To help! I don’t have the money to pay my business taxes

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This was my first year of self-employment and my first time filing taxes as a business owner rather than an employee. A few days before my tax return was due, I received a call from my accountant telling me that I owed about $6,000 to the IRS. He might as well have said $600,000; it was a huge sum for me and I immediately went into panic mode, trying to figure out where I would find that kind of money.

If you find our company in the same situation where you owe taxes but don’t have the money to pay them, what can you do? Ignoring the debt is not an option: interest and penalties will continue to accrue and the IRS may file a business tax lien that will seriously affect your business credit.

Here are three options to consider.

Pay your business taxes when you have no money

1. Put it on a credit card.

Taxes can be billed to a credit card through an IRS-approved vendor,” says Barbara Weltman, author of JK Lasser’s 2019 Small Business Taxes: Your Complete Guide to a Better Bottom Line. “But it’s expensive for two reasons,” she warns, “convenience fees paid to the IRS-approved provider and credit interest charges.” The IRS passes the cost of merchant processing fees on to the taxpayer and these fees range from 1.87% to 1.99%.

An alternative: Get a card with a 0% APR promotion. You’ll still pay the convenience fee, but you won’t have to pay interest if you pay it off before the 0% promotional rate ends. For example, you might be able to get a card that offers 0% for 15 months, giving you time to tackle that debt. (Tip: Use a business credit card that doesn’t fall under personal credit if you don’t want that debt to affect your personal credit scores.)

Another option is to request a low-rate balance transfer from your credit card issuer and have the funds deposited into your bank account, so you can then pay the tax bill by check or ACH withdrawal. You’ll avoid credit card convenience charges if you charge your payment and, if you shop wisely, get a low interest rate. Understand though: there will likely be a 2-5% balance transfer fee charged upfront. Also, if you don’t pay off the balance before the balance transfer rate expires, your interest rate will likely increase significantly.

2. Get a payment plan.

The IRS can help you pay the debt you owe. “Businesses (including owners reporting their share of business income on their personal returns) that cannot pay their taxes on time should consider applying for an installment agreement,” Weltman suggests. “This will minimize interest and penalties.”

This option is not free. The IRS charges a setup fee for an installment agreement; it ranges from $31 to $225, depending on the plan you choose and the method you use to apply. (Requesting an installment agreement online is cheaper than requesting it by phone, mail, or in person.) Plus, you’ll pay interest on the balance until it’s paid off. This interest rate changes quarterly and is currently 6%.

Weltman notes that there is a special installment agreement for small businesses that cannot pay their employment taxes. Businesses with employees are eligible for an Express Corporate Trust Fund Disbursement Agreement (IBTF-Express IA), which does not require a financial statement or financial verification as part of the application process.

3. Get a loan.

If you can pay your tax debt within 120 days, you can avoid the cost of setting up an installment agreement. (Penalties and interest will continue to apply until the debt is paid.) In the meantime, you may consider using a line of credit or term loan to pay off the tax debt. The question to ask, Weltman says, is “Will it cost more or less than an IRS installment agreement?” Due to the low rate charged by the IRS, the installment agreement will generally be less expensive than a loan. But if your business doesn’t qualify for an installment agreement, or you don’t want the IRS debt to weigh you down, this may be an option to consider.

That’s what I did that year, I didn’t have the funds to pay my taxes. I took out a personal loan and luckily my business income was enough to pay it off in no time. I also hired another accountant and started putting more money aside for quarterly taxes so I didn’t have to deal with one of those heartbreaking phone calls telling me I owed a lot of money. at the IRS.

If you’re in a serious cash crunch and can’t afford any of these options, talk to a tax professional. You may need to consider an Offer in Compromise.

This article was originally written on February 1, 2019 and updated on December 10, 2020.

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