While a business can end up owing back taxes for a variety of reasons, it is important to realize that the best way to address any back tax balance is always to resolve it as soon as possible. Although business owners may rationalize that they will clear up their tax debt issues at some future time when business is more profitable, this is usually not a wise decision. The legal and financial consequences of ignoring back taxes can be severe, not to mention that the IRS is more likely to approve a tax settlement agreement for a business when profits and income are low.
The consequences of carrying a balance on back taxes:
- Interest continues to accrue on the tax balance due at a rate which is normally calculated by taking the Federal short term rate and adding 3%.
- A failure-to-pay penalty is assessed at a rate of 0.25% to 1% of the tax amount due for each month that there is an unpaid balance.
- The IRS has the power to place liens on property and levy bank accounts when a business ignores a back tax balance. These aggressive collection activities are often more than the financial structure of the business can withstand.
- When a business fails to meet payroll tax deadlines, it is subject to the Trust Fund Recovery Penalty which is equal to 100% of the delinquent payroll tax balance. This penalty can assign blame to anyone who had any responsibility for the payroll tax debt and does not take into account the reason for the delinquency.
While the government is becoming more aggressive in their attempts to collect back taxes, they are also introducing new tax settlement and incentive programs to encourage business owners to get these balances paid. The tax specialists at BusinessTaxPreparation.com are familiar with all of the tax settlement options offered by the IRS and are experienced at selecting which option is the best fit for any business client with a back tax issue. The professionals at BusinessTaxPreparation.com are also experienced at helping business owners use available tax credits and tax deductions to their maximum advantage so they do not end up with tax balances that are more than the business can afford to pay if the first place.