How Back Taxes Can Impact Your Business

How Back Taxes Can Impact Your Business

• Mar 01, 2022

Having overdue taxes can have serious consequences for anyone. For business owners, however, back taxes can impact your livelihood and the future of your company. If you have overdue tax debt for your business, it’s important that you take steps to settle it as soon as possible. If you don’t, you could be facing some of the consequences outlined below.

Accruing Interest and Penalties

As with any debt, tax debt continues to accrue interest and will grow for every month that it’s left unpaid. But in addition to this, the IRS will tack on late-payment penalties (and late-filing penalties, if you didn’t file your taxes), further increasing your tax debt. For unfiled returns, the IRS can assess a minimum penalty of $205 and a maximum penalty of 25% of the amount you owe. For late payment, that penalty can range from 0.5% to 25% of your unpaid taxes—every single month. And that doesn’t even include the interest accrued on your debt. The longer you go without filing and/or paying, the bigger your tax debt gets. It’s important to take steps to settle it as soon as possible so you can minimize what you owe.

Property Foreclosure

When your taxes become overdue, the IRS can issue a notice and, if you don’t submit payment within the written deadline on the notice, they can file a business tax lien on your property. While it may take some time for them to enforce that lien, ultimately, they can do exactly that. The IRS can seize business assets, including any company property you own. If you’re an unincorporated business, they may even be able to seize your personal assets to pay for your business tax debt.

Issues with Business Loans

Many businesses rely on loans to expand and make large purchases to improve their company. But if you owe the IRS money, getting that loan is going to be a lot more difficult. While it is possible to get a loan with a tax lien on your business, you absolutely must have a payment plan in place with the IRS before you can receive one. If you apply for a business loan with a tax lien on your property, and no IRS payment plan in place, your loan application will be immediately denied.

Even if you have a payment plan established, every potential lender is going to be examining that tax debt very carefully to determine whether or not you should qualify for a loan. They will look at your monthly payment to the IRS as part of their analysis of your cash flow and your ability to repay your loan. A tax lien on an asset also means you can’t use that property as collateral for the loan. All in all, tax debt of any kind makes getting a loan more difficult; but without an IRS payment plan, it’s impossible.

Losing Your Passport

Again, this is something that can happen for personal taxes too, but for business owners, the consequences of having your passport revoked can be much larger. If you travel for your work to meet with clients, business partners, investors, or suppliers, losing that passport will impact your ability to do business. If you have not filed your taxes for several years, or you owe over $53,000 and aren’t making payments on an IRS payment plan, your passport could be revoked, and you won’t be able to get a new one until you’ve settled your tax debt.

How to Deal with Business Back Taxes

If you have business tax debt and are looking to settle it, the first and most important thing to know is that you should not simply ignore the notices from the IRS. This is the kind of problem that only gets worse when you try to ignore it, so even if you can’t afford to pay what you owe, you should still open a line of communication with the IRS.

In opening up that communication, you can begin the process to set up a short-term or long-term payment plan, or possibly see if you qualify for an offer in compromise. Simply reaching an agreement on your tax debt can go a long way towards preventing many of the issues mentioned above. (Though please note that interests and fees will continue to accrue on your debt, even after you’ve set up a payment plan.)

If you owe a large amount in tax debt for a business, it’s a good idea to work with a professional who can help you understand your options. Contact the IRS Advocates today, and we’ll help you start working towards clearing your business tax debt.