Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

What do you do if you can’t pay your taxes?

Date Published April 2009 San Francisco Business Times

It seems to common a problem with our politicians. However many businesses may find it challenging to come up with the cash to pay taxes this year. April 15 is the deadline to pay the income taxes that you may owe. Even if you are filing an extension, the extension is an extension of time to file, not an extension of time to pay. What if you don’t have the money? Many businesses may be faced with this dilemma this year.

At our law firm we have seen clients who cannot pay taxes owed for various reasons. Some have viable businesses, but with a cash-flow challenge. The first question to ask is can you borrow? Can you apply for a business loan, line of credit or borrow from a family member or friend? We are of course assuming you have taken every deduction available to you. However, once you have done your tax planning and you still find yourself owing a balance then knowing how to work with the IRS or State can make the difference that you need.

First understanding how the IRS will analyze you and how you will be classified makes a difference as to what will best serve you. Do you owe income tax, payroll tax or sales tax? Payroll tax treatment is often different than income tax treatment. Owing to the federal government is different than owing to the state government. There may be planning and strategy that may make a huge difference as to when you pay and the options available to you based on your availing yourself to all of your rights.

If the IRS is unreasonably demanding money from you, you can stop the IRS from collecting from you pending the incredible power of a collection due process hearing if you have a federal tax challenge. If the IRS is unreasonable, you can take the IRS to Tax court and have the judge decide rather than be subject to IRS demands.

Penalties:

Don’t neglect to file either your tax return or an extension by April 15 because the failure to file penalty is 5% a month to a maximum of 25% a year. The failure to pay penalty is only ½ of 1% a month.

You may qualify to have a variety of penalties abated and this can be included in your due process hearing.

The bottom line: keep your taxes the least painful by availing yourself of all your legal rights.

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