The IRS has several options that Black entrepreneurs can use to settle IRS tax debt, like installment agreements, offers in Compromise, and penalty abatement. By communicating with the IRS and seeking professional audit representation, business owners can reduce liabilities and avoid aggressive collection actions.
An extensive Brookings report from 2022 revealed that 92% of small Black business owners reported financial difficulties, the highest number from any other race. Having an extensive tax burden can compound these issues and put Black entrepreneurs at a disadvantage in the marketplace.
What Are 5 Strategies to Settle IRS Tax Debt?
IRS tax debt can be a burden that can stress out anyone, regardless of income bracket. Even some of our most beloved and talented Black celebrities, from Wesley Snipes to Lauryn Hill to Toni Braxton, have gotten into tax trouble and ended up owing millions of dollars. Therefore, Black entrepreneurs shouldn’t take their tax obligation lightly.
Black entrepreneurs have several options to settle business IRS obligations. Filing taxes before the deadline and contacting the IRS promptly can permit monthly installment options, balance compromise, and penalty reduction.
Get Professional Advice
According to a 2023 collaborative report from Stanford University and the Department of the Treasury, Black taxpayers are audited 2.9 to 4.7 times more than non-Black taxpayers. If your business is targeted for such an audit, help is available to defend your business.
Contact an audit professional who can represent you in the US tax court system. Get expert tax audit representation here that can help answer questions you may not understand and prevent you from exposing yourself to additional audits in upcoming years.
Pay Over in Installments
Depending on your existing liability, paying the full balance may not be possible. However, the IRS is more flexible when you contact them in good faith, allowing you to pay down your balance in installment agreements. Two main agreement options include Long-term Installment and the In-business Trust Fund Express Installment.
Under a Long-term Installment agreement, you can pay down your balance in fixed monthly payments for up to 72 months. However, interest and penalties will continue to accrue on your balance until paid off.
If your business tax liability includes payroll tax debt, is less than $25,000, and you could pay it down in 24 months, the In-Business Trust Fund Express Installment agreement may work for you.
Ask About Offer in Compromise
If regular monthly installments are out of reach, you may consider asking the IRS about an Offer in Compromise to settle for less than what you owe. Businesses must be able to show they can’t pay the full debt, or that attempting to pay any of it would create too much economic hardship. Be prepared to submit several forms related to your income, expenses, cash flow, and detailed assets.
If the IRS agrees to your offer, you may pay them in a lump sum with 20% of the offer upon your initial application. You may also agree to make periodic payments in monthly installments.
Request a Penalty Abatement
Does your business have a relatively clean tax compliance history? If so, you may qualify for the First Time Penalty Abatement relief.
Strong supporting documentation, like medical records or bank statements, can show the IRS that you were unable to make recent tax payments due to extenuating circumstances beyond your control.
Reasonable cause for avoiding timely payment includes:
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Death of a close relative
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Serious illness
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Post-hardship event, such as a natural disaster
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Unavoidable absence from home
Get Currently Not Collectible Status
If you’re unable to make any payments, you can avoid garnishments and property seizures by obtaining Currently Not Collectible (CNC) status, but it’s not easy to do. There is a 10-year statute of limitations for collection, in which penalties and interest will continue to accrue on these back taxes even after status approval.
However, if there is still a balance after the statute of limitations expires, the IRS will likely write off your tax debt.
How Can Businesses Avoid Tax Issues Going Forward?
Keep highly detailed records of all business transactions, including the smallest receipts and invoices. File all your required state and federal business tax returns on time, even if you can’t pay the money right then. Businesses can file for an automatic six-month filing extension.
Understand the difference between avoiding excessive taxes and evading them. After all, concealing business financial information is illegal, but reducing your tax liability is a smart move, which you can do by noting the depreciation rate for major purchases and intensely tracking and deducting business expenses from marketing services to phone bills to travel. Utilize technology to automate your bookkeeping to avoid missing these deductions.
Frequently Asked Questions
What is the $600 rule in the IRS?
The $600 rule is the reporting threshold for payments one receives through a third-party payment app, like PayPal, for goods or services. The threshold was previously $20,000 per 200 transactions. Therefore, any income above $600 should be reported on a 1099-K form.
What Is the Most Overlooked Tax Break?
As a business owner, you may be overlooking deductions and credits that can greatly reduce your tax liability. Some of the most commonly missed ones include home office deductions, where self-employed individuals can deduct a portion of rent or mortgage and utilities. Look into state and local taxes that permit a deduction of sales tax paid on big-ticket purchase items used for your business.
If you’ve made energy-efficient updates to your business facility, such as heat pumps, insulation, or double-pane windows, you could get various energy credits. Don’t forget retirement contributions, such as traditional IRA accounts, can also lower taxable income.
Can The IRS Seize My Business Assets?
Yes, the IRS has the legal authority to seize business assets to satisfy unpaid tax debts. This process, known as a levy, can include the seizure of physical property like vehicles, machinery, and real estate, as well as intangible assets such as bank accounts and accounts receivable.
However, the IRS typically views seizure as a last resort and will only proceed after issuing multiple notices and providing a 30-day window for the business owner to respond or appeal. Business owners can often prevent these actions by entering into an installment agreement or qualifying for Currently Not Collectible status before the final notice of intent to levy expires.
A Black-owned Business Can Protect Itself with Tax Literacy
Black entrepreneurs face several financial barriers in the business world, from poor funding to excessive tax audits. That’s why tax compliance is essential for avoiding even more monetary hardship and premature closings. Leveraging tax incentives, knowing when to work with audit/tax professionals, and preventing personal liability by opening an LLC can help more Black business owners thrive and survive challenging times.
Great Job Lettecha Johnson & the Team @ Black America Web Source link for sharing this story.
