You still daydream about the last day you spent at your old job.
Leaving behind that cramped cubicle and setting out on your own has been your goal since you got your first full-time job.
Walking into your office every morning and turning on the lights, you breathe a huge sigh of relief knowing you’re in charge. But being the boss comes with its own problems.
By the time you get to your desk and set your stuff down, you notice an envelope from the IRS peaking out from the mountain of paperwork on your desk.
No one is ever excited about the IRS contacting them, but we all know it’s a necessary evil.
You’re not alarmed but you peel it out of the pile like a game of Jenga and put it on top so it gets first priority.
You finally get a chance to open the ominous envelope after lunch. Your stomach drops at the sight of the balance.
You thought you were doing everything right but it turns out you need tax debt help, and you need it now.
While it might be every entrepreneur’s nightmare, tax debt doesn’t have to put you out of business.
Let’s review 9 tried and true methods in surviving the storm of tax debt.
If you recently found out your business is behind on its taxes, relax.
It’s not the end of the world. Take a breather and let’s make a plan to get your business back on the route to profitability.
9 Ways to Deal with Your Business’ Tax Debt
Your friend ends up in the hospital after a car accident and asks to borrow some cash for his deductible, about $2,000. Unfortunately, he’s out of work for so long he gets let go from his job. What can he do?
1. The IRS Is Willing to Compromise
Knowing he won’t be able to pay you back for a long time, he offers to give you $1,400 back since it’s all he has right now.
Since you’d rather get something back rather than nothing, you accept. This is not unlike what the IRS does every day when businesses submit an offer in compromise (OIC).
The government doesn’t want to bankrupt businesses because otherwise, tax bills go completely unpaid.
Not only do bills go unpaid, but bankrupt businesses can also send ripples throughout the entire economy.
Since no business is an island, closing up shop means loss of business for all the companies involved.
Manufacturers the company had a standing order with, gone. Die-hard customers who refuse to buy any other brand, gone. Not to mention the droves of freshly unemployed workers.
It makes more sense to compromise with businesses in order to get some, if not all their debt paid.
About 40% of all OICs are accepted. Worried you won’t qualify? A tax professional can make sure your OIC is as accurate as possible to improve your chances of approval.
2. Set up an Installment Plan
You don’t have to pay your debt all at once. You’ll end up paying more in the long run because of interest but you’ll get to keep more of your cash liquid for business use.
Setting up a long-term payment plan with the IRS costs money on top of what you owe. Depending on the terms of your plan setup fees can run from $31 up to $225.
The good news is you can save more than half of the startup fee by applying online. And the IRS makes it easy to make changes to your payment plan whenever necessary.
You can change the amount you pay each month and the deadline to work around your schedule.
Do keep in mind you can still default on a payment plan, resulting in even more fees and tax debt.
3. Change How You’re Taxed
Since the IRS has no set tax designation for LLCs, you get some options in how you’re taxed. The two most common options are C-Corporation or S-Corporation.
You’ve heard the terms before but it’s easy to forget the differences. For most small businesses an S-corp is going to best for tax debt relief.
Why? If your business is registered as an LLC you pay personal income tax on profits by default.
But with an S-Corporation structure, you can set aside a salary for yourself and write it off as a business expense.
This saves you from paying taxes on social security and Medicare from your own salary. Which brings us to our next tip for shaving down your tax bill…
4. Employee Benefits Instead of Raises
Salaries, bonuses, and commissions are all costs of doing business. But did you know paying for employee benefits also counts as a business expense?
Not only that, but payments businesses make towards employee health insurance premiums are immune to federal income and payroll taxes.
Raising wages often requires charging more for your goods and services. It can also push employees into a higher tax bracket.
Because of this employees will often take a lower salary if they’ll be compensated through a benefits package. You can offer the same overall pay if not more by chipping in for employee benefits.
So you get to offer a huge incentive for employees to stay onboard while bringing down your tax bill at the end of the year.
5. Put Money into Retirement Accounts
It’s easy to think of tax law as our enemy, but the IRS actually rewards people and businesses for improving the lives of their employees.
On top of health benefits, putting money into retirement accounts for your employees is a business expense.
Not only does this bring down your tax bill at the end of the year but you’ll have a leg up on your competition when it comes to hiring.
Employee benefits are often the deciding factor when someone is deciding between similar job offers. It’s also a huge incentive to stay with the company long term, saving you from the costs of employee turnover.
6. Penalty Abatement
Penalty abatement is one of the most underused methods of tax debt help. Think of it as your get out of jail free card. You can only use it once, but it might be the lifeline your business needs.
So many businesses drowning in tax debt have no idea this is even an option. IRS one-time forgiveness can be a godsend when you’re already up to your knees in debt.
Penalties for missing tax deadlines can make credit card debt look more appetizing than a 5-layer chocolate cake.
