You’ve worked so hard to make your family happy and keep your business afloat. Would you risk your family’s future by failing to pay your taxes? No right?
Sometimes, back taxes can happen even though we don’t wish them to. Imagine the following: your business is struggling, you have fewer customers, less income and debts start piling up. You end up owing a lot to the IRS. You will soon be subject to fines and embargoes.
It’s scary, right?
This isn’t going to happen to anyone because we are here to help.
Next, we’ll show you how back taxes can impact your business and explain what liens are, as well as the consequences, and also if you want to know How To File Business Taxes For LLC? we got you covered.
What are back taxes
Back taxes are tax obligations you have that you do not pay for the entire tax year. It is not easy to owe money to the IRS. You will not be allowed to request an extension. However, you can avoid fines and interest.
If you believe that ignoring debt will make it go away and that you can just let time pass, the IRS has up 10 years to collect any back taxes. There is no way out. There is no escape.
Why is back tax bad?
You could face fines or garnishments if you don’t pay your taxes on time. Let’s look closer at some of the harsher penalties that the IRS can impose for not paying your taxes on time.
- Fines and interest
The IRS may charge you a minimum penalty amounting to $205 or 25% of your tax owed plus interest if you file your taxes after the deadline.
You could be penalized between 0.5% to 25% for not paying your debt on time. You could end up owing quite a large sum of money as your debt due to interest and penalties increases every month.
- Tax lien
This is where things get serious. The IRS can make written claims against delinquent taxpayers by imposing tax liens or liens.
The IRS can impose a tax lien on a debtor’s assets to cover the debt. These withholdings, on the other hand, are recorded on the defaulter’s credit file. This can affect his credit score and make it harder to obtain a loan.
The tax lien is placed on your assets. However, it could affect your ability to get financing. Lenders will review your credit score and the credit report of your business to determine if your finances are sufficient to pay the loan back.
Like the above, withholding rights stop the taxpayer from selling assets that are the subject claim. remain in effect until the tax debt has been paid.
Things could get worse if you don’t pay.
- You can retake your properties
The IRS may resort to a Tax Levy if you fail to pay taxes. This means that assets claimed through a tax lien will be taken to satisfy the debt.
The measure allows your company to seize all its assets such as bank accounts and investments. Your assets could also be compromised if your business is not incorporated
Your tax refund could also be lost. You may lose your passport and risk being detained.
5 ways to avoid back taxes
You are an entrepreneur smart enough to manage your business well and not worry about owing taxes. Here are some tips to help you stay on top of your tax obligations and avoid paying back taxes.
1. Prepare ahead
We may become repetitive, but we won’t stop insisting on the point: Preparing your taxes ahead of time will save you headaches.
You will need to organize your invoices, forms, and other documents that you might need to declare taxes. Remember important dates such as the deadlines to pay and declare depending on your business structure. Also, make sure to know how to complete and send your declaration.
While paperwork is important, where will you get the money to pay your obligations? You can get the money from an exclusive tax fund. It is a good idea to open a savings account for your tax money.
You can save a portion of your earnings and only use the account to pay these obligations. It doesn’t cost a lot to open an account. You can also earn interest by saving small amounts.
These funds will be there for you when you need them.
3. Get help
It can be difficult to file taxes and distract you from your business commitments. You don’t need to do it all yourself. Get a tax professional to help you understand the tax laws and ensure that you file and pay taxes on time.
Your bank manager, friends, and other entrepreneurs can recommend you to an experienced professional. If necessary, an accountant can help you collect documents and negotiate with IRS.
4. Use tax software
Use reliable, easy-to-use software to prepare your tax return if you decide to do it yourself.
These programs make it easier to file taxes. They guide you through the forms you must complete, give you the information you need and help you determine which deductions you can access.
Once you have entered all data, the software will calculate your taxes accurately.
5. Get a loan
Although it is not recommended to take on more debt than you can pay off, there are times when the only option is to do so.
Apply for a loan to finance your business if you are near the due date for paying your taxes. Apply for a loan from a lender that can quickly approve your application.
Your business’ finances should not be compromised by the loan. If you don’t owe a lot in taxes, applying for the loan may be an option. The interest and fees are not very high, and you can return the money within a set term.
Do not be afraid of taxes
If you don’t pay your tax obligations for a full year, they will become back taxes. The penalties can be severe if you don’t pay them. The IRS may fine you or enact a tax lien against your property. As a last resort, it can also garnish your property.
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