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As a small business owner, navigating your tax filing responsibilities can be complex and confusing. However, businesses that fail to file returns or pay taxes can face costly fines and penalties.
The Internal Revenue Service (IRS) imposes penalties and interest on unpaid taxes. Additionally, businesses risk other legal and financial repercussions.
Business owners must understand the consequences of not filing taxes to maintain their legal standing and financial health. This article will explain the consequences of not filing business tax returns. We’ll also provide guidelines for understanding your federal tax obligations and filing deadlines.
Keep reading to learn how to manage your business tax responsibilities and reduce the risk of federal tax penalties.
Consequences of Not Filing or Paying Business Taxes
Depending on your business structure and activities, the IRS could impose one or more of the following penalties for not filing tax returns:
Failure to file an information return
Failure to file a tax return
Failure to pay income tax due
Accuracy-related penalties
Failure to deposit employment taxes
Businesses that do not file tax returns can face additional legal and monetary consequences, including the following:
Interest on unpaid taxes and penalties
Tax liens against the company’s property
Lack of valid tax return extension
Tax evasion charges
Loss of tax credits
Forfeiture of tax refund
Fortunately, the IRS allows penalty relief for most infractions.
Types of IRS penalty relief include First Time Abate, reasonable cause, and statutory exceptions. We’ll explain how to request relief from interest and penalties later.
Professional CPAs can help you file your business taxes timely and avoid fines. Partner with 1-800Accountant for tax preparation and filing services.
Failure to Pay Penalty
The IRS imposes penalties and interest on delinquent tax payments. Late payments incur penalties of 0.5% of the unpaid taxes per month. The maximum penalty is 25% of the total taxes owed.
Failure to File Penalty
Businesses that file late tax returns can incur penalties for failure to file. Late filing penalties depend on your business structure and return due date.
For tax returns due in 2025, the IRS imposes the following penalties for each month the return is overdue.
C corporations and sole proprietors: 5% of the liability, up to 25% of the unpaid tax. If the taxpayer files their return more than 60 days late, the minimum penalty is the lesser of 100% of the tax owed or $510. When combined with a failure to pay penalty, the late filing penalty is 4.5% per month, up to 5 months.
Partnerships and S corporations: $245 base penalty rate per partner per month of delinquency, up to 12 months.
Underpayment of Estimated Taxes
C corporations and self-employed individuals must make quarterly estimated payments of federal income taxes.
Taxpayers who fail to pay the full amount of tax due can face underpayment penalties. The penalty amount depends on the timing of the tax payment. Individuals can use IRS Form 2210, and C corps can use IRS Form 2220 to compute the tax penalties.
Failure to File Information Returns
Small businesses must file information returns, such as 1099 forms, by the tax form due date. Companies must also provide payees with recipient statements.
The penalties for failing to timely file an information return in 2025 range from $60 - $660, depending on the delinquency:
Up to 30 days late: $60
Filed by August 1st: $130
Filed after August 1st (or not filed): $330
Purposely not filed: $660
Maximum penalties depend on your business type and annual gross receipts. We recommend partnering with tax advisory professionals for help with your information return compliance.
Interest on Unpaid Taxes
Interest accrues on overdue tax bills and penalties.
The IRS uses the federal short-term interest rate plus three percentage points for most underpayment of tax penalties. However, interest rates vary by year. For example, underpayment of taxes accrues 8% interest in 2024 and 7% interest for the first quarter of 2025.
Interest compounds daily until the full liability has been paid. The IRS publishes interest rates for each year and category to help taxpayers understand their tax obligations.
Penalty Abatement
The IRS offers relief from most types of penalties. Eligible taxpayers can request abatement for failure to file returns or pay taxes due with one of the following types of relief.
First Time Abate: Taxpayers with good compliance history can request abatement.
Reasonable cause: Taxpayers may qualify for abatement with a valid reason. Reasonable causes include natural disasters, taxpayer death, or IRS system issues. The IRS reviews requests on a case-by-case basis.
Statutory exception: Taxpayers who relied on incorrect IRS advice or mailed a tax return timely may qualify for penalty abatement.
Use one of the following methods to request penalty abatement.
Follow the instructions on the IRS notice you received.
Call the toll-free number in your tax notice.
File IRS Form 843, Claim for Refund and Request for Abatement.
If the IRS reduces or eliminates your penalty, the interest on the penalty automatically decreases.
How Much Can a Small Business Make Before Paying Taxes?
Sole proprietors who earn less than $400 of self-employment income do not need to file business tax returns. Individuals filing IRS Form 1040 must attach Schedule C, Profit or Loss from Business (Sole Proprietorship), to report business income over $400.
Individuals pay federal income tax and self-employment tax on business income.
S corporations, partnerships, and C corporations must file federal income tax returns, regardless of business income.
Passthrough entities generally do not pay tax on profits. The C corp federal income tax rate is 21%.
When Are the Small Business Tax Return Filing Deadlines?
Your small business tax filing deadline depends on your entity structure.
Partnerships and S corporations must file federal tax returns by March 15th. C corporations and individuals have an April 15th due date.
Entity Type | Federal Tax Return Deadline | Federal Tax Return Extended Due Dates | Quarterly Estimated Tax Payment Due Dates |
|---|---|---|---|
| March 15th | September 15th | N/A |
| April 15th | October 15th | Q1: April 15th |
C corps can request a fiscal tax year, which allows a company to determine its taxable income for a period other than the calendar year. If your small business follows a fiscal year, check with your tax advisor for your filing deadlines.
Types of Business Taxes
Your business may owe multiple federal taxes, depending on your entity structure and business activities.
Review the following list of federal business taxes to determine which tax types apply to your company.
Income tax: Individuals and C corporations
Self-employment tax: Sole proprietors (freelancers, independent contractors, and individual owners of single-member LLCs)
Employment taxes, including Social Security and Medicare taxes: Employers (any entity type)
Excise tax: Retailers of specific products, such as transportation, fuel, and tobacco products
Additional tax types can apply to specific transactions, such as the sale of capital assets or foreign business activity.
In addition to federal business taxes, your company may need to pay state and local taxes. Your state tax obligations generally depend on your business location. The following could apply, depending on your business location.
State and/or city income tax
Payroll tax
Sales and use taxes
Property tax
State business taxes and penalties vary, so you should check out the resources provided by your local tax authorities. The U.S. Small Business Administration offers a helpful tool for looking up state filing requirements.
We recommend partnering with tax experts for your small business filing requirements and tax forms.
How Can You Pay Your Business Taxes?
The IRS offers several ways to pay your small business taxes.
Pay through your bank account.
Use a debit card, credit card, or digital wallet.
Set up and pay using an IRS online account.
Use the Electronic Federal Tax Payment System (EFTPS).
Remit via same-day wire or EFT withdrawal.
Mail a check or money order.
Find an approved vendor to send cash.
The IRS offers payment plans allowing taxpayers to enter into a pay-over-time installment agreement. Taxpayers suffering financial hardship can request a temporary collection delay of their tax debt.
Partner with Tax Professionals to Reduce Your Small Business Tax Liability
Knowing when and how to file your small business taxes can be challenging. Unfortunately, lack of knowledge or time doesn’t exempt businesses from filing tax returns.
Tax experts can help your business lower your tax bill. Professional CPAs at 1-800Accountant offer year-round tax advisory and return preparation services to help you maximize your tax deductions and meet compliance deadlines.
If your business owes back taxes, schedule a free consultation with 1-800Accountant for help with catch-up bookkeeping, tax filing, and quarterly estimated tax payment services.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.