As the year begins to wind down, it’s time to turn our attention to the 2010 tax season. For many small business owners emerging from such a difficult economic year, the mere thought of taxes may conjure up a hearty serving of distress and anxiety.
But the truth is that the IRS has been offering some flexibility lately when it comes to fulfilling tax obligations. Being aware of these leniencies and knowing how and when to use them beforehand can reduce a great deal of pressure, and can help you to plan out the most appropriate payment strategy.
Here are some options for those small business owners who think they will be unable to pay their taxes on time:
Filing for an Extension
If you are lacking the full amount owed come tax time, then you have the option of filing for an extension on April 15. You should make every effort to pay what you can at this time the IRS asks that you give a good faith estimate of the amount you expect to owe and pay whatever you can at that time since interest and late payment penalties will be added to any additional amount due.
Approximately 45 days later the IRS will send an invoice for the remaining amount, and will go through two or three more billing cycles before requesting a formal payment schedule.
Installment Payments
For those who will need to pay their tax obligation slowly over time, filers have the option of requesting a formal installment agreement using IRS Form 9465. This form can be filed separately or sent with the tax return in April. Here you can indicate how much you can afford to send the IRS each month and on what day you want to make these monthly payments. The IRS will usually accept an installment agreement if the amount owed is less than $25,000 and the balance is to be paid within five years. For those who owe less than $10,000 and fulfill other requirements, acceptance is guaranteed.
You will be charged about $50 to set up the installment plan, and interest as well as other penalties will be assessed until the tax obligation has been completely repaid. Moreover, the The IRS may even allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement, if the filer is experiencing financial hardship.
Tax Settlements
For those who will be unable to repay the amount owed even with an installment plan, the IRS may accept an Offer In Compromise. Much like a regular debt settlement that one would obtain on an outstanding credit card bill, for example, the tax payer would offer to pay an amount that is less than the actual sum owed in order to settle the bill immediately. Those seeking this option will need to complete a financial statement along with other important paperwork and send it to be reviewed by the IRS. To be accepted, however, you must have significant proof of your inability to cover the total outstanding liability.
For more information on delayed or partial payment of tax obligations, be sure to check out the IRS website. You might also want to take a look at the “What If’s” of An Economic Downturn page which answers some of the questions people have during the recession.