What if Your Business Owes Back Taxes?

file back taxes

When your unpaid taxes reach a certain threshold, the IRS will become very forceful in their collection tactics and can make your life miserable until you find a way to pay. They can hit your small business with exorbitant penalties, place leins on your assets, use a levy to seize property, or even threaten to criminally prosecute you in an effort to pay the tax debt.

Here are the most common consequences for owing back taxes. Find out how we can help get you up to date on your taxes by requesting a free consultation online now.

Tax Penalties and Interest Accrue

When your small business taxes are overdue, penalties and interest will quickly start to add up. The IRS will start with a penalty for the late filing and then will tack on a late payment penalty that can be as much as 25 percent of your unpaid taxes each month.

Tax Liens Can Hurt Your Business

If you owe a significant amount of money in back taxes and penalties, the IRS may institute a tax lien. A tax lien is a claim on a business' assets and is typically attached to real estate properties. This doesn't mean the taxing authorities intend to seize your property like a tax levy. Instead, it uses the lien as collateral for the tax debt and ensures that the government has first dibs on the property rather than any creditors.

If a public Notice of Federal Tax Lien is issued on a property, it can cause serious financial problems for a business owner. Since a tax lien is public, it appears on your credit score and hinders most lenders from working with you because their risk is much greater since the IRS has first rights to your assets. This damage to your credit can prevent you from obtaining the financing to build your business, can keep you from being approved for a new credit card, or can stop you from getting a lease for a rental property.

Tax Levies Can Cost Your More Money

A levy allows the IRS to legally seize your property or take money directly from a savings or checking account in order to pay off your tax debt. They can also confiscate equipment, putting the welfare of your business in jeapordy. If you've received a notice from the IRS threatening a levy, you need to act now to have it removed before they confiscate your cash or belongings.

Criminal Prosecution is a Threat

Facing jail time when you don't file your small business taxes typically only happens in extreme situations but it does occur. Be determined to file delinquent tax returns and pay your back taxes long before this becomes a possibility.