Tax Deadline: File Even if You Can't Pay

Small business owners who find themselves with a big tax bill and not enough money to pay for it must play it straight with the Internal Revenue Service, tax advisers say.

True, you'll have to figure out how to pay, but don't give in to the temptation to file your return late. It will probably cost you 5 percent of the amount of tax you owe per month or part month that your tax goes unpaid, the Associated Press reported.

"It's important to come clean and acknowledge your debt with the IRS, declaring the tax you owe even if you don't pay," said Robert Pesce, a partner with Marcum & Kliegman LLP, a New York-based accounting firm. That way, "all you get stuck with is the late payment fees, which are not outrageous."

One option is to get an extension, or even two, which would move the filing deadline back to Oct. 15. It's possible, given the extra time, to straighten out the problems in your business and come up with the money to pay.

Small business owners should work with an accountant to figure out why there's a cash flow problem.

"You're overspending or overleveraged," said accountant Jeffrey Berdahl of the firm Beard Miller Co. in Allentown, Pa. "You have to stop the bleeding."

Some business owners tap into their home equity line of credit, obtain a loan from a family member, or take money from their retirement accounts to pay the IRS. All options have their down sides, particularly if you take money from a 401(k).

You can ask the IRS for an installment plan, but the IRS itself would tell you that a bank or even a credit card company would offer a better deal on interest. Attach Form 9465, Installment Agreement Request, to the front of your return if you want to go that route. The IRS may ask to see financial information, Berdahl said.

If your business is on the verge of collapse, business owners can seek an offer-in-compromise, which can be used when “the taxpayer must not be able to pay the taxes in full either by liquidating assets or through current installment agreement guidelines.” Use Form 656, Offer in Compromise.

Pesce said business owners should use their year-end tax consultations to prepare for April 15 and beyond. An accountant can tell them if it looks like they'll be looking at a big bill in April. Money should be set aside on a regular basis to avoid costly surprises in the future.

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.