You’ve been a good little small business owner all year long, keeping track of each and every write-off. You’ve scanned your receipts, organized your accounts, and sent everything to your tax professional in plenty of time for the April 15 deadline.
You’re not expecting a refund this year, but you don’t expect to owe money either. You’ll most likely break even, or maybe owe a small amount, if anything.
Then you hear back from your accountant.
Not only do you owe money, you owe a lot of money. Money you simply don’t have. So what happens if you can’t pay your taxes?
First thing’s first: take a deep breath. Owing money to the IRS can be stressful, and even downright scary! If you owe money you weren’t expecting to owe, or if you owe money you simply don’t have, it can seem like cause for a major freak out.
Don’t worry, and don’t beat yourself up for any accounting mistakes that may have brought you to this point.
Whether you screwed up, your assistant screwed up, or your tax professional made a blunder, you can worry about assigning blame later. Right now, you have to take swift action to deal with the tax money you owe.
Can’t I just file for an extension?
Certainly. You can always file for an extension, and you can always revise a tax return that has already been submitted (within the last three years, that is).
But you still have to pay.
That’s right – even if you won’t be submitting your actual return until July, you still have to pay monies owed the IRS by April 15. If there is a mistake as to how much you owe, or your completed return changes the amount you owe, the IRS would rather refund the difference later than miss out on money now.
But what if I simply don’t have the cash?
If you weren’t expecting to have to pay taxes this year, suddenly finding out you owe thousands of dollars can be panic-inducing. Many small business owners simply do not have a ton of extra money lying around.
It may also not be possible for you to increase credit limits, take out a loan, or borrow money from friends or family in order to pay your tax bill.
If you owe taxes but simply don’t have the cash, it’s important that you…
Pay what you can
It’s ok if you don’t have the full amount. It’s even ok if you don’t have anything close to the full amount. But you still need to pay as much as you can by April 15th.
Let’s say you owe the IRS $2,500, but that you simply can’t afford to shell out $2,500 all at once.
Send the IRS a check for as much of that amount as you can afford to pay. You might pay $500, or even $200, but send them something.
This demonstrates that you’ve attempted to pay on time, and will benefit you as you work with the IRS to get your tax bill paid.
Depending on your situation, you may be able to set up a payment plan to pay off your tax debt over time. Keep in mind that you may very well incur fees for not paying on time, and these will be added to the amount you already owe.
As long as you communicate openly with the IRS, failing to make a full tax payment is not the end of the world. If you don’t have the money, you don’t have the money. Where you’ll get into trouble is in failing to communicate and running and hiding when you can’t pay your bill.
Even if you’re so broke you can only send the IRS $5, do it. Send something, send it on time, then take action to set up a payment plan and clear your tax debt as soon as possible.
What would you do if you couldn’t pay your taxes? Have you ever been in this situation? What did you do?