What happens if you can’t pay your taxes?

Owing the IRS money can be downright scary, but don’t panic. Here’s what to do if you can’t pay your taxes.

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.

Next steps

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?

So Your Business is Making Money, Now What?

Your business is making money. Congratulations! Before you decide what to do next, read these four quick tips to help keep your business on track.

This post is brought to you by TaxAlli.com.

Congratulations! The question now is, do you frame that first dollar or spend it? If you’re like most bootstrapped startups, you already know the answer to that one.

Now, I’m sure you didn’t start your business to try to become a full-time accountant; so now that you have income rolling in, now what?

Let’s face it: taxes are one of the most intimidating tasks involved in running a small business, and by far one of the biggest mistakes most small business owners make is they don’t take the time to put an accounting system in place to help them manage their newly found cash flow.  So to help you avoid this costly pitfall, here are four quick tips to help keep your business on track.

Get a Plan

Don’t miss the boat when it comes to your tax deductions! With over 300+ potential small business tax deductions, you certainly can’t afford to wait until the end of the year to try and determine what you can or can’t deduct. Most business owners need to go through a paradigm shift of treating their taxes as a once-a-year event into more of a year-round process. This is why having an annual tax strategy to ensure you are maximizing every possible tax deduction is crucial to ensure you are keeping as much money as legally possible.

Know Your Numbers

Having a well thought-out bookkeeping system will do two things for your business. (1) Strictly from an operational standpoint, it will help you save money. Understanding your cash-flow is just good business. Each month you should be reviewing your Profit and Loss Statement in addition to your Balance Sheet to keep a finger on the pulse of your business. (2) It will help you stay in compliance. As a business owner, the IRS puts what is called the “Burden of Proof” on you, so basically it is your job to be able to prove your income and expenses. Not to mention good bookkeeping is the best defense against an audit.

Know What and When to File

Your tax requirements largely depend on the legal structure of your business, so whether you operate as a sole proprietor, LLC, S Corporation or C Corporation, your filing requirements will vary. In addition to your personal and business taxes required by the federal government, you will also have to pay some state and local taxes. Take the time to understand what your business is required to file and when. This will help you avoid any costly penalties and interest not only with the IRS but also with your state. The SBA provides a resource here for each state’s tax filing requirements for small business owners.

Ask Questions

In business, you never know when you might need advice, so make sure it’s easily accessible. Most small business owners do not have the tax knowledge they need to understand every aspect of the tax code, so putting a professional accountant on your team will pay dividends.  It all goes back to grade school: “the only dumb question is the one that you don’t ask.”

Zach Olson is the CEO at TaxAlli.com.  Tax Alli is the leading provider of online tax and accounting services for small business owners. By capitalizing on the convenience and power of the web Tax Alli is changing the way small business owners manage their tax planning, bookkeeping & tax preparation needs.

5 Ways to Get Clients to Pay Your Invoice on Time

You can’t force clients to pay you on time, but here are some steps you can take to give yourself a better chance of receiving a paid invoice on time, courtesy of our friends at GoDaddy Online Bookkeeping.

This guest post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today and get started invoicing online!

Staring at your empty bank account balance when you know you’re owed money is one of the most frustrating things in the world. If only your clients would pay on time – but it’s not like you can force them, right?

Well, no you can’t, but you can take steps to give you a better chance of getting what you’re owed on time. The following five tips should show clients you mean business about your business relationship and getting paid on time.

1. Ask for a Contract Every Time

Have you ever been faced with the scenario of your brother-in-law asking for you to do some work, or maybe a client you’ve always wanted approaches you and they ask to “forego the contract?” Likely you either feel obligated or afraid you’ll lose out on the opportunity, so you agree to forget the paperwork and just do the work.

But what happens when you need to get your money? Suddenly they also “forego” paying you, and if there’s no contract, you have little recourse for getting your money. No matter who it is, get a contract each and every time you being a project. Not only does a contract prevent problems, it can also give you piece of mind so you can concentrate on the work.

2. Be Detailed

Don’t just throw your contract together at the last minute. Be as detailed as possible about the work you will perform and your expectations for the client. Be specific about dates and deliverables. For example, if the project has multiple parts, include when you’ll turn each part in as well as when the client should pay up. Don’t forget all important payment terms (NET 15, “pay on receipt,” etc.) and a late fee to dissuade slow payers!

3. Accept Multiple Payment Types

One of the last things you want to do is restrict a customer who is trying his or her best to give you money. If you tell them you only accept credit cards and PayPal, suddenly they only have a check. Don’t give them the chance to provide any excuses; accept as many payment types as you feasibly and safely can. Otherwise, it will just be another excuse for them to delay payment.

4. Let Them Pay Up Front

This is a phenomenon that’s practically impossible to understand: some business owners don’t want to take payments from clients even when they offer! However, it does happen. A customer wants to go ahead and pay for the job even though the work isn’t done, but the business owner pushes it away telling them to wait. (This phenomenon seems to occur most often at the end of the year, as the client is getting their tax write-offs in order!)

Look, it’s very noble, but if the client wants to stay ahead of the game on their end, let them! Just let it be further incentive to do a good job on the project and you won’t have any problems.

5. Make Them Remember You

It may seem like another excuse (and it might be), but “I was just so busy” is definitely a reality many business owners face when it comes to their obligations. You know as well as any other entrepreneur that sometimes things just slip your mind when you have 10,000 other tasks you have to accomplish. If a client is late paying, follow-up frequently and persistently. After all, it’s your money.

GoDaddy Online Bookkeeping recently introduced a new Invoicing feature. Now it’s simpler than ever to manage all of your small business finances in one place. Login to GDOB and customize your invoices under the new “Invoices” tab today!