Good ol' tax time is going to come without fail, and in a perfect world you would be able to pay your business taxes on time, every time. When the due date rolls around, you’d simply transfer the money to the government and be done with it.
Of course, we don’t live in a perfect world. Instead, cash flow gets tight from time to time, different things get prioritized, and before you know it you’re paying your taxes late. Life happens, right? The best thing you can do is chart a path to get back on schedule as quickly as possible. Here are four simple tips to help you get back on track.
1) Take a Breath — Everything Will Be Okay!
The first thing to remember if you’re late with your tax return? Don’t panic. It happens to thousands and thousands of business owners every year. As long as you take stock of the situation and make a plan, you’ll be alright.
Look at your situation as a whole. How much money do you actually owe? Were there any issues on your filings that needed to be addressed? Get a grasp on the exact amount you're responsible for on your return, and don't forget to factor in potential penalties and/or interest.
Once you have a firm number, you can start to figure out how long you’ll need to get the money together. Consider whether you might be able to make adjustments to your budget to collect the amount you owe.
2) There Are Lots of Resources to Help You Settle Up
If you’re late on your taxes and owe a lot of money, any progress on eliminating that bill is in your best interest. Just like with credit cards, the sooner you start making payments, the more money you'll save in the long run. If you're unable to make the payment in full, try to pay as much as you can. This will reduce the interest and penalties charged for late payment.
You may also be able to get a short-term extension. Those who qualify for extra time to pay their taxes are normally given the extension if they're able to pay in full in 4 months or less. You can apply online at IRS.gov.
If you've received a bill from the IRS, you can also call the phone number listed on it or 800-829-1040 for help. There is normally no set-up fee for a short-term extension. Another options is applying for a monthly payment plan. If your overall amount owed is less than $50,000 you can apply for an Online Payment Agreement on IRS.gov. The direct debit payment plan is a popular and safe option and is considered a lower-cost, hassle-free way to get those payments in.
Lastly, you might also benefit from an Offer in Compromise. An Offer in Compromise allows you to settle your tax debt for less than the full amount owed. This route may be an option if you simply can't make the payment in full or are having financial hardship.
3) Don’t Fall Into a Late-Tax Trap
Leave those credit cards alone! When it comes to large chunks of cash, credit cards may seem like an easy option, but the interest rates associated with them are usually much higher than what the IRS will charge you. By using a credit card, you'll ultimately end up spending much more than is necessary.
While we’re on the subject — don’t touch your retirement accounts! If you withdraw money from a retirement account, you may end up owing a penalty, in addition to income taxes, on that amount. After penalties and taxes, you'll have a fraction of that nest egg left to put toward your taxes anyway. Besides, retirement savings are for retirement!
4) Start Early to Avoid Being Late
This is also a great time to get proactive and make moves for the upcoming year. Can you adjust your withholding? Are you able to put aside a bit more money each month as a precaution? Late tax problems are often the result of poor bookkeeping. You need to have a clear picture of the financial status of your business day-in and day-out. Without it, you might not understand that you’re going to be in trouble when Tax Day rolls around.
By improving your bookkeeping procedures, you should be able to plan more successfully for the future. Leveraging automation for your daily bookkeeping work will make it easier for you to gain an accurate view of the financial status of your business.
You won’t ever be excited about paying your taxes, but improving your bookkeeping is a great way to make sure you’re prepared for Tax Day every time it comes around.
If you stay calm and work with the IRS on their terms, they can be a pretty fair lender. Ultimately, all they care about is collecting those tax dollars one way or another. Stick to a plan, do everything you can to pay off your bill, and before you know it your debt will be paid.
Ready to improve your bookkeeping and make tax time a breeze?
Editor's note: This post was originally published in of July 2017 and has been revamped and updated!