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As much as you may dread them, taxes are a fact of life. There’s simply no way to avoid paying what you owe. If you’re like many American business owners, you may wonder what happens if you fail to file your taxes on time or fall behind on a payment? Check out these five myths about back taxes to find out everything you need to know.
You Must Pay Every Penny You Owe
Sometimes, you simply owe more than you can afford to pay. When it comes to back taxes, it’s okay to ask the IRS for a break. One way to do this is to make an offer in compromise for less than the full amount you owe. As long as you’re current on your tax filings, and you don’t mind disclosing your company’s assets, liabilities, and other details, the IRS may be willing to negotiate with you.
If this is the first time your business has been late paying taxes, you can also ask the IRS to waive any penalties you may have incurred.
There Is No Statute of Limitations on Audits
In most cases, the statute of limitations on tax return audits is three years. This means the IRS has until April 2022 to assess additional tax on a business that filed its 2018 tax return in April 2019. If you fail to report more than 25 percent of your business income, however, the statute of limitations increases to six years. In extreme cases, such as tax fraud or failure to file any tax returns ever, the IRS can look at your entire tax history.
Filing Taxes Is Optional
Filing taxes is voluntary, but it is not optional. Many people falsely believe they have no legal obligation to file their taxes. This is not true. In the case of taxes, the word “voluntary” refers to your responsibility to determine the correct amount of tax owing.
Unless you have a very good reason for not filing your taxes, you must do so by law. The IRS does not look favorably on businesses that do not.
Internet Earnings Don’t Count
No matter how your business makes money, you need to report all earnings on your tax return. You must declare any product or service you sell — either online, in person, or via any other medium — that amounts to more than $400. If you’re ever unsure about tax issues such as this, it’s always a good idea to get help from a professional.
An Extension Gives You More Time to Pay
Under special circumstances, you can ask the IRS for an extension on filing your taxes. By asking for an extension, you can avoid potential penalties for not sending your tax return in on time. In the meantime, you still need to estimate the taxes you owe and make a payment by the April deadline.
When it comes to taxes, the IRS does not play games. Your business must file a tax return and pay any money it owes. Understanding the truth behind these five myths about business back taxes can help you make more informed decisions when it comes to filing returns and paying taxes.