If you’re wondering how to pay less in taxes, you’re not alone. Everyone—from individuals to business owners—wants to know how to lower their taxes. 

Tax laws are complicated and they can change each year. Our tax accountants know all the tax breaks for business owners and how to leverage them. With some guidance, you can legally reduce your tax liability and avoid paying more than you owe.

In this guide, we’ll go over how to lower taxable income and keep more of your profits while staying on the right side of the IRS. We’ll also share 12 tax-saving strategies, including a detailed explanation of each and how to determine if you qualify. 

Table of contents

• Tax filing status: How businesses file taxes
• How much do Americans pay in taxes? 
• What is taxable income? 
• How to pay less in taxes: 12 tips

Tax filing status: How businesses file taxes

Business owners are responsible for filing taxes for their personal income as well as business income. You can file these together or separately, depending on what type of business you own. 

For example, if you own a C corporation, you’ll file business and personal taxes separately. However, if you run an LLC not taxed as a corporation, you’ll pay taxes as a pass-through entity. 

To differentiate: 

• The IRS taxes a regular corporation—or C corporation—as a separate entity. The corporation uses Form 1120 to report income and claim credits and deductions each year. 
• A pass-through entity doesn’t file taxes as a separate entity. Instead, the income “passes through” to the owner of the business who pays personal income taxes on their share of the business. 

The majority (95%) of businesses are pass-through entities. Below, we’ll cover how you can pay less in taxes on your business and personal income as a pass-through entity. 

How much do Americans pay in taxes?

You pay taxes as a percentage of your income. There are seven tax brackets in the US tax code, ranging from 10% to 37%. Everyone’s tax situation is different. 

There’s no one average tax bill, but the latest reports claim the average income tax payment in 2020 was $16,615. Thankfully, this amount isn’t paid all at once. Business owners pay estimated taxes quarterly, while employees pay a portion with every paycheck.  

It’s worth noting, however, that most people don’t pay that much. In 2020, Americans in the most common tax bracket—incomes between $50,000 and $75,000—paid an average of $4,567 in income tax. 

You pay a higher percentage of your income in taxes as your adjusted gross income (AGI) increases. Your AGI is the amount of your income that’s taxable after you subtract credits and deductions. 

You can drastically reduce your tax bill by taking advantage of all your business tax credits and deductions.

What is taxable income?

Taxable income is the amount of income that the IRS uses to calculate how much you owe in taxes each year. It includes earned income from your business or wages from a job. Also, it includes unearned income, such as interest from investments. Some important concepts to keep in mind regarding taxable income: 

• Tax deductions lower your taxable income, which can land you in a lower tax bracket. If your taxable income drops to a lower tax bracket, the IRS could tax you at a lower rate.
• Revenue – deductions = taxable income
• Tax credits reduce your tax bill dollar for dollar. If your tax liability is $2,000, but you qualify for a $1,000 tax credit, you’ll only owe $1,000. 

Deductions and credits should be part of your overall tax-reduction strategy. We’ll go over both and suggest ways you can maximize them. 

12 tips on how to pay less in taxes

One benefit of working with Xendoo’s experienced tax specialists and CPAs is that we know how to save you money on taxes legally. Most tactics that can lower your tax bill fall into three categories. 

• Deductions 
• Credits 
• Investment strategies or losses 

We’ll break down each of these and show you how to lower your taxable income to pay less in taxes. 

1. Pass-through tax deduction (QBI)

Congress passed the Qualified Business Income (QBI) deduction as part of the Tax Cuts and Jobs Act. It’s commonly known as the pass-through tax deduction and will end after the 2025 tax year. With the pass-through tax deduction, you can deduct up to 20% of your business income from a pass-through entity. 

Your overall business income or loss determines the pass-through deduction. If you have several businesses and an overall loss, you can’t claim it. This is true even if one or more of your businesses was profitable. 

Finally, you have to have taxable income to qualify. If the standard deduction or other deductions reduce your tax liability to zero, you won’t be able to claim it. 

There are also income limitations on “specified service” businesses, such as doctors and lawyers—who are likely highly paid and self-employed. If your income comes from one of the specified services, you still qualify for the pass-through deduction. However, it starts phasing out at $321,400 for married filing jointly or $160,700 for other filers. If your income is over $260,700 ($421,400 joint), the pass-through deduction decreases. 

