Owing the IRS business taxes can be scary when you don’t have the cash to pay it with. Even tiny businesses can end up owing as much as $5,000. You cannot simply ignore the money that you owe the IRS. Not only will you begin to owe penalties and interest, but the IRS may also even file a lien on your business. You could find that your business credit is severely curtailed when that happens. You have three options to consider when you need to pay taxes, and don’t have the money.
Use a Credit Card
IRS-approved providers will allow you to charge your taxes to a credit card. It can be expensive, however. To begin, the IRS-approved provider charges a convenience fee of about 1.99 percent. There is interest that you will pay on the credit card, as well.
You could also find a new promotional card that offers a 0 percent APR. While you will still pay the convenience fee, you won’t pay any interest until the promotional period ends. It would be best if you applied for a business card, rather than a private card. This way, the taxes that you put on the card won’t affect your personal credit report.
A low-interest balance transfer is another option. You can request one from your card issuer. They will take money out of your credit card and put it in your bank account so that you can use it to pay your taxes. This way, you can avoid paying the expensive convenience fee that comes when you pay by card. You do need to shop around to find a low-interest rate on your balance transfer, however. The one thing to keep in mind is that you need to be able to pay off the loan before the low-interest rate expires.
Ask the IRS for a Payment Plan
If you cannot pay your taxes on time, you should ask the IRS for an installment payment plan. While there will be interest and penalties, they are likely to be minimal. The IRS charges a setup fee of up to $225, depending on the plan that you ask for. For the cheapest fees, you need to apply online, rather than in person, or by phone.
If you are a small business that finds it hard to pay employment taxes, you may qualify for an In-Business Trust Fund Express Installment Agreement. If you do, you won’t need a financial statement or any verification for the application.
Apply for a Loan
If you are able to pay your tax debt off within four months, it’s possible to avoid paying to set up the installment agreement. You only need to pay interest and penalties. Until that happens, you can apply for cash from your line of credit or apply for a loan to fulfill your tax obligation. Typically, the 6% interest rate charged by the IRS is about the cheapest loan that you can get. Other kinds of loans are likely to be more expensive. Applying for a loan is a good idea, if you somehow can’t get the IRS to give you such an agreement, however.
Once you do manage to pay your taxes, it’s important to hire an accountant and figure out how to set aside enough money every quarter to make sure that you are able to pay your taxes.
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This has been a JBF Business Media production.