This year's looming tax deadline is slowly approaching. Despite the extra couple of days provided this year, many people, particularly small business owners, will struggle to get all of their receipts and paperwork together to file on time. Some will just not file at all.
So what does happen if a small business owner doesn't file their taxes?
First, the IRS will assess penalties and interest for not filing by the deadline.
Each month, a .5 percent interest penalty fee will be assessed against the total taxes owed to Uncle Sam. Another 5 percent penalty fee for filing past the deadline is further added to the tax bill every month. Additional fines and assessments could be included, depending on the particular circumstances.
Second, the IRS may file a "substitute tax return" on behalf of the non-filer-which often results in a much higher tax burden. This is because the IRS often omits important deductions the small business owner would typically take on his or her own.
Fortunately, there are options available for those hesitant to file because they believe they cannot afford to pay their tax obligation.
Small business owners and individual filers can often seek a 6 month extension, delaying payment until October of the tax year to file. Filers can also enter into a potential installment agreement with the IRS where they agree to pay a small portion of their tax bill every month rather than all up front. An offer in compromise, an agreement whereby the IRS accepts a smaller tax liability, may also be available.
Bottom line: A small business owner should ALWAYS file a tax return, even if he or she cannot afford to pay the tax bill. The amount assessed will likely be much greater in the long run.
Those with questions or concerns are encouraged to consult with an experienced tax attorney with a thorough knowledge of the law.