The pass-through deduction can be complicated. (The IRS has 248 pages of guidance on it.) However, if you qualify, it can significantly lower your taxable income—at least through 2025. 

2. Charity donations

As a pass-through entity, you’ll claim charity donations on your Form 1040—your individual return. You must make charitable donations to an organization that the IRS recognizes. 

Your total charitable donations can’t be more than 60% of your AGI, including your business income. Some charities have lower limits. These are explained in the IRS Deductibility Status Codes. 

If you exceed this amount, you can carry over deductions for up to five years. Keep a record of your donation for documentation. You’ll need additional documentation for the below. 

• Donations of cash or property worth over $250 require a letter of acknowledgment from the charity. 
• Non-cash donations of $500 or more require you to fill out Form 8283. You’ll also need an appraisal if your total donations exceed $5,000. 

You can’t deduct the value of your volunteer time or services. However, you can deduct expenses related to volunteering like travel and mileage. 

3. Business expense write-offs

You can deduct expenses related to running your business. Most business owners don’t claim all these expenses, either because they don’t know about them or they don’t keep records. Some common business expense deductions include: 

• Employee wages and benefits
• Contract labor
• Equipment purchases
• Business insurance
• Bank fees
• Interest
• Utilities
• Car expenses
• Travel expenses
• Rent expenses
• Education and training
• Marketing expenses
• Home office and office supplies

You can find details on each of these in our comprehensive list of small business tax deductions. 

4. Vehicle costs

If you use your vehicle for business purposes, you can deduct its expenses. You may also be able to deduct the cost of a company vehicle. 

You’ll use either the accrual or standard mileage rate to determine the deduction amount. The standard mileage for 2022 is 58.5 cents per mile for the first half of the year. It’s 62.5 cents per mile for the second half of the year. The standard mileage rate is more beneficial if your car gets good gas mileage and has low operating expenses. 

To figure out your mileage deduction, keep track of the miles that you drive for business purposes. You’ll also need to provide the total miles you drove the car. If you take the standard mileage, you can still deduct auto loan interest, vehicle taxes and fees, and parking and toll expenses. 

Your other option is to deduct the actual expenses. This includes auto-related expenses such as: 

• Gas
• Repairs
• Maintenance
• Insurance
• Depreciation
• Garage fees
• Licenses 

You’ll need to keep track of your actual expenses and how many miles you drove the car. Calculate the business-related mileage by dividing the business miles by the total miles. Once you figure out the business-related mileage, deduct a corresponding percentage of actual costs. 

If you buy an electric vehicle, you can also qualify for the electric vehicle tax credit—up to $7,500. However, that’s a separate credit, not a deduction. 

5. Depreciation

Business equipment will lose its value over time as you use it. You can deduct the depreciation, although there are limits. You can use one of several methods to claim depreciation: 

• Section 179 deduction – gives you a large deduction for the first year’s depreciation. For 2022, the deduction limit is $1,080,000. 
• Bonus depreciation – deducts a larger amount of the purchase price for new vehicles and equipment. The Tax Cuts and Jobs Act increased the bonus deduction to 100% for 2022, but it will decrease each year. In 2023, it will be 80%, 60% the next year, and so on.
• Modified Accelerated Cost Recovery System (MACRS) depreciation – deduct more depreciation during the early years you own an asset and a smaller amount in the later years. 
• Business vehicle deduction – deduct up to $10,200, plus up to $8,000 in bonus depreciation. For an SUV (between 6,000 to 14,000 pounds), you can deduct the entire cost of the vehicle the year you buy it using bonus depreciation. 

6. Business startup costs

You can claim a deduction for the costs of starting your business. This deduction is capped at $5,000 for the first year if your total startup costs were under $50,000.

If your expenses were over $50,000, reduce the amount you deduct by the amount over $50,000. If your startup costs were over $55,000, you don’t qualify for a first-year deduction. 

Instead, you’ll need to spread out your expenses and claim them starting in your second year for 15 years. If you anticipate a loss in your first year, it may be better to break up your startup costs and use them to offset profits in later years. 

7. IRA contributions

There are several different types of IRAs, and they all offer tax advantages—although not all contributions are tax deductible. 

SEP IRAs

SEP IRAs are ideal if you’re self-employed or don’t have employees. They have much higher contribution caps than traditional IRAs—either $66,000 or 25% of total compensation, whichever is less. However, if you set up a SEP IRA for yourself, you also have to set up and fund one for all eligible employees for an equal percentage. Contributions to a SEP IRA are tax deductible. 

