5 Tips To Quickly Get Caught Up On Taxes
Filing and paying taxes efficiently may be the intention of most small business owners, but that’s not always how things turn out. For a number of reasons, some businesses find themselves falling behind in this area and challenged to catch up on taxes quickly. Whether you missed a deadline, didn’t have the funds to satisfy your tax bill or simply got overwhelmed with operations, it’s important to address past-due taxes promptly and strategically.
To help small business owners prevent avoidable tax penalties and other serious consequences, here are six expert tips on how to get caught up on your business’s tax responsibilities as soon as possible. Take advantage of these insights to get back on track with your taxes and pave the way toward more successful tax management.
- Contact the IRS and respond to tax notices promptly.
It may be tempting to procrastinate dealing with your tax problems, focusing instead on other areas of the business. But this is an urgent matter, and the sooner you address your tax issues, the better off you and your business will be.
If you know that missing financial information or some other complication will hinder you from completing your federal tax return on time, you can file for an extension using either Form 4868 or Form 7004, congruent with the type of business you own. Remember that this option only extends the return filing deadline, not payment of your tax bill, which means interest and penalties may accrue. Depending on where you live, you might also need to file a separate extension for your state tax return.
If you’re behind on the business’s tax responsibilities to the point that you’ve received notices from the state or IRS, it’s imperative to contact them immediately, regardless of whether or not you can afford to pay all your back taxes right away. Prompt communication is the best way to mitigate consequences.
- Get your business books organized and up to date.
Getting caught up on taxes requires a concerted effort to assemble all the required financial information and documentation for filing past-due returns. For some small business owners, this means first getting your bookkeeping records up to date, including but not limited to:
- Bank statements
- Credit card statements
- Proof of payments
- Prior tax forms and returns
It’s never a good idea to forgo accuracy, so be as thorough and diligent as possible. If you require the services of an accounting or bookkeeping professional to get this information up to date and properly managed, consider leveraging an outsourced expert. And if you’re not already working with an accountant for tax preparation and filing, think about finding one to ensure both compliance and a smoother process.
- Investigate your tax payment options.
If you end up owing money to the government, you’ll have to think about how you’re going to pay this tax bill. Depending on your business’s individual tax situation, you may be eligible for a payment plan or special arrangement.
Your small business may qualify to apply online for a long-term payment plan if you have filed all required returns and owe $25,000 or less in combined tax, penalties and interest. If you are a sole proprietor or independent contractor, you would apply for a payment plan as an individual, for which the online application requirements include owing $50,000 or less in combined tax, penalties and interest (for a long-term payment plan), or less than $100,000 in combined tax, penalties and interest (for a short-term payment plan).
You might also be able to take advantage of a business offer in compromise (OIC) with the IRS, which is basically a settlement for business tax debts. In this case, the IRS agrees to accept less than the total amount of tax owed when you prove that you’re unable to pay the full amount.
Alternatively, if you can’t feasibly cover your back taxes at the time, you might request to have the IRS place your account into “currently not collectible” status. While this option doesn’t stop your tax bill, penalties and interest from accruing, it will put collections attempts on hold. Expect the IRS to review your situation every year and seek payment when circumstances allow.
- Partner with a tax professional for greater peace of mind.
Business owners are not generally experts in tax knowledge or particularly interested in the forms, documents and spreadsheets required to handle yearly taxes. Especially if you’re figuring out how to get caught up on taxes, there’s so much to know and the process can be tough. And when you’re responsible for submitting business taxes on behalf of your company, there’s a lot at stake.
That’s why one of the best courses of action you can take is working with a third-party tax expert. Even hiring a professional on a short-term basis can make a huge difference in your business’s handling of tax responsibilities. Be sure to find a CPA or tax attorney experienced in settling tax debt if you owe a large amount in back taxes.
- Learn from past mistakes and begin proactive tax planning.
It’s important to take this opportunity to acknowledge the significance of effective tax planning. You don’t want to end up in a similar situation again, with mismanaged tax responsibilities that result in penalties, interest and other headache-inducing outcomes. Learn from these mistakes to stay on top of taxes and create a better situation for your business.
Of course, tax planning can be frustrating for small business owners. Keeping up with the rapidly changing tax laws is challenging, as is effectively applying them to your business and personal tax situation to maximize the amount of money that can be saved and reallocated to other, more important areas of either your business or personal finances. But ideally, tax planning should be done throughout the year to stay compliant, avoid surprises, maximize any opportunities that arise and begin taking advantage of those opportunities as soon as possible.
It might be time to start outsourcing your business’s tax planning and preparation. By working with an experienced professional, you get the benefit of optimized tax strategy and returns that are prepared in an accurate, timely manner. A proactive, strategic approach to tax planning means you can go beyond the traditional efforts to save your business money over time.