Many small business owners fear spring because it signifies the start of tax season. Although it might be tempting to disregard the approaching tax deadline, avoiding taxes is a costly and illegal mistake that could cost you your small business. Instead, you may want to look at getting a business loan to help you pay your taxes.
Also, Read: Tax Deductions for Self-Employed
In fact, the IRS advises taxpayers to consider taking out a loan to cover their tax bill because the expense is typically less than the Internal Revenue Code’s combination of interest and penalties.
If your company is facing an unaffordable tax bill, you might be able to pay it off with a business loan. You won’t have to divert funds from other critical areas of your business, such as payroll, rent, or inventory, in this way.
Also, Read: How to File for a Tax Extension in 2022
In this article, we’ll discuss how not paying taxes can be disastrous for your company’s future, as well as how a small business loan can assist you with your tax preparations.
Things you Can Avoid When Getting Small Business Loan to Pay Taxes
The IRS considers the money you owe them as a loan, and every day your payment is late, you’ll be charged interest.
The interest rate for late payments in 2021 is 3%. As a result, once your tax debt is paid off, interest on your small business’s tax debt is compounded daily, which means the sum you owe will easily increase. As a result, you can pay off your balance as soon as possible to avoid incurring costly interest charges.
Many alternative lenders have small business loans that can be used to pay off your tax debt at a much lower rate. Furthermore, unlike interest on unpaid tax debt, interest on loan payments will be deducted from the next tax bill.
You should ask your lender or accountant for more information on how a loan would affect your small business’s tax situation. They will most certainly review your company’s finances and offer helpful tax advice to support you in this process. They will also teach you how to file your tax return and provide you with access to their cutting-edge tax tools.
If you don’t pay your bill, the Internal Revenue Service will take action against you, and you’ll face stiff penalties.
If you don’t pay your bill on time, the IRS will charge you an extra fee of half a percent of your unpaid taxes due for each month you don’t pay. At worst, the late payment penalty is added to the debt already owed. To stop this, apply for a business loan before tax season so you don’t have to pay late fees.
The IRS, as a branch of the federal government, has the power to impose penalties for failing to pay your tax bill. The IRS can issue a tax lien, giving them legal possession of all your collateral properties, including personal and business property.
A tax lien can have serious consequences for your business. It can have an effect on everything from the sale of your company to getting a business credit card. Since the government gets first dibs on your company’s assets if you default, lending you money is a far higher risk.
You will be unable to receive business loans from a bank if your company has a tax lien. You may be able to borrow from alternative lenders who are more likely to partner with you if you have a unique circumstance.
However, applying for a loan for small business tax planning is preferable to being unable to pay the taxes. If you meet the tax deadline, you will almost certainly be unable to obtain funds in the future.
There are alternatives to defaulting if the company lacks the funds to pay its tax bill. Nuclear choice has far-reaching implications, including credit losses for individuals and businesses. Even if you decide to keep your business open, the consequences of your bankruptcy can cripple it.
Using a business loan to pay your taxes will save you money on interest and penalties. It can also protect your business from IRS penalties such as tax liens.
Consider alternative lenders for business lending, which are typically easier to come by and have fewer limits on how the funds can be used. Once the funds are in your business bank account, you have complete freedom to use them however you want.