SIMPLE IRA

A SIMPLE IRA is a good option if your business has no more than 100 employees who earned at least $5,000 in the past year. Unlike SEP IRAs, employees can also contribute to SIMPLE IRAs. The SIMPLE IRA contribution limits are $1,400 for 2022 and contributions are tax deductible. 

Roth IRA

The contributions you make to a Roth IRA are not deductible. However, since you’ve already paid taxes on the money, you won’t have to pay taxes when you withdraw it. There are no penalties for early withdrawal. 

If you think you’ll be in a higher tax bracket when you retire, a Roth IRA can be the better option. As long as your income is less than $129,000 ($204,000 joint), you can open an IRA. You can contribute up to $6,000 (or $7,000 if you’re over 50) for 2022. However, you won’t be able to contribute as much if your income is higher than $129,000 ($204,000 joint).

	SEP IRAs	SIMPLE IRA	Roth IRA
2022 contribution limits	$66,000 or 25% of total compensation	$1,400	$6,000 $7,000 for those over 50
Are contributions tax deductible?	Yes	Yes	No
Who’s it a good fit for?	You’re self-employed or don’t have employees	Your business has no more than 100 employees	You’ll be in a higher tax bracket when you retire

8. Health insurance plan deductions

If you’re self-employed, you may be able to deduct insurance premiums for your family, including: 

• Health 
• Dental
• Long-term care

Even if you take the standard deduction, you can still deduct insurance premiums. However, you can only claim this deduction if you or your spouse were not eligible for an employer-sponsored plan. You also need a net income to claim this deduction. 

If your small business offers health insurance to employees, you can also deduct the amount you contribute to their insurance premiums. It’s more complicated for partners and 2% S corporation shareholders, but you can still deduct health insurance premium contributions. 

9. HSA contributions

An HSA is a health savings account you can use to pay for qualifying medical costs. You’re only eligible for an HSA if you have a high-deductible insurance plan. Your contributions are tax-deductible, and the earnings and qualified withdrawals are tax-free. 

The maximum amount you can contribute for 2022 is $3,650 for yourself or $7,300 for your family. For 2023, the amounts increase to $3,850 for yourself and $7,750 for your family. The limits change yearly based on inflation. If you’re over 55, the limits are $1,000 higher.

2022 Tax Year Limits	Single Plan	Family Plan
Max Contribution Limit	$3,650	$7,300
Minimum Deductible	$1,400	$2,800
Maximum Out-of-Pocket	$7,050	$14,100
Over 55 Catch-up	$1,000	$1,000

For retirement plans, don’t contribute more than the limit. Otherwise, you’ll lose the tax benefits, and you may have to pay a 6% penalty. Also, you have until next year’s tax deadline to make contributions, so you can deduct contributions for 2022 until April 2023.  

To claim a deduction for your HSA account, you don’t have to itemize it but you must have income. HSAs are one of the more complicated deductions. Below is guidance for different tax situations. If you’re unsure, consult one of our licensed tax CPAs.

• Business owners or sole proprietors – you can’t contribute to an HSA with your pre-tax dollars. However, you can contribute with your after-tax money and deduct your contributions from personal income tax. 
• LLCs with employees – you can make pre-tax contributions to an HSA. You can also deduct any contributions you make to their HSAs. If your business is an S corporation, the business can’t provide owners with tax-free contributions to HSAs. 
• C corporations – the IRS taxes corporations as legal entities. For HSAs, it treats owners the same as employees. However, all contributions must still comply with IRS rules for employer contributions. 

10. Tax-loss harvesting

You can use losses on capital investments to offset capital gains taxes. The capital gains tax is what you pay when you sell an asset for a profit.

Tax-loss harvesting is a year-end strategy to lower your tax bill. You’ll need to sell an asset at a loss to claim this deduction. 

If your losses exceed your gains, you can deduct up to $3,000 from your personal income. You can claim losses over $3,000 in future years. But, don’t purchase a similar investment within 30 days—before or after—a loss. If you do, you can’t claim it. This is called a “wash sale.”

11. Student loan interest

You can deduct up to $2,500 of student loan interest if your MAGI is less than $70,000 or $145,000 filing jointly. Your MAGI is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. Student loans you took out for your spouse, dependents, or yourself qualify. 

