April 04, 2024

Facing a Huge Tax Bill? 3 Reasons to Pay Your Taxes with a Small Business Loan

If your business is faced with a tax bill it can't afford, you may benefit from paying it off with a business loan. By doing this, you won't have to pull money that's allocated to other, equally important expenses such as payroll, rent, and inventory.

Interestingly enough, the IRS recommends that taxpayers consider taking out a loan to cover their tax bill, since they'll pay a lower amount and avoid interest and penalties set by the Internal Revenue Code." (And who would know better about the costs of financing your taxes than the IRS itself?)

Consider how a small business loan can take some of the stress out of your business's tax preparations.

1. You'll avoid paying interest at IRS rates.

The IRS charges interest every day that your payment is overdue.

For 2024, the interest rate for underpayment is 8 percent. Since this interest is compounded daily, until repayment is complete, you'll want to get this debt paid off sooner rather than later.

To help you reach this worthy goal, many lenders offer small business loans at a far lower cost. What's more, the interest on a small business loan payments can, sometimes, be taken as a deduction on your next tax bill. Sort of ironic, right?

Consult with you accountant to review your finances and show you how such a loan can help in satisfying your particular tax liability.

2. If you leave your bill unpaid, fees will apply.

If your account becomes delinquent, interest will be only one part of your total liability. If you neglect to pay your bill, the IRS will charge you fees, depending on your degree of delinquency:

  • You file but you don't pay. Okay, so you got that return filed, but you can't make the payment. For that, the IRS assesses 0.5 percent of the balance due per month or partial month you don't pay.

  • You don't file. The failure to file penalty is 5 percent of your total, per month or partial month. But that's not all. Accounts that go delinquent past 60 days get charged a minimum penalty: $485 or 100 percent of your amount due, whichever is lesser. (Yes, some generosity there!)

  • You neither file nor pay. Here's where things get even trickier. The IRS will charge both of the aforementioned fees — failure-to-file and failure-to-pay. But for those months where both apply — the time period before you file — your non-filing fee is subtracted by your non-paying fee.

We know this can all get pretty confusing to the majority of us without accounting degrees. But you can get up to speed by checking out TurboTax's guide to IRS tax penalties for more details, simply explained.

3. You may face liens.

The IRS doles out punishments for avoiding payment on your tax bill. For exceptional delinquencies, the IRS may issue a tax lien. This action lets the IRS assume ownership of your collateral assets — personal and business property included.

A tax lien can affect everything from obtaining a business credit card to selling your business, since the government has first dibs on your firm's assets. With a lien on your business in place, it's highly unlikely that you'll be getting financing to pay your debt, since you're now a greater risk than ever.

Wasting time can only make matters worse.

The best route to avoid all the unpleasant scenarios we've just outlined: Apply for tax-payment financing well before filing day. If you procrastinate on this and miss your tax deadline, you'll be less likely to get approved for that loan.

When you secure tax-bill financing, you're not only easing your stress: you're fulfilling your fiduciary role as a business owner, while ensuring the well-being of everyone who depends on your firm's success.

Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.