As a business owner, you probably know that you should file taxes on time. However, if you’ve fallen behind on taxes, you’re not alone. Over 33% of Americans procrastinate doing taxes until the last minute. Reasons for procrastinating taxes vary. Some find it too time-consuming and stressful, while others worry if they are filing correctly.
No matter the reason, missing the tax filing deadline could be costly, especially for businesses. What happens if a business doesn’t file taxes by the due date? The Internal Revenue Service (IRS) can send you a bill for penalties and additional fees. However, we understand that tax filing requirements and rules change each year. It’s hard to keep up without your own accountant or business tax services.
When you run a business, it’s easy to fall behind on your books and taxes. This guide will go over tax filing deadlines and what happens if your business doesn’t file taxes. We’ll also outline your options if you’re behind on your books, missed a filing deadline, or have tax payments.
Table of contents
- Tax Filing Deadlines for 2023
- What Happens if a Business Doesn’t File Taxes?
- Types of Penalties
- How Long Can You Go Without Filing Business Taxes?
- What Happens if a Business Doesn’t File Taxes for Three Years?
- What to Do if You Owe Back Taxes or Miss Filing Deadlines
Tax Filing Deadlines for 2023
Tax day is usually April 15th. However, since that falls on a Saturday this year, the date is April 18th. Even though April 18th is tax day, filing deadlines vary.
The date you need to file depends on the following.
- Your business entity – How you file depends on if you’re a C corporation, S corporation, Partnership, or LLC.
- The state you operate – Check with your state’s revenue department for their filing requirements and deadlines.
- Your tax status – Tax-exempt organizations and non-profits have different filing deadlines than for-profit businesses.
- The type of return you’re filing – Different returns, including IRS Form 1120 for corporation income tax, have different deadlines.
- Whether you’ve requested an extension – If you’ve requested an extension and it’s accepted, you have extra time to submit your taxes. However, you must pay what you owe by the deadline.
- Owed taxes or refunds – If you owe taxes, the deadline to pay may be different than the deadline to file your return.
- Location – If you’re outside the United States, there are different filing requirements and deadlines.
We recommend you double-check with the IRS and your state’s revenue department for any updates to the filing requirements and deadlines. A tax accountant can also advise you on deadlines and changes.
Here’s a list of common forms and tax filing requirements for businesses and their filing deadlines. For a complete list, we’ve updated our 2023 tax deadlines for businesses here.
|Tax Filing||Description||Who Needs To File||Filing Deadline|
|Estimated quarterly payments||By paying estimated taxes, businesses avoid owing a large amount at the end of the tax year.||Businesses that expect to owe more than $1,000 in taxes at the end of the tax year pay estimated quarterly payments.||Q1: April 18, 2023
Q2: June 15, 2023
Q3: September 15, 2023
Q4: January 15, 2024
|W-2||A W-2 details an employee’s wages for the year as well as taxes withheld from their earnings.||Employers must provide W-2 forms to all employees who received wages, salaries, tips, or other compensation during the tax year.||January 31, 2023|
|W-9||Non-employees and contractors fill out W-9 forms to provide tax information.||Anyone who pays an independent contractor or non-employee must file a W-9 form.||Not subject to IRS deadlines but non-employees should fill it out before beginning work|
|1099-NEC||The 1099-NEC reports nonemployee compensation payments, such as payments to independent contractors.||Any business that pays an independent contractor or nonemployee more than $600 in a year must file a 1099-NEC form.||January 31, 2023|
What Happens if a Business Doesn’t File Taxes?
All corporations must submit a corporate income tax return, even with no profits. LLCs who choose to be taxed as corporations are also responsible for filing a federal tax return. This must be done regardless of whether or not an LLC conducts any business activities during the year.
If your business doesn’t file taxes, you’re subject to IRS penalties and additional fees. It’s best to deal with tax filing issues sooner rather than later. However, if you missed a deadline, it’s not the end of the world. Initially, the IRS sends a notice or letter to notify taxpayers when they’ve missed a deadline or payment.
Everyone’s tax situation can vary. Businesses that don’t meet the tax filing due dates have several options. An experienced tax professional can assess yours and help you meet tax requirements.
If you’ve had IRS notices that you haven’t responded to after several months, the IRS may take these steps.
Different penalties apply depending on your unique tax situation. Below are penalties you could face if you don’t accurately file your taxes on time or miss payments.
- Failure to File Penalty – if you don’t file your tax return by the due date
- Failure to Pay Penalty – if you don’t pay the full amount of taxes you owe by the due date
- Penalty for Underpayment of Estimated Taxes – if a business doesn’t pay enough estimated yearly taxes
- Accuracy-Related Penalty – if the tax return is incorrect or you fail to report information correctly
In addition to penalties, the IRS charges interest on your unpaid taxes. This is in extreme cases. We’ll look at each penalty in detail, so you know how much it could affect you.
