What Happens If you Don’t File Taxes For Your Small Business

Navigating the tax landscape as a business owner can be complex and confusing. However, understanding the consequences of not filing taxes is vital. Ensuring your business's financial health and legal standing is crucial for its long-term success and stability. You need to tackle tax-related complexities with diligence and expertise.

In this comprehensive article, we'll explore the tax implications for different business structures, tax obligations, deadlines, and consequences of not filing or paying taxes. Continue reading to equip yourself with the knowledge and resources necessary to stay on top of your tax responsibilities. You'll be better prepared to manage them efficiently and protect your business from future penalties.

How Much Can a Small Business Make Before Paying Taxes?

How much you pay is dependent upon how your business is classified. You'll be subject to a flat 21 percent rate if your business is a C corporation. After calculating deductions and credits, you'll be taxed for every penny you earn. In this situation, you'd file your company and personal tax returns separately. 

Sole proprietorships, partnerships, LLCs, and S corporations are all considered "pass-through" businesses meaning the owner(s) will be responsible for paying taxes on the profit on their personal return. This tax return would include income from your business with other income sources such as paid wages or investment earnings. You would need to file a separate business tax return for S corporations and partnerships, while sole proprietors are filed on a Schedule C that is attached to your personal return. Your tax rate will depend on your earnings amount and whether you file individually or jointly. The tax-free threshold for 2022 is $12,550 if you file individually and $25,100 for married couples filing jointly, meaning you aren't subject to income tax but may still be subject to self-employment tax.

Business Tax Obligations

Most businesses will have their tax year be the same as the calendar year (January to December), but you can request special permission from the IRS for your tax year to cover a slightly adapted 12-month period.

The federal, state, and local taxes you must pay will depend on how your company is structured. State and local taxes can vary, so you should check out the tax resources provided by your state and local governments. The U.S. Small Business Administration offers a helpful tool for looking up tax obligations by state. Income and employment taxes are the most common at the state and local levels. Income refers to the funds your company brings in. If you employ workers, you'll be subject to state employment taxes, which cover different things depending on your state. There are five types of business taxes at the federal level:

1. Income
2. Self-Employment
3. Estimated
4. Employer
5. Excise

You may need to pay some of the taxes throughout the year, so know your tax obligation beforehand. 

When are the Small Business Tax Filing Deadlines?

Tax Day usually falls on April 15, and for some small business owners, you will file your personal and business tax returns by this date. However, Tax Day does have some flexibility because the IRS doesn't want it falling on a weekend or legal holiday. In 2023, April 15 falls on a Saturday, so Tax Day 2023 will be the next business day – Monday, April 17. 

However, your tax filing deadline depends on your company's classification, as some types differ from the April 15 deadline. For instance, partnerships and S corporations typically must file their taxes by the 15th day of the third month following the end of the tax year. Since these businesses will naturally follow the calendar year (there is an exception for S corporations if an entity can establish a purpose for needing to deviate from the calendar year), their taxes are due March 15. Sole proprietors and all corporations other than S corporations generally must file their taxes by the 15th of the fourth month following the end of the tax year. Again, these businesses usually follow the calendar year, but some corporations follow the fiscal year (July to June).

Regardless of your business’s classification, if you (or your accountant) can effectively calculate your quarterly estimated taxes throughout the year, it will make things much easier when you file at the end of the tax year.

Consequences of Businesses Not Filing or Paying Taxes

So you’re probably asking, “What happens if you don’t file taxes?” The consequences for filing business taxes late (or not at all) can vary from monetary fines to criminal charges, including time behind bars – remember Al Capone? So the short answer is to file them and file them on time. 

The IRS has nearly a dozen different types of penalties ranging from failure to include the correct information on your return to misconduct on the part of the preparer to simply failing to file a return or failure to pay the owed amount. Again this is why you should hire a professional to file your taxes correctly. These repercussions often include monetary penalties, and it's important to know that interest will accumulate on those penalties. If you incur a penalty, be sure you pay it promptly. The IRS does allow you to dispute a penalty if you disagree with the amount owed, or you can remove or reduce a penalty if you acted in good faith and show reasonable cause for why you were unable to meet your tax obligations. 

How Can You Pay Your Business Taxes?

The IRS offers several ways to pay your taxes:

1. Through your bank account
2. By credit card, debit card, or digital wallet (PayPal)
3. Through the Electronic Federal Tax Payment System (EFTPS)
4. Same day wire
5. Check or money order sent through U.S. mail
6. Cash (through a retail partner or other approved methods)
7. Electronic fund withdrawal (when e-filing)

The IRS offers payment plans for those unable to meet their total obligation during a given tax period, an Offer in Compromise to settle a debt for less than you owe, and temporary collection delay for those experiencing financial hardship. 

Work With the Pros to Reduce Your Small Business's Tax Liability

Taxes are complicated, and your time is valuable. Unless you're a tax expert, work with a 1-800Accountant tax professional to ensure your taxes are filed correctly and on time. We have accountants who specialize in small business tax and will help guide you through the nuance of your federal, state, and local tax obligations based on your company's specific situation. We guarantee maximum savings, so schedule your free tax advisory session today!