While it is always best to pay all of your business taxes on time, or as soon as possible, business sometimes aren't able to do so. However, the sooner you pay and the more you pay, the less you will owe in interest and penalties.
This article discusses when federal income taxes are due, how and when to pay, penalties for non-payment, and some payment alternatives.
- If a business doesn't pay its federal income taxes by the due date, it may have to pay interest and penalties.
- If a business doesn't make estimated tax payments on time, it may also be assessed penalties for underpayment.
- The IRS has several ways businesses can pay off their tax debt over time, including one-time payments and installment payments.
- In general, the more you pay and the sooner you pay, the less you have to pay.
Federal Income Tax Due Dates
The IRS sets tax return due dates for each business legal type. The filing date is also the payment date.
The due date for small businesses filing their business taxes on Schedule C as part of their personal taxes is the same as the personal tax return due date of April 15.
Partnership income tax returns are due the 15th day of the third month following the date when the tax year ends. For partnerships whose tax year ends on December 31, the due date is March 15 of the following year.
Corporate income tax returns are due the 15th day of the fourth month after the business tax year-end. For corporations with a December 31 tax year, the due date is April 15.
S corporation income tax returns are due by the 15th day of the third month after the end of the tax year. For S corporations with a December 31 tax year, the due date is March 15.
Due dates for limited liability company (LLC) returns depend on the number of members (owners):
- Single-member LLCs pay as sole proprietors on Schedule C, with a due date of April 15.
- Multiple-member LLCs pay as partnerships, with a typical due date of March 15.
These due dates may change for a specific year. If the due date is on a weekend or holiday, the due date is the next business day.
Individuals and businesses may receive one automatic six-month extension on filing their returns. but there's no extension on payment. You must pay by the original due date even if you have an extension.
Penalties and Interest for Non-Payment
The IRS imposes both penalties and interest on taxpayers and businesses who don't pay their taxes online or who fail to pay at all.
Failure to Pay Penalties
The IRS assesses "Failure to Pay" penalties for not paying taxes by the due date based on how long the overdue tax remains unpaid. The IRS requires that taxes must be paid during the year, either by withholding from earnings or other payments or by paying quarterly estimated taxes.
If a small business owner doesn't pay enough during the year, they may be charged a penalty, even if they have a refund. Corporations may be charged penalties if they don't pay their estimated tax on time.
Interest on Unpaid Taxes and Penalties
Interest may be charged on penalties and the balance you owe for underpayment begins on the due date.
If you receive a notice of underpayment, you won't be charged interest on the amount shown if you pay in full on or before the "pay by" date. Interest rates may change quarterly depending on the formulas the IRS uses.
Other penalties may be assessed for other business tax violations:
- Failure to file if your tax return is not filed on time
- Accuracy-related penalties if all income isn't claimed or for taking deductions or credits that are not allowed
- For not filing an information return on time (partnership information returns, for example)
Interest on Underpayments and Penalties
Interest may be charged on penalties and the balance you owe for underpayment begins on the due date. If you receive a notice of underpayment you won't be charged interest on the amount shown if you pay in full on or before the "pay by" date. Interest rates may change quarterly, depending on the formulas the IRS uses.
If you haven't paid your tax bill, the IRS will send you a notice or letter explaining the reason for the contact, with instructions on how to handle the issue. The IRS will never contact you by phone, text, social media, or email to demand payment.
If Payment Still Isn't Made
The IRS also has other more severe remedies for repayment of taxes. including tax liens and levies.
A levy is a legal seizure of property to satisfy a tax debt. An example of a levy is taking money from a business owner's bank account or other financial accounts.
A tax lien is a public document filed with a court to alert creditors that the IRS has a legal right to property.
In both cases, the IRS assesses the liability and sends the taxpayer a Notice and Demand for payment. For liens, the IRS files a public document to alert creditors of the government's right to the property. The lien attaches to all of the taxpayer's assets including business property.
In addition to having your property seized, a tax lien is a public record and it can affect your credit report. Tax levies aren't public and won't affect the taxpayer's credit report.
Alternatives to Payment by the Due Date
Here are some alternatives to paying the full amount of the tax you owe on your due date.
Get a Short-Term (120 Day) Extension
A short-term extension gives a taxpayer up to 120 days to pay for amounts under $100,000 in combined tax, penalties, and interest. No fee is charged, but the late-payment penalty plus interest will apply.
Pay by Agreement or Installment
You may qualify for an installment plan payment option from the IRS. This option depends on how much you owe. The IRS has an Online Payment Agreement that you can use to pay your taxes by installment. To see if you are eligible for this type of agreement, go to the Online Payment Agreement page and spend a few minutes working your way through the online prompts. The Online Payment Agreement is on the web only during certain hours and days.
Apply for an Offer in Compromise
The IRS recognizes that financial hardship may prevent someone from paying their taxes. In these cases, the taxpayer may be able to apply for an offer in compromise to settle the tax debt for less than the full amount. Each situation is considered on its own merits. This alternative should only be used as a last resort. The IRS has an Offer in Compromise Pre-Qualifier that you can use to see if you are qualified to apply.
Frequently Asked Questions (FAQs)
What do I do if I can't pay property taxes on my business?
Property taxes are paid to counties in the U.S.. and are subject to state laws. You must make payments to the property tax collector (not a property tax appraiser, who values property).
If you can't pay your property tax, you may be subject to interest on the unpaid balance. Some states don't allow partial payments of delinquent real estate taxes, but your state may allow installment plans.
Contact your local property tax collector for information on what to do if you can't make your property tax payments. You may also want to contact your state tax agency for more information.
Can you go to jail for not paying business taxes?
An individual taxpayer may face criminal prosecution and possible prison time if convicted of:
- Willful failure to file a return, supply information, or pay taxes due
- Fraud or false statements
- Preparing and filing a fraudulent return
- Identity theft or
- Tax evasion
There's a difference between tax evasion and tax avoidance. Tax avoidance is the actions taxpayers take to lessen their tax liability, like taking authorized deductions and tax credits. Tax evasion, on the other hand, is deliberate non-payment or underpayment of taxes.
Tax evasion is a felony because it's willful, and the penalties include fines of up to $100,000 and imprisonment for up to five years, or both. Since tax evasion is a federal crime, that means federal prison.
What do you do if you are behind on business taxes?
The best thing to do is call the IRS. You can use the IRS business number if your business is a corporation, S corporation, or partnership. If your business income is included in your personal tax return, call the personal phone number.
You can also see this article on how to apply online for a payment plan to get information about how to qualify for an individual or business plan, the information you need to apply, and the process. You'll have to create an account with the IRS to apply.