What Do You Do If You Can’t Pay Your Taxes?

Even successful business owners sometimes find themselves with a tax bill they cannot pay.

April 15th is just around the corner, and many people – particularly small business owners – find that they owe taxes that they are unable to pay. As a tax law firm, we have many clients who face the dilemma of operating a viable business with a cash-flow problem. In this post, we discuss what you can do if you are struggling to come up with enough cash to pay your tax bills.

First review your tax returns

You have no obligation to pay even a penny more than you legally owe, so the first thing you should do is a careful and through review of your tax return. Be sure to meet with a qualified tax professional to make sure that you are taking every deduction that is available to you. Have them review your prior returns as well.

Meet your tax deadline

Even if you can’t pay your tax bill, failing to file your tax return on time will only make matters worse. While the failure to pay penalty is only 0.5% of the taxes you owe per month, the failure to file penalty is 5% per month and up to 25% per tax year. So it’s important to file that tax return, even if only part of the tax bill is paid along with it.

If you are filing an extension, keep in mind that an extension is an extension of time to file, not an extension of time to pay. Interest charges, which compound daily, begin to accrue the day after your return is due, currently at a rate of 5%.

When you can’t pay the IRS – or don’t believe that you should have to

Whether or not you feel that your tax bill is justified, you have a number of options available to you. A tax attorney can help you with whichever of the following is your best option given your circumstances and the amount you owe. Some options may be:

  • Get your tax penalties abated (if you qualify);
  • Arrange for you to pay your tax bill in manageable installments;

Since IRS interest and penalties are so high, if your attorney advises paying up front, consider borrowing the funds you owe from another source, such as a business loan or line of credit, family member or friend.

San Francisco full service tax firm

Having a tax law firm on your side that knows how to work with the IRS or the State can make a significant difference in the outcome of your tax matter. The full service tax firm of Moskowitz, LLP is comprised of a team of tax attorneys and accountants who have assisted thousands of individual and business taxpayers satisfactorily resolve their tax issues with the IRS and California Franchise Tax Board.

Originally posted on April 6, 2009 – Updated April 26, 2020