Instead of kicking you when you’re already down with extra fees, you can pay off just what you owe.
You can save your business from getting stuck in the vicious debt cycle where interest makes it near impossible to ever recover.
IRS debt help is easier to find than most people think. It’s easy to lose hope, but remember there are always ways to restructure and work around your debt.
7. Don’t Forget to Include Bad Debt
As we all know too well, sometimes customers, suppliers, etc. just won’t pay up. And taking them to court is often so time-consuming and expensive it’s not even worth pursuing.
Not to mention you could lose your case and be out legal fees on top of everything else. Even if you win it’s not uncommon to break even or even lose money after factoring in legal help.
But some good can come out of this. The IRS is more understanding than a lot of us give it credit for. Just like some taxpayers won’t pay up, the IRS knows every business has some deadbeat customers.
The important takeaway about writing off bad debt is you must be using an accrual accounting method.
If you use cash accounting you aren’t eligible for this kind of IRS tax relief.
Why not? Since income isn’t recorded until you actually have cash in the bank, it’s almost like the uncooperative customer never existed.
With accrual accounting, we can show that income was expected, but didn’t come through. Accrual accounting gives us a better visual of all business transactions, not just the successful ones.
Writing off bad debts needs to wait until the end of the year in order to give the customer a chance to pay.
8. Use a Debt Reduction Strategy
Start by making a list of all your business’ essential spending. Make a commitment not to spend on anything other than the necessities until your tax debt is paid off or at least under control.
This strategy works best for business owners with a lot of will power. Cutting back on everything but the necessities can be helpful in paying off debt, but it can also bring down your income if you’re not careful.
And that’s the exact opposite of what we want. Saving a little money here and there isn’t worth letting your business take a nosedive.
Things happen. Refunds and exchanges are never free and if your business is struggling it’s not a bad idea to spend more on marketing.
Starving your business of cash when it needs it most is counterproductive to ridding yourself of tax debt.
If you don’t want to stifle your business even when there’s a mountain of debt in the way, decide on a percentage of your income to set aside for taxes every month.
This will leave your coffers open to keep growing your business while you work on paying off your tax debt.
Even though debt can feel like a great white chasing after you in open water, generating more income for your business is like grabbing onto the back of a speedboat.
If you have a trusted marketing strategy with consistent returns, don’t avoid spending money to grow your business.
9. File an Extension
There are few restrictions to filing an extension but the benefits can be exponential. The IRS automatically grants extensions as long as you submit the form on time.
Not to mention it’s free. More time to file means more time to work with a professional to find extra deductions and methods of saving money.
If you have any doubt you’ll be able to get everything in order for the usual tax deadline, file an extension.
Why? Because failure to file penalties can be up to 25% of your total tax bill. If you miss the extended deadline you’re still at risk of racking up a late fee.
It’s not just businesses in debt that apply for filing extensions. If you’re self-employed or pay yourself in dividends it’s not unusual for your 1099 and other forms to arrive too late for filing.
That’s why the threshold for filing an extension is so low. The IRS knows delays are common on both sides. Extensions give everyone time to catch up with a system that is infamous for delays.
Tax Debt Help: You Don’t Have to Do This Alone
Your head is still ringing looking at the tax bill. You can’t wrap your mind around how you let something so important go unnoticed.
Don’t panic. You call your tax attorney who answers after the second ring.
She assures you she can offer tax debt help so you can focus on your business.
You get that feeling of relief a little scared kid gets after crawling into their parents’ bed.
Small Business Taxes and Tax Debt Relief
Besides payment plans and OICs, what other IRS tax resolutions are available to you? Only a seasoned tax professional who fully understands your current financial state can provide you with comprehensive advice.
However, here’s a general overview of two more routes.
In situations where you’ve exhausted all of your options and been advised by a tax attorney, it may prove most logical for you to ask the IRS to list your business as “uncollectible” in status.
This provides you with additional time to pull together the money to get out of debt. However, the clock will still be ticking on penalties and interest. That said, it will temporarily pause IRS collection efforts.
As a last resort, consult with your tax attorney about declaring bankruptcy. No matter what the IRS says, bankruptcy can reduce or eliminate some tax debts. However, the rules prove complicated, so this is a road you don’t want to traverse alone.
Think you can’t afford the help of a tax professional on top of your debt?
Do small business taxes have you down? Or, maybe you’re looking for help with back taxes?
You deserve an experienced, qualified tax attorney in your court when the IRS comes calling. We can help.
Silver Tax Group knows when you’re in a bind, the last thing you want to do is spend money.
That’s why you can get a totally free, no-obligation case evaluation. You have nothing to lose and only peace of mind to gain.
Doesn’t matter what time of day. Silver Tax Group is available to contact 24/7. Learn more about our experienced team of tax attorneys and how they can help you resolve your IRS headaches.
Work with Silver Tax Group today and keep your business running for many decades to come.
