If your small business is experiencing difficulties because of its tax burden, there are options to help. Here are some tax relief programs for small business owners.
What Should I do if I Think My Company Needs Help?
The first step is to stay in touch with the IRS. If you don’t, you can count on the agency coming around to demand payment eventually. It is likely to take a little while, but you will not have control over when or how the demand is made.
More importantly, if you are not communicating your difficulties to the IRS, then there is no way for its representatives to tell you from a willful tax evader. When you keep in touch with them, they can help you with payment plans and information about formal tax relief.
How Much Interest is Assessed on Unpaid Taxes?
The government can assess interest rates of up to 14% on unpaid taxes. This is not a guarantee that the debts will be assessed that rate, though. There are ways to apply for waivers of interest, especially if your tax burden has changed a lot in a short time.
What Collection Methods Can the IRS Use?
Congress has given this federal agency a number of expansive powers when it comes to collections. They can seize just about any assets. They can also freeze funds and garnish wages. The good news is that these extreme methods tend to be a last resort. If you try to get on a payment plan and you make progress, you can expect to do better.
What if I Can’t Pay in Full?
Depending on how much you owe and how great the effect of total payment will be on your company, there are options. You can pursue an offer-in-compromise that allows you to pay part of the back taxes due. Pursuing this offer can take time, though. To issue an offer-in-compromise, the IRS has to be convinced that there is no way to collect the full payment in whole or as installments.
To reach a compromise, you might need an attorney or another negotiator working on your behalf. This can add expense as well, and depending on the nature of the offer, it can also wind up making your total cost higher with an offer. When choosing whether or not to retain counsel to help, keep that in mind.
What if I Need to Make Payments?
Luckily, the IRS’s Fresh Start program expanded more than just eligibility for compromise offers. It also expanded the payment program. Now, taxpayers owing up to $50,000 can pay on plans for up to 72 months.
The payment plans use a monthly direct debt system. The Online Payment Agreement tool at IRS.gov is one of the easiest ways to apply for this. When a payment agreement is reached, you can generally avoid a lien.
How Much Tax Debt do I Need to Accrue Before a Lien is Placed?
Generally, the IRS will not bother with a tax lien unless you owe more than $10,000. There are some exceptions, especially in the case of tax debts that go on for a protracted period of time. If your tax debt is new and you owe less than the threshold amount, though, it would be rare to see a lien. That gives you some time to work before your tax debts get out of hand.
What if There is No Way to Pay at All?
There is such a thing as being placed on “uncollectible” status. It is not common, but for businesses that are in truly dire straits, it does exist. To request that you be classified as uncollectible, you need to fulfill a few requirements:
- You need to demonstrate that you have no current ability to pay
- Your business needs to be solvent enough to keep functioning
Being marked as uncollectible does not make those debts go away, nor does it freeze the interest. It just means the IRS has agreed not to take actions to collect for a certain period of time. At the end of that time, you will need to either reapply or seek a compromise.
What Else You Should Know
If your company’s tax situation gets too dire, corporate bankruptcy could be an option. Depending on the type of bankruptcy, you could wind up with your company’s tax debt discharged. At the least, you are going to be granted a restructuring of the debt if the bankruptcy is granted. This can get you the breathing room you need to make your comeback.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.