What to Do When Your Business Owes Back Taxes

what to do if your business owes back taxes

There are many reasons why you might have missed a year of filing your business tax return. Maybe your business briefly closed and then reopened. Maybe you had a family emergency or a natural disaster struck. Whatever the reason, missing a business tax return means your business owes back taxes. If you’ve missed filing and your business owes back taxes, here’s what you need to know.

What to Do When Your Business Owes Back Taxes

If you haven’t filed taxes for your business in years past, it can be tempting to try and ignore them or hope the IRS won’t notice. Filing business back taxes as soon as you can will reduce penalties and make each tax year more manageable. Working with an expert, you can sort out exactly what you owe and work out a reasonable timeline in which to pay it.

Work With an Expert

If you are concerned about business back taxes and you’re not totally confident in your record-keeping or tax law knowledge, work with experts in business taxes. Business taxes are more complex than personal income taxes, and there are detailed tax laws to pay attention to. This will not only ensure that your business back taxes are filed properly, but it will also ensure that you don’t pay more than you should.

To make sure that your business back taxes are filed correctly, work with a certified public accountant (CPA). A CPA has undergone rigorous training and has been certified by the American Institute of Certified Public Accountants (AICPA). All CPAs must complete an exam to demonstrate that they have the necessary knowledge of accounting practices and tax code. If you are concerned about legal repercussions, you should also work with a tax attorney. A tax attorney has a detailed understanding of tax law and procedures, and will protect your rights and your property during the process.

Collect Your Records

Whether you have one year of business back taxes or several, collect as many records as you can. This will help your tax expert file your back taxes and reduce your tax liability as much as possible. If you haven’t filed for your business in past years, it will be important to assess payroll tax and sales tax unpaid for those years, as well as income tax. Even if your business took a loss in that year, payroll taxes and sales taxes still must be paid.

Here is a list of information you’ll need for your business back taxes. This is not an exhaustive list, and your tax expert will give you additional information about records to collect.

  • Revenue records, including all sales made for the year
  • Sales tax paid by customer, sales tax paid to a state tax authority
  • Cost of goods sold records
  • Any personal income taxes filed
  • Business expenses
  • Previous business income taxes filed
  • Business contact information and tax ID
  • Wages paid to employees or contractors
  • Federal, state, and local income taxes paid out of wages

Locate Missing Records

You’ll probably come across some records that you no longer have access to or can’t find. Make your best effort to locate extra copies or electronic records of these, especially when it comes to sales, cost of goods sold, wages, and taxes paid throughout the year. There are a few places you might look for this information:

  • Contact suppliers about electronic records
  • Look for back-ups or records saved on your POS system
  • Contact your state tax authority for sales and sales tax records
  • Contact previous employees about wages paid

Contact a Business Tax Attorney

Once you’ve collected your records and you’re prepared to file back taxes, you will likely have to pay back tax debts, as well as penalties for not filling. If the IRS’s determination of your back taxes is different than yours, or you feel that the number isn’t accurate, you can make an appeal. At this time, it’s best to contact a business tax attorney. Your tax attorney will work on your behalf and fight for your rights. Your tax attorney can also help you determine a payment schedule that makes sense with your current income and situation.

Facing business back taxes can be scary, and trying to locate lost documents can feel like an uphill battle. Gather your records one step at a time, and work closely with your tax accountant and tax attorney to find what you need. With your back taxes behind you, you can start fresh again with peace of mind.