Q: I don’t have enough money to pay my taxes. What happens if I submit my tax return late?
— Worried Small Business Owner
A: Dear Worried:
As an entrepreneur, cash flow can easily impact your ability to pay your taxes on time. Obviously, it is best to avoid that predicament if you can. If the problem is truly as simple as having inadequate funds on hand, it is still best to file your business return on time or as soon as possible, and request a payment plan to pay your taxes.
In most circumstances, the Internal Revenue Service will allow an extension for you to pay with fairly favorable payment terms. However, you must still file your return and request the extension and payment plan. The IRS offers installment agreements, and some taxpayers will even qualify for an offer in compromise, in which you can receive a significant discount on your taxes, if that is warranted.
If you don’t file your return, the IRS has the right to file a substitute return for you. That means the IRS defines which credits, deductions, and exemptions are listed on your return. When the IRS does this, you will receive a proposed tax assessment. You may then choose to file your overdue return within 90 days or to file a petition in Tax Court.
It is always best to file by the deadline for as soon as possible thereafter. Doing this avoids the following potential consequences:
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