If you have not filed as the result of a disaster, such as an office fire or flood, penalties may be waived, depending on the circumstances. Connect with the IRS immediately to help avoid costly consequences.
Fresh Start Program
In an effort to help struggling small business owners during a challenging economy, the IRS recently announced the expansion of the Fresh Start Program. This program offers penalty relief to small business owners who have not filed taxes and experienced a 25 percent or greater decline in business during 2011. To be eligible, the amount of back taxes owed cannot exceed $50,000. You can use IRS Form 1127-A to apply for the penalty relief.
Once you provide your return to the IRS, you may be able to enter an installment agreement to pay back taxes. A financial statement is required if your back taxes exceed $50,000, and the maximum time limit to pay back taxes is 72 months.