How to Pay Your Business Taxes - If You Don't Have Money
If You Have a Big Business Tax Bill - What to Do
You just found out you have a huge business tax bill to pay. What do you do?
Unfortunately, this happens often. After you have calmed down and collected your thoughts, begin to discuss the possibilities with your CPA. You could ask the IRS for an extension of time to pay. But filing an application for an extension on your taxes won’t help, because you still must pay the tax by the original due date, even if you are filing an extension.
1. Ask the IRS about an installment agreement or other payment alternatives. You might be able to get help from the IRS in the form of an installment agreement. If you owe $25,000 or less, you may be able to apply online. If you owe more than $25,000, there are other ways to file for an installment agreement.
Here are some other ways to work with the IRS to pay your business tax bill:
- You can request a temporary delay in the collection of your tax debt. The IRS makes the determination that you are eligible for this delay, based on your financial status. The delay doesn't make the tax bill go away.
- You may be able to pay in installments. Of course, there are fees attached, and you must have filed your tax return.
- You may also be eligible for an offer in compromise, settling your tax debt for less than the full amount owed.
Check this IRS web page for more details on these tax payment alternatives.
2. Borrow the money from your bank. You might ask your bank for additional working capital (basically a line of credit) o cover this tax bill. It will cost you, but at least you will avoid the taxes and penalties.
3. Borrow the money from yourself. Be careful here; this is not the time to be getting a second mortgage on your home; your house may decrease in value. If you have some cash value in a whole life policy, you might want to use that. If you have money in an IRA and you are over 59 ½ or you are willing to take the penalty, you could cash it in. You can either loan money to your business or invest in your business. Whether the funds are a loan or investment is a decision based on your particular circumstances.
Rosemary Peavler, Business Finance expert, has some other alternatives for using your own funds to finance your tax bill or other short-term financing needs.
4. Borrow from a friend or family member. This is not the best situation, because there may be “strings” attached. Alternatives include asking someone to co-sign on a loan for your business, Some other considerations for borrowing from family might be the credit score of the family member. A similar alternative might be peer-to-peer lending. Peer-to-peer lending allows you to borrow from strangers, and it can also add structure and accountability to friend or family loans.
5. Use credit cards. Using credit cards to finance various types of business financing needs is becoming more common. But financing your tax bill with a credit card should be your last resort unless you have good credit and can get a one year 0% interest rate. If your credit is that good, you should be able to get a bank loan more easily at a low rate.
After you have paid the tax bill...
After you figure out what you will do, here are some questions you need to ask, so you won’t have to go through this again.
- If you had a CPA do your taxes, how did you not know that the business would owe this much? If you were looking at the quarterly statements, you should have seen this coming and told me to make estimated payments.
- If you did your own business taxes, who will you be using as a CPA next year?
- And, in both cases, How will you keep track personally, to make sure you don’t have to pay a large unexpected tax bill?
How do I make estimated payments?
If it looks like you will continue to pay a large tax bill every year, you will need to start planning to pay it off using estimated payments, to avoid fines and penalties for underpayment next year. Starting now, make a general calculation of your business tax bill for the current year, and start making estimated tax payments. The first estimated payment for the year is due April 15, July 15, and October 15., then January 15 of the following year.