If your MAGI is between $70,000 and $85,000 ($175,000 filing jointly), you can still claim some interest. However, you can’t claim the entire $2,500. Here’s a breakdown of the credit amounts depending on your filing status.

Maximum credit amount	$2,500
Single, head of household income (MAGI) limit	Less than $70,000 – eligible for the full amount $70,000- $85,000 – partial credit
Married filing jointly income (MAGI) limit	Less than $145,000 – eligible for the full amount $145,000-$175,000 – partial credit

This deduction is “above the line,” which means you subtract it from your taxable income. You can claim it even if you take the standard deduction. But, you can’t take the student loan interest deduction if:

• Your filing status is married filing separately
• Someone claims you as a dependent
• You’re not legally obligated to repay the loan

12. Higher education costs (for yourself or children)

If you’re paying for college for yourself or your children, you may be eligible for either the American opportunity tax credit (AOTC) or the lifetime learning credit. 

The American opportunity tax credit is worth more but has stricter rules for qualification. If you qualify, you can claim a $2,500 tax credit. The full credit is available if your modified adjusted gross income (MAGI) is $80,000 or less for single filers or $160,000 or less for joint filers.

If your MAGI is between $80,000-$90,000 ($180,000 for joint filers), you can get a partial credit. Taxpayers can use the American opportunity tax credit for:

• Undergraduate education 
• A maximum of four years 
• Independent students
• Parents claiming dependent students

You can claim up to 20% of the first $10,000 you pay in tuition and fees when you claim the lifetime learning credit. It’s available for undergraduate, graduate, or vocational credits. There’s also no limit on how many years you can claim it. 

However, you can’t claim both credits in the same year. You can claim the lifetime learning credit if your MAGI is less than $59,000 ($118,000 for joint filers). If your MAGI was over $59,000 but under $69,000 ($138,000 for joint filers), you can get partial credit. 

Here’s a comparison of credit amounts and income limits to decide which will reduce your taxes the most.

	American opportunity tax credit	Lifetime learning credit
Maximum credit amount	Up to $2,500 credit per eligible student	Up to $2,000 credit per return
Single, head of household income (MAGI) limit	Full amount – $80,000 or less to claim the full amount Over $80,000 and under $90,000 for partial credit	$80,000 or less to claim the full amount Over $80,000 and under $90,000 for partial credit
Married filing jointly income (MAGI) limit	$160,000 or less to claim the full amount Over $160,000 and under $180,000 for partial credit	$160,000 or less to claim the full amount Over $160,000 and under $180,000 for partial credit

How to pay less taxes with Xendoo

Xendoo’s experienced, licensed CPAs and tax professionals do more than file your taxes for you. Unlike some other bookkeeping and business tax services that outsource tax preparation and filing, we do it all in-house. We assess your unique tax situation and identify all the ways that you can lower your taxable income and pay less in taxes. Reach out today for a consultation. 

As a business owner, you probably know that you should file taxes on time. However, if you’ve fallen behind on taxes, you’re not alone. Over 33% of Americans procrastinate doing taxes until the last minute. Reasons for procrastinating taxes vary. Some find it too time-consuming and stressful, while others worry if they are filing correctly. 

No matter the reason, missing the tax filing deadline could be costly, especially for businesses. What happens if a business doesn’t file taxes by the due date? The Internal Revenue Service (IRS) can send you a bill for penalties and additional fees. However, we understand that tax filing requirements and rules change each year. It’s hard to keep up without your own accountant or business tax services. 

When you run a business, it’s easy to fall behind on your books and taxes. This guide will go over tax filing deadlines and what happens if your business doesn’t file taxes. We’ll also outline your options if you’re behind on your books, missed a filing deadline, or have tax payments.

Table of contents

• Tax Filing Deadlines for 2023
• What Happens if a Business Doesn’t File Taxes?
• Types of Penalties
• How Long Can You Go Without Filing Business Taxes?
• What Happens if a Business Doesn’t File Taxes for Three Years?
• What to Do if You Owe Back Taxes or Miss Filing Deadlines

Tax Filing Deadlines for 2023

Tax day is usually April 15th. However, since that falls on a Saturday this year, the date is April 18th. Even though April 18th is tax day, filing deadlines vary. 

The date you need to file depends on the following. 

