Tips for Working with the IRS to Settle Small Business Tax Debt

Tips for Working with the IRS to Settle Small Business Tax Debt

• Jul 15, 2022

If you’re a first-time business owner, it’s not unusual to find yourself with a large tax debt that you can’t afford. Many new business owners don’t know that they’re expected to make quarterly estimated tax payments. If you don’t do this, you’ll end up with a heavy tax burden when tax season rolls around—plus the potential of underpayment fees for not paying your taxes throughout the year. If your small business has a tax debt that you can’t afford to pay off immediately, keep reading to learn what you can do to work with the IRS and get it settled.

Continue to Communicate with the IRS

The most important thing to remember when you owe taxes is to always stay in communication with the IRS. Many people think they can slip quietly under the radar if they don’t reach out to the IRS and alert them to their unpaid debt. While it’s true that they may not immediately begin attempting to collect, you can count on the fact that the IRS will begin those collection attempts sooner or later. Trying to ignore your debt will always result in increased fees and interest on your existing debt—and you could even lose your business as a result.

The IRS is almost always willing to work with taxpayers who are proactive and earnest in their attempts to settle their tax debts. Of course, we recognize that communicating with the IRS directly can seem like a daunting prospect, which is why we’re here to advocate for you. We can walk you through the process and make it easier to tackle.

Provide Any Necessary Financial Information

If the IRS requests financial information for your business, it’s a good idea to send them what they ask for. Failing to cooperate or, even worse, lying about your financials can have dire consequences. It is worth noting that you aren’t legally required to disclose any of your assets or finances to the IRS collector without a formal summons. However, as mentioned earlier, cooperation can be key to settling your tax debt, so it’s a good idea to work with them completely.

Pay for Payroll Taxes First If Possible

While the IRS can shut your business down for any type of unpaid tax debt, this only happens very rarely. When it does, it is most often for unpaid payroll taxes. Ensuring that your payroll taxes are up to date first can help to ease the pressure from the IRS. Of course, you shouldn’t only pay those and then assume you’ll be fine; instead, this can act as an earnest payment to help make IRS negotiations a bit easier on your business.

Discuss Your Payment Plan Options

Once you’ve opened up that line of communication and demonstrated your willingness to cooperate and pay off your debts, now is the time to request a payment plan or offer in compromise. Payment plans are much more commonly given, and allow you to pay off your tax debt in monthly installments over a certain period of time.

An offer in compromise can allow you to settle your tax debt for less than what you owe. However, these are not given nearly as often and can be quite difficult to qualify for. If you do qualify, you’ll be expected to pay the entirety of the agreed-upon amount at once, rather than in installments, so make sure the offer you put in your paperwork is something that you can immediately afford.

Keep Up with Your Payment Plan

Once you receive an IRS repayment plan, you should make every effort to stay up to date on your scheduled payments. If you fall behind—even if you miss only one month—you can find yourself back at square one, with a large debt looming over your head and a demand for immediate repayment. If you find your business in difficult financial straits during the course of your repayment plan, you can sometimes request an easement on a month’s payment, but you must ensure that you make this request well in advance and provide a clear reason why you can’t keep up with your agreed-upon payments. Additionally, you’ll need to file and pay your taxes every year that you’re on your payment plan, and expect any refunds for which you qualify to be applied to your tax debt, rather than sent to you.

If your small business is struggling under a heavy tax debt, contact the IRS Advocates today. We’ll help you communicate with the IRS and set up a repayment plan to get your company back on track to a thriving future.