Great question – I get it, life happens and sometimes for many small business owners, cashflow is sporadic and in some unfortunate cases anemic.
So what do you do if you didn’t pay what you owe the IRS on tax day?
1. Don’t panic and don’t bury your head in the sand. The IRS isn’t trying to ruin your business, yet panicking or avoiding the issue will only lead to more troubles in the long run. Clients I’ve represented before the IRS could have avoiding large penalties if they had immediately dealt with the issue instead of putting it off.
2. File your return on time and pay as much as you can. Hopefully, you filed a valid extension to avoid the “Failure to file timely” penalty. You may still be subject to the late payment penalty if you don’t pay everything you owe by the filing date. Paying as much as you can upfront could also decrease the interest charges as well.
3. Consider obtaining a personal loan or credit card to pay what you owe. Why? Credit cards and personal loans generally have lower interest rates than the interest rates provided by the IRS.
RELATED ARTICLE: BEWARE THE NICKEL & DIMERS
4. Don’t wait for the IRS - Contact the IRS for an installment agreement. The installment agreement is a payment plan to pay the taxes you owe on your tax return. Visit the IRS.gov for Form 1127 – “Application for Extension of Time for Payment of Tax Due to Undue Hardship.” Form 1127, and its supporting documentation, should be filed as soon as you’re aware of taxes you owe or a tax deficiency you can’t pay without causing undue hardship.
Also, visit the IRS.gov for Form 9465 Installment Agreement Request. The IRS charges a fee to set up the installment agreement.
5. Don’t ignore letters or bills you receive from the IRS. Contact the IRS immediately if you receive letters or bills from them. Your situation will only get worse if you ignore bills or letters from the IRS. Additionally, IRS correspondence will provide instructions on what to do as well as what information they need from you. Contact your tax advisor or CPA if you have any questions.
Speak to your tax advisor if you have a problem with paying your taxes on time, need an installment or payment plan or have general questions about notices/letters you receive from the IRS. As a reminder Certified Public Accountants (CPA), Enrolled Agents and Lawyers are the only people who can represent taxpayers in front of the IRS. Just remember not to panic if you have a tax issue because help is only a quick email away!
About Ebong Eka
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation