While it is always best to pay all of your business taxes on time or as soon as possible, however, the sooner you pay, the less you will owe in interest and penalties. The Internal Revenue Service (IRS) doled millions of dollars in penalties yearly. Most of these are attributed to businesses that failed to file taxes or pay payroll taxes.
Not paying business taxes will cause severe consequences for your business. Learn about the many penalties that could happen to you and your business if you don’t pay your business taxes.
Tax Filing Deadlines
Before we get into what happens if you don’t file your taxes, we’ll cover the filing due dates.
Taxpayers have different tax filing deadlines depending on their business entity type. In general, S corps and partnerships are due in March, and C corps and sole proprietorships are due in April.
Due dates for limited liability company (LLC) returns depend on the number of members (owners):
• Single-member LLCs pay as sole proprietors on Schedule C, with a due date of April 15.
• Multiple-member LLCs pay as partnerships, with a specific due date of March 15.
These due dates may change for a specific year. If the due date is on a weekend or holiday, the due date is the next business day.
If you don’t pay your business taxes on time, the IRS will send a notice outlining the due date (typically 30 to 60 days) for you to respond to the notice. Ignoring these warnings could result in additional penalties, fees, or even a knock on your door from an IRS agent.
Late Penalties and Fees
If your company does not file taxes or pay the total amount, you may be subject to a 10-15% penalty, which applies to every month the payment is delinquent, up to a maximum of 25%. An additional penalty of $135 and interest equal to the federal short-term rate plus an additional 3% may apply. Even paying late by one business week or less could result in your business incurring a 2% penalty.
Errors on tax returns found by IRS can result in an accuracy-related penalty of 20% of the amount owed in total. They are charged post-audit conclusion if you or your business were found guilty of failing to report income or proving small business tax deductions. You must pay interest on the penalty until it is paid in full.
The Federal Payment Levy Program enforces the right to suspend certain benefits from business owners, including Medicare provider and supplier payments, military retirement benefits, select federal salaries, and certain individual earnings from Social Security.
If you neglect your tax bill, the federal government may place a tax lien or levy against your business. This means that the IRS is superior to your debtors in the event that you become insolvent. If you try to sell your assets, the IRS will collect the funds before you can receive them.
Once a tax lien has been ignored for long enough, the IRS sends you a “Final Notice of Intent to Levy.” From here, it gets pretty ugly—the IRS can seize property and other personal assets and sell them to pay back your tax debt. They can even take money from your investment or bank accounts.
Levies are the IRS’s last resort: they only use them after plenty of time has elapsed, and multiple notices have had no effect. No matter what, it pays to take action on any tax debt long before levies come into play.
The IRS will seize your property by attaching liens to your bank accounts, property owned by your business, and in some cases, business equipment stored inside your company's premises. Tax liens, and their accruing interest and penalties, compound the longer you delay filing your taxes. Ultimately, you could lose your business, its assets, and your money -- all because you failed to file the taxes for your business corporation.
The IRS handles most tax debt cases using wage garnishments, liens, and levies. However, if they believe there is clear intent to evade taxes, combined with a failure to file, that’s technically a criminal offense. You could be in court, subject to fines, or even jailed. Cases like these are sporadic, but they do happen.
Avoid These Penalties to Keep Your Business Safe
It is best practice to pay your business taxes on time to prevent any penalties or legal action from the IRS.
At Cloud Bookkeeping, Inc., we have a dedicated team of bookkeeping specialists who help business owners quickly catch up on their taxes. No matter what stage you are in, our team can complete your books so you can easily file your overdue taxes and get in the clear.
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Cloud Bookkeeping, Inc.
3281 E. Guasti Road, Suite 700
Ontario California 91761
Tel: +1 (909) 952-3804