What happens if you don’t pay taxes? While it is usually preferable to pay all of your company taxes on time or as soon as possible, this is not always feasible. However, the sooner you pay and the more you pay, the less interest and penalties you’ll have to pay.
When federal income taxes are due, how and when to pay, penalties for non-payment and various payment options are discussed in this article.
What happens if you don’t pay taxes?
For each legal kind of company, the IRS establishes a deadline date for filing tax returns. The payment date is the same as the filing date.
The deadline for small companies to file their company taxes on Schedule C as part of their personal taxes is April 15, the same as the deadline for personal tax returns.
The 15th day of the third month after the end of the tax year is the deadline for filing partnership income tax returns. The due date for partnerships with a tax year ending on December 31 is March 15 of the following year.
Furthermore, the 15th day of the fourth month after the end of the company tax year is the deadline for filing corporate income tax returns. The due date for companies having a December 31 tax year is April 15.
The 15th day of the third month following the end of the tax year is the deadline for S company income tax returns. The due date for S companies having a December 31 tax year is March 15.
The number of members (owners) determines the due date for limited liability company (LLC) returns:
Schedule C, with an April 15 due date, is used by single-member LLCs to pay as sole owners.
Multiple-member LLCs are taxed like partnerships, with a March 15 date.
These deadlines are subject to change each year. The due date is the following business day if the due date falls on a weekend or holiday.
Non-payment penalties and interest
Taxpayers and companies that do not pay their taxes online or who do not pay at all face fines and interest from the IRS.
Penalties for Failure to Pay
For failing to pay taxes by the due date, the IRS imposes “Failure to Pay” penalties depending on how long the delinquent tax stays unpaid. Taxes must be paid throughout the year, either via withholding from wages or other payments or by paying quarterly estimated taxes, according to the IRS.
Even if a small company owner receives a refund, they may be assessed a penalty if they do not pay enough throughout the year. If a corporation fails to pay its anticipated tax on time, fines may be imposed.
Penalties and Interest on Unpaid Taxes
The amount you owe for underpayment starts on the due date, and interest may be imposed on penalties.
If you pay in full on or before the “pay by” date, you won’t be charged interest on the amount indicated on the notice of underpayment. Depending on the IRS’s calculations, interest rates may vary quarterly.
Other fines may be imposed for non-compliance with other company tax laws:
If your tax return isn’t submitted on time, it’s considered a failure to file.
Penalties for inaccuracy if all income isn’t declared or if deductions or credits are used that aren’t permitted.
For failing to file a timely information return (partnership information returns, for example)
If the payment is still not made,
The IRS also has additional, more severe options for tax payback. Tax liens and levies are examples of this.
A levy is a court-ordered seizure of property to pay a tax obligation. Taking money from a company owner’s bank account or other financial accounts is an example of a levy.
A tax lien is a public document filed with a court that informs creditors that the IRS has a legal claim on their property.
In both instances, the IRS assesses the obligation and issues a Notice and Demand for Payment to the taxpayer. The IRS files a public document in the case of liens to notify creditors of the government’s claim to the property. All of the taxpayer’s assets, including company property, are encumbered by the lien.
A tax lien is a public document that may damage your credit report in addition to having your property taken. Tax levies aren’t made public and have no bearing on a taxpayer’s credit score.
Alternatives to Making a Payment on Time
Here are several options to paying the whole amount of tax owed on the due date.
Obtain a 120-day short-term extension
A short-term extension allows a taxpayer up to 120 days to pay tax, penalties, and interest on sums under $100,000. There is no cost, however, there will be a late payment penalty with interest.
Pay in Full or in Instalments
The IRS may allow you to pay your taxes via an installment plan. This choice is contingent on the amount you owe. You may pay your taxes in installments by using the IRS’s Online Payment Agreement. Go to the Online Payment Arrangement website and spend a few minutes working your way through the online instructions to determine whether you’re qualified for this kind of agreement. The Online Payment Agreement is only accessible on the internet during certain hours and days.
Apply for a Compromise Offer
What happens if you don’t pay taxes? The IRS understands that a person’s financial situation may prohibit them from paying their taxes. In certain situations, the taxpayer may be entitled to submit an offer in compromise to settle the tax obligation for a lower sum than the entire amount owed. Furthermore, each circumstance is assessed on its own merits. Also, this option should be used only as a last resort. You may utilize the IRS’s Offer in Compromise Pre-Qualifier to determine whether you are eligible to apply.