Paying taxes is an important part of being a business owner. But, when you own a business, your cash flow goes through ups and downs. What if you can’t pay your taxes? You’re probably here because you’re unsure of what to do if you can’t pay your taxes. Luckily, the IRS offers tax payment options to help business owners in a pinch.
What to do if you can’t pay your business tax debt
Not paying taxes when they are due can result in penalties, high interest rates, problems getting loans, and can cost you Social Security benefits and refunds.
If you can’t pay the amount of taxes you owe, the IRS offers tax payment options. There are three alternative options to paying your business tax debt immediately:
- Apply for an IRS Installment Agreement to make monthly payments
- Offer in compromise to reduce the amount of tax debts you owe
- Delay the collection process temporarily
Make sure you still file your small business taxes on time. You might receive a notice from the IRS if you file without immediate payment. With or without a notice, you can pursue one of these three alternative options.
Option 1: IRS payment arrangements
You can apply for an installment agreement to pay your taxes little by little each month. That way, you are not responsible for paying the lump sum at once. You reduce or eliminate the chance of penalties or interest if you manage business debt through a payment plan.
In order to enter an IRS Installment Agreement, the IRS will (most likely) ask you to complete Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433-B, Collection Information Statement for Businesses. You must also provide financial information for most installment agreements.
If you enter into a payment plan agreement, future refunds will go toward remaining tax debt. But, the refunds do not count as your monthly payment — you still need to make regular monthly payments.
You must pay at least the minimum monthly payment on time. Include your name, address, taxpayer identification number (TIN), phone number, tax year, and return type of each payment. If you move, contact the IRS or complete and mail Form 8822, Change of Address.
There are two ways you can request an installment agreement if you have a business:
- Apply online
- Call the IRS
Online payment agreement: In-Business Trust Fund Express Installment Agreement
Qualifying small businesses with employees can apply for an In-Business Trust Fund Express Installment Agreement online (IBTF-Express IA). If you establish an IBTF-Express IA, you typically do not need a financial statement or financial verification.
To qualify for the IRS payment plan online, you must have employees and owe $25,000 or less. If the amount owed is between $10,000 and $25,000, you must pay by direct debit. You must pay down the debt within 24 months if you enter into an IBTF-Express IA.
Applying for this kind of agreement can save businesses significant time as opposed to mailing out forms or calling the IRS. All you need to do is fill out the online application. And, you don’t need to wait to see if your application is approved or not — as soon as you apply online, you are notified whether your application is accepted.
You can apply for an online payment agreement by providing your Employer Identification Number (EIN), the date your EIN was assigned (MM/YYYY), the address from your most recent tax return, and your caller ID from the IRS notice.
To establish your payment method, you must pay a fee. If your payment method is check, money order, or credit card, pay $149. If your payment method is direct debit, pay $31.
Qualifying businesses can apply for an online payment agreement by visiting the IRS website.
Call the IRS
You can reach the IRS at (800) 829-4933 or the phone number on your notice if you want to enter into an installment agreement for your taxes.
Be aware that this might take a significant amount of time, as you will most likely need to wait for an IRS representative to be available.
There is a fee for setting up a payment method. To pay by check, money order, or credit card, you must pay $225. To pay with direct debit, you must pay $107.
Option 2: Offer in compromise
In some cases, the IRS allows you to settle your tax debt, meaning you do not need to pay as much as you owe. In order to accept this form of tax relief for small business owners, called an offer in compromise, the IRS considers your ability to pay, business expenses, income, and asset equity.
To get an offer in compromise approved, you must be current with filing and payment requirements. If you are in an open bankruptcy proceeding, you are ineligible. The IRS offers an “Offer in Compromise Pre-Qualifier” if you want to check your eligibility.
How to apply
To apply for an offer in compromise for your business, you must include the following in your application:
- Form 656, Offer in Compromise
- Completed Form 433-A for self-employed individuals or Form 433-B for businesses
- Copies of required documentation attachments
- Application fee of $186
- Initial payment offer
Form 656
You can find all the application information in the Form 656 Booklet, Offer in Compromise.
Form 433-A or Form 433-B
If you are a sole proprietor or a single-member LLC, file Form 433-A. File Form 433-B if your business is a corporation, partnership, limited liability company (LLC) classified as a corporation, or a multi-member LLC.
Copies of required documentation attachments
Information on the required documentation you must attach is found at the end of Form 433-A and Form 433-B.
Application fee and initial payment offer exceptions
If you are operating as a sole proprietor or a single-member limited liability company (LLC) and meet the Low Income Certification guidelines, you do not need to pay the application fee or the initial payment offer.
Initial payment offer
The amount of the initial payment offer depends on the payment option you choose and your offer.
If you want to pay a lump sum of cash, submit an initial payment of 20% of the total offer amount. Don’t pay the remaining balance until you hear from the IRS. Using the lump sum cash method requires you to pay the balance in five or fewer payments after your initial offering.
If you want to make periodic payments, submit the initial payment and make monthly payments while you wait to hear from the IRS.
Applying for offer in compromise (individual and business)
In some cases, you might have both individual and business tax debts you want considered for an offer in compromise agreement. If that is the case, send two Forms 656. That also means you need to submit two payments of $186, unless you meet Low Income Certification guidelines.
What to do if your offer is rejected
If your offer is rejected, you can appeal a rejection within 30 days. Use Form 13711, Request for Appeal of Offer in Compromise to appeal. Or, contact the IRS.
Option 3: Temporary delay
If you can’t pay your tax debts when they are due, the IRS will temporarily delay the collection process. That means they will hold off on collecting your tax payments, but the debt is not forgiven.
You can request to delay collection of your business tax debt by calling the IRS at (800) 829-1040 or call the phone number on your notice. After you make your request, the IRS might ask you to complete Form 433-A or Form 433-B and provide proof of financial status.
If your tax debts are temporarily delayed, you will be charged penalties and interest until the amount is fully paid.
Know exactly how much cash you have on hand at your business. Patriot’s online accounting software tracks your expenses and income. That way, you can make cash flow adjustments before taxes are due. Try it for free today.
This is not intended as legal advice; for more information, please click here.