Failure to File Penalty
The IRS calculates the Failure to File penalty as a percentage of taxes that you owe each month the return is past due. The fee starts accruing on the due date and continues until you file the return or reach the maximum penalty limit.
This penalty is usually 5% of the taxes you owe for each month or partial month that you miss. The percentage increases each month until it reaches the maximum cap of 25%. If you’re more than 60 days late on submitting your return, you’ll pay either $435 or 100% of the unpaid tax balance—whichever is lower.
Don’t forget that you can request an extension if you can’t meet the tax filing deadline. The extension will give you an extra six months to file your return, but it won’t change the due date for the taxes you owe. The deadline to file for an extension is the same as the return’s original due date.
Here’s how the Failure to File penalty works:
|Months Late||Penalty Amount|
Failure to Pay Penalty
Taxpayers who have filed taxes but didn’t pay them on time face a Failure to Pay Penalty. The IRS calculates this penalty as a percentage of the amount you owe. The penalty increases gradually each month you haven’t paid. Even if you file your taxes on time, you need to have the money to pay what you owe.
For each month you haven’t paid, the IRS assesses a penalty of 0.5% of the amount you owe. It starts accruing from the due date and continues until you pay it or it caps at 25%.
Remember, the IRS may waive penalties and interest for taxpayers who can show reasonable cause for failure to pay on time. You can request an installment agreement if you cannot pay your taxes by the deadline. With this, you make monthly payments to cover what you owe. However, there’s a fee for setting this up, and interest still accrues on anything you don’t pay.
Here’s a chart to help you visualize how the Failure to Pay penalty works:
|Months Late||Penalty Amount|
|1||0.5% of the unpaid taxes|
|2||1% of the unpaid taxes|
|3||1.5% of the unpaid taxes|
|4||2% of the unpaid taxes|
|5||2.5% of the unpaid taxes|
Unpaid Taxes and Penalty Interest
The IRS may also tack on interest for any unpaid taxes or fees. Interest accumulates daily and the IRS sets it by the federal short-term rate. The IRS calculates interest from when payment was due until you pay the amount you owe.
As of 2022, the interest rate for underpayment of taxes is 6% per year. This compounds daily, meaning it adds daily to the total amount you owe. The rate for overpayment of taxes is 5% per year. If you pay more than what you owe, you will get a lower rate of interest.
Corporations should be aware of corporate interest rates, which are higher than individual rates.
Here’s how interest works on unpaid taxes.
|Number of Years||Accrued Interest|
Filing and paying your taxes within the deadlines can help you avoid costly penalties from the IRS. If you have fallen behind on filing or paying your taxes, consult with a tax professional.
Xendoo’s tax accountants will help you file the right paperwork to prevent additional charges. We’ve seen all kinds of tax situations from missed deadlines to late taxes, so no judgment here.
How Long Can You Go Without Filing Business Taxes?
It’s always best to file and pay your taxes as soon as possible. If this isn’t possible, a tax accountant will help you minimize your liability.
A tax professional familiar with complex tax laws and regulations can help you:
- Apply for an extension to get a few more months of breathing room.
- Lower your tax bill by leveraging deductions, credits, and other strategies to reduce liability.
- Navigate your filing obligations and comply with all applicable laws and regulations.
- Avoid errors and omissions that could trigger an audit or penalties.
Even though you must file and pay taxes, there are ways to lower your tax bill legally.
Tax Evasion vs. Tax Avoidance
Tax evasion is illegal and involves deliberately falsifying or concealing income, inflating deductions, or failing to file taxes. On the other hand, tax avoidance is a legitimate way of reducing your tax bill by using legal methods such as deductions and credits.
What Happens if a Business Doesn’t File Taxes for Three Years?
If you don’t file your taxes for three consecutive years, the IRS may consider it willful neglect and impose harsher penalties.
These penalties can include levies on your wages or bank account. You may also be subject to a federal tax lien that limits your access to loans or credit. In extreme cases of intentional tax evasion, the IRS may impose fines of up to $250,000 and possible jail time.
The government can take action against those who fail to pay their taxes through a tax lien. It takes assets or property the taxpayer owns and gives the government legal interest in those assets. If you continue to owe taxes, the agency might begin proceedings to seize your assets.
Again, this is in rare cases, and usually when the IRS suspects tax evasion.
A tax lien can make it difficult for taxpayers to sell or refinance their property. You must pay off the lien before any transactions occur. In more extreme cases, the government might foreclose on the property.
It’s important to note the difference between a tax lien and a levy. A levy is a legal process by which the government takes possession of assets or property to settle a debt. A lien serves as a legal claim on those same assets or property to secure payment of taxes. There are also different types of tax liens.