• Your business entity – How you file depends on if you’re a C corporation, S corporation, Partnership, or LLC. 
• The state you operate – Check with your state’s revenue department for their filing requirements and deadlines.
• Your tax status – Tax-exempt organizations and non-profits have different filing deadlines than for-profit businesses.
• The type of return you’re filing – Different returns, including IRS Form 1120 for corporation income tax, have different deadlines.
• Whether you’ve requested an extension – If you’ve requested an extension and it’s accepted, you have extra time to submit your taxes. However, you must pay what you owe by the deadline.
• Owed taxes or refunds – If you owe taxes, the deadline to pay may be different than the deadline to file your return.
• Location – If you’re outside the United States, there are different filing requirements and deadlines.

We recommend you double-check with the IRS and your state’s revenue department for any updates to the filing requirements and deadlines. A tax accountant can also advise you on deadlines and changes.

Here’s a list of common forms and tax filing requirements for businesses and their filing deadlines. For a complete list, we’ve updated our 2023 tax deadlines for businesses here.

Tax Filing	Description	Who Needs To File	Filing Deadline
Estimated quarterly payments	By paying estimated taxes, businesses avoid owing a large amount at the end of the tax year.	Businesses that expect to owe more than $1,000 in taxes at the end of the tax year pay estimated quarterly payments.	Q1: April 18, 2023 Q2: June 15, 2023 Q3: September 15, 2023 Q4: January 15, 2024
W-2	A W-2 details an employee’s wages for the year as well as taxes withheld from their earnings.	Employers must provide W-2 forms to all employees who received wages, salaries, tips, or other compensation during the tax year.	January 31, 2023
W-9	Non-employees and contractors fill out W-9 forms to provide tax information.	Anyone who pays an independent contractor or non-employee must file a W-9 form.	Not subject to IRS deadlines but non-employees should fill it out before beginning work
1099-NEC	The 1099-NEC reports nonemployee compensation payments, such as payments to independent contractors.	Any business that pays an independent contractor or nonemployee more than $600 in a year must file a 1099-NEC form.	January 31, 2023

What Happens if a Business Doesn’t File Taxes?

All corporations must submit a corporate income tax return, even with no profits. LLCs who choose to be taxed as corporations are also responsible for filing a federal tax return. This must be done regardless of whether or not an LLC conducts any business activities during the year. 

If your business doesn’t file taxes, you’re subject to IRS penalties and additional fees. It’s best to deal with tax filing issues sooner rather than later. However, if you missed a deadline, it’s not the end of the world. Initially, the IRS sends a notice or letter to notify taxpayers when they’ve missed a deadline or payment. 

Everyone’s tax situation can vary. Businesses that don’t meet the tax filing due dates have several options. An experienced tax professional can assess yours and help you meet tax requirements. 

If you’ve had IRS notices that you haven’t responded to after several months, the IRS may take these steps. 

Penalties

Different penalties apply depending on your unique tax situation. Below are penalties you could face if you don’t accurately file your taxes on time or miss payments. 

• Failure to File Penalty – if you don’t file your tax return by the due date
• Failure to Pay Penalty – if you don’t pay the full amount of taxes you owe by the due date
• Penalty for Underpayment of Estimated Taxes – if a business doesn’t pay enough estimated yearly taxes
• Accuracy-Related Penalty – if the tax return is incorrect or you fail to report information correctly

In addition to penalties, the IRS charges interest on your unpaid taxes. This is in extreme cases. We’ll look at each penalty in detail, so you know how much it could affect you.

Failure to File Penalty

The IRS calculates the Failure to File penalty as a percentage of taxes that you owe each month the return is past due. The fee starts accruing on the due date and continues until you file the return or reach the maximum penalty limit.

This penalty is usually 5% of the taxes you owe for each month or partial month that you miss. The percentage increases each month until it reaches the maximum cap of 25%. If you’re more than 60 days late on submitting your return, you’ll pay either $435 or 100% of the unpaid tax balance—whichever is lower.

Don’t forget that you can request an extension if you can’t meet the tax filing deadline. The extension will give you an extra six months to file your return, but it won’t change the due date for the taxes you owe. The deadline to file for an extension is the same as the return’s original due date. 

Here’s how the Failure to File penalty works:

Months Late	Penalty Amount
1	5%
2	10%
3	15%
4	20%
5+	25%

Failure to Pay Penalty

Taxpayers who have filed taxes but didn’t pay them on time face a Failure to Pay Penalty. The IRS calculates this penalty as a percentage of the amount you owe. The penalty increases gradually each month you haven’t paid. Even if you file your taxes on time, you need to have the money to pay what you owe.

For each month you haven’t paid, the IRS assesses a penalty of 0.5% of the amount you owe. It starts accruing from the due date and continues until you pay it or it caps at 25%.

Remember, the IRS may waive penalties and interest for taxpayers who can show reasonable cause for failure to pay on time. You can request an installment agreement if you cannot pay your taxes by the deadline. With this, you make monthly payments to cover what you owe. However, there’s a fee for setting this up, and interest still accrues on anything you don’t pay.

Here’s a chart to help you visualize how the Failure to Pay penalty works:

Months Late	Penalty Amount
1	0.5% of the unpaid taxes
2	1% of the unpaid taxes
3	1.5% of the unpaid taxes
4	2% of the unpaid taxes
5	2.5% of the unpaid taxes

Unpaid Taxes and Penalty Interest

The IRS may also tack on interest for any unpaid taxes or fees. Interest accumulates daily and the IRS sets it by the federal short-term rate. The IRS calculates interest from when payment was due until you pay the amount you owe. 

As of 2022, the interest rate for underpayment of taxes is 6% per year. This compounds daily, meaning it adds daily to the total amount you owe. The rate for overpayment of taxes is 5% per year. If you pay more than what you owe, you will get a lower rate of interest.

Corporations should be aware of corporate interest rates, which are higher than individual rates. 

Here’s how interest works on unpaid taxes.

Number of Years	Accrued Interest
1	6%
2	12%
3	18%
4	24%
5	30%

Filing and paying your taxes within the deadlines can help you avoid costly penalties from the IRS. If you have fallen behind on filing or paying your taxes, consult with a tax professional. 

Xendoo’s tax accountants will help you file the right paperwork to prevent additional charges. We’ve seen all kinds of tax situations from missed deadlines to late taxes, so no judgment here. 

How Long Can You Go Without Filing Business Taxes?

It’s always best to file and pay your taxes as soon as possible. If this isn’t possible, a tax accountant will help you minimize your liability.

A tax professional familiar with complex tax laws and regulations can help you:

• Apply for an extension to get a few more months of breathing room. 
• Lower your tax bill by leveraging deductions, credits, and other strategies to reduce liability.
• Navigate your filing obligations and comply with all applicable laws and regulations.
• Avoid errors and omissions that could trigger an audit or penalties.

Even though you must file and pay taxes, there are ways to lower your tax bill legally. 

Tax Evasion vs. Tax Avoidance

Tax evasion is illegal and involves deliberately falsifying or concealing income, inflating deductions, or failing to file taxes. On the other hand, tax avoidance is a legitimate way of reducing your tax bill by using legal methods such as deductions and credits. 

What Happens if a Business Doesn’t File Taxes for Three Years?

If you don’t file your taxes for three consecutive years, the IRS may consider it willful neglect and impose harsher penalties.

These penalties can include levies on your wages or bank account. You may also be subject to a federal tax lien that limits your access to loans or credit. In extreme cases of intentional tax evasion, the IRS may impose fines of up to $250,000 and possible jail time.

Tax Liens

The government can take action against those who fail to pay their taxes through a tax lien. It takes assets or property the taxpayer owns and gives the government legal interest in those assets. If you continue to owe taxes, the agency might begin proceedings to seize your assets. 

Again, this is in rare cases, and usually when the IRS suspects tax evasion. 

A tax lien can make it difficult for taxpayers to sell or refinance their property. You must pay off the lien before any transactions occur. In more extreme cases, the government might foreclose on the property.

It’s important to note the difference between a tax lien and a levy. A levy is a legal process by which the government takes possession of assets or property to settle a debt. A lien serves as a legal claim on those same assets or property to secure payment of taxes. There are also different types of tax liens. 

Notice of Federal Tax Lien

The IRS uses a Notice of Federal Tax Lien (NFTL) as its initial step when taxpayers have not paid their tax debt. This document serves as public notification that the government holds a legal claim over the taxpayer’s property or assets. If you pay off the taxes or reach an installment agreement, the IRS can lift the NFTL.