Notice of Federal Tax Lien
The IRS uses a Notice of Federal Tax Lien (NFTL) as its initial step when taxpayers have not paid their tax debt. This document serves as public notification that the government holds a legal claim over the taxpayer’s property or assets. If you pay off the taxes or reach an installment agreement, the IRS can lift the NFTL.
Notice of State Tax Lien (NSTL)
A Notice of State Tax Lien (NSTL) is similar to an NFTL but the appropriate state agency files it instead of the IRS. The same rules apply with an NFTL—if you pay the taxes, the IRS can release the lien.
If you receive an NTFL or an NSTL, it is crucial to take action. Tax liens can devastate your financial and credit health, so you should address the issue head-on.
What to Do if You Owe Back Taxes or Miss Filing Deadlines
Back taxes can be expensive and stressful. But, there are measures to help businesses pay off their debt.
If you’re behind on filing or paying taxes, you have options. Here are some steps to help you avoid or lower expensive tax penalties, interest, and other fees.
File a Tax Extension
If you need more time to collect all the documents and submit your business tax returns, you can file an extension. However, filing a tax extension doesn’t give you more time to pay the taxes that you owe. To prevent extra costs due to interest and penalties, make sure to pay by the initial due date.
C corporations, S corporations, and partnerships must fill out Form 7004 to ask for a tax filing extension. Single-member LLCs, sole proprietorships, and trusts submit Form 4868 to request a filing extension. If the IRS approves your extension, you’ll have an additional six months to submit your tax return.
Companies that face unexpected issues may be eligible for a hardship extension. For a hardship extension, you must submit a written request that explains why you need more time and includes the date you’ll submit the return.
Dispute a Penalty
If you believe there has been an error, you can dispute a penalty. Generally, businesses must provide evidence to support their argument and show why the IRS should remove or reduce the penalty.
For instance, if you receive a penalty for failure to file or underreporting income, you might have a reasonable cause for the oversight. Reasonable circumstances could include a fire or natural disaster or incorrect advice from a certified public accountant (CPA).
Waive a Penalty
You can also use first-time penalty abatement (FTA) to request a penalty waiver. To qualify for FTA, your business must have filed all returns and paid all taxes due within the past three years.
An administrative waiver is another way businesses can request relief from penalty charges.
Businesses can request an administrative waiver if they are facing financial hardship or if there’s a reasonable cause for the error.
The IRS also has a Voluntary Disclosure Program (VDP) for business taxpayers who fail to report or underreport their taxes. Businesses can come forward voluntarily and resolve their tax issues. As a result, they limit their exposure to interest and/or penalties by working with the IRS.
You can also request an Offer in Compromise (OIC), a settlement agreement between a taxpayer (you) and the government. In it, the two parties agree on a reduced tax payment. You would only be responsible for paying the new amount. However, this option should only be used as a last resort. Taxpayers must provide significant financial information to qualify.
Businesses may also consider filing for bankruptcy protection. This will stop any IRS or state tax agency collection activities while the business reorganizes its financial obligations. It may forgive taxes entirely depending on the type of bankruptcy. However, filing for bankruptcy is a complex process and has many financial consequences, so treat it as a last resort.
Setup a Payment Plan
If you can’t pay in full, you can try setting up a payment plan. To do this, file Form 9465 with the IRS by the deadline. With a payment plan, you make monthly payments toward the taxes you owe. While this won’t reduce your tax liability, it will break up the total into manageable payments.
Businesses can also apply for Currently Not Collectible (CNC) status if they cannot pay their taxes due to financial hardship. When a taxpayer has CNC status, the IRS will temporarily postpone collection actions. It will not pursue collection until the taxpayer’s financial situation improves.
Hire a Business Tax Professional
Skilled tax accountants provide expert advice on how to lower your tax bill and get more money back. They should know all the business tax deductions and credits to save you money.
When choosing a business tax professional, look for experience in business tax preparation and resolution. Xendoo’s team of CPAs, bookkeepers, and tax specialists can help you with:
- Tax filing and preparation
- Delinquent returns
- Negotiating payment plans or settlements
- Preparing documents for tax audits
- Catch up bookkeeping when you’re behind months or years
If you’re concerned about filing taxes for your business on time, hire a tax professional. In addition to hiring a tax consultant, it’s a good idea to invest in a year-round bookkeeping service.
Like taxes, updating your books each month is important but it’s easy to fall behind. If you are behind on your taxes, chances are that you are behind on your books too. With the right help, you can get your books in order and prepare for the next tax filing season.
Xendoo has all the finance expertise a business needs in one place. You can choose from business tax services, bookkeeping, accounting, and CFO services. To learn how Xendoo can help with your particular tax situation or business finances, schedule a time to talk to an expert.