Notice of State Tax Lien (NSTL)

A Notice of State Tax Lien (NSTL) is similar to an NFTL but the appropriate state agency files it instead of the IRS. The same rules apply with an NFTL—if you pay the taxes, the IRS can release the lien.

If you receive an NTFL or an NSTL, it is crucial to take action. Tax liens can devastate your financial and credit health, so you should address the issue head-on. 

What to Do if You Owe Back Taxes or Miss Filing Deadlines

Back taxes can be expensive and stressful. But, there are measures to help businesses pay off their debt. 

If you’re behind on filing or paying taxes, you have options. Here are some steps to help you avoid or lower expensive tax penalties, interest, and other fees.  

File a Tax Extension

If you need more time to collect all the documents and submit your business tax returns, you can file an extension. However, filing a tax extension doesn’t give you more time to pay the taxes that you owe. To prevent extra costs due to interest and penalties, make sure to pay by the initial due date. 

C corporations, S corporations, and partnerships must fill out Form 7004 to ask for a tax filing extension. Single-member LLCs, sole proprietorships, and trusts submit Form 4868 to request a filing extension. If the IRS approves your extension, you’ll have an additional six months to submit your tax return. 

Companies that face unexpected issues may be eligible for a hardship extension. For a hardship extension, you must submit a written request that explains why you need more time and includes the date you’ll submit the return.

Dispute a Penalty

If you believe there has been an error, you can dispute a penalty. Generally, businesses must provide evidence to support their argument and show why the IRS should remove or reduce the penalty.

For instance, if you receive a penalty for failure to file or underreporting income, you might have a reasonable cause for the oversight. Reasonable circumstances could include a fire or natural disaster or incorrect advice from a certified public accountant (CPA).

Waive a Penalty

You can also use first-time penalty abatement (FTA) to request a penalty waiver. To qualify for FTA, your business must have filed all returns and paid all taxes due within the past three years. 

An administrative waiver is another way businesses can request relief from penalty charges. 

Businesses can request an administrative waiver if they are facing financial hardship or if there’s a reasonable cause for the error.

The IRS also has a Voluntary Disclosure Program (VDP) for business taxpayers who fail to report or underreport their taxes. Businesses can come forward voluntarily and resolve their tax issues. As a result, they limit their exposure to interest and/or penalties by working with the IRS.

Reduce Payment

You can also request an Offer in Compromise (OIC), a settlement agreement between a taxpayer (you) and the government. In it, the two parties agree on a reduced tax payment. You would only be responsible for paying the new amount. However, this option should only be used as a last resort. Taxpayers must provide significant financial information to qualify.

Businesses may also consider filing for bankruptcy protection. This will stop any IRS or state tax agency collection activities while the business reorganizes its financial obligations. It may forgive taxes entirely depending on the type of bankruptcy. However, filing for bankruptcy is a complex process and has many financial consequences, so treat it as a last resort.

Setup a Payment Plan

If you can’t pay in full, you can try setting up a payment plan. To do this, file Form 9465 with the IRS by the deadline. With a payment plan, you make monthly payments toward the taxes you owe. While this won’t reduce your tax liability, it will break up the total into manageable payments.

Businesses can also apply for Currently Not Collectible (CNC) status if they cannot pay their taxes due to financial hardship. When a taxpayer has CNC status, the IRS will temporarily postpone collection actions. It will not pursue collection until the taxpayer’s financial situation improves.

Hire a Business Tax Professional

Skilled tax accountants provide expert advice on how to lower your tax bill and get more money back. They should know all the business tax deductions and credits to save you money.

When choosing a business tax professional, look for experience in business tax preparation and resolution. Xendoo’s team of CPAs, bookkeepers, and tax specialists can help you with:

• Tax filing and preparation
• Delinquent returns
• Negotiating payment plans or settlements
• Preparing documents for tax audits
• Catch up bookkeeping when you’re behind months or years

If you’re concerned about filing taxes for your business on time, hire a tax professional. In addition to hiring a tax consultant, it’s a good idea to invest in a year-round bookkeeping service.

Like taxes, updating your books each month is important but it’s easy to fall behind. If you are behind on your taxes, chances are that you are behind on your books too. With the right help, you can get your books in order and prepare for the next tax filing season.

Xendoo has all the finance expertise a business needs in one place. You can choose from business tax services, bookkeeping, accounting, and CFO services. To learn how Xendoo can help with your particular tax situation or business finances, schedule a time to talk to an expert.