Taxes

Tax Help

How to avoid tax debt

Generally, entrepreneurs must pay four different types of tax: income tax, self-employment tax, employment taxes and excise tax. Just as many individuals have problems paying their taxes to the IRS, so do many small businesses. Many entrepreneurs slip into tax debt each year.

Fortunately, avoiding tax debt isn’t as hard as many small business owners think it is. Here are a few tips for avoiding tax debt:

  • Pay your taxes on time. The best way to avoid tax debt is to always pay your estimated taxes well in advance of the deadline. If you pay late, you’ll incur a fine. If you do happen to fall behind, make sure you promptly pay your fine and the full amount of taxes owed.
  • Request an extension. If you don’t think you’ll be able to pay your taxes on time, you’re allowed to ask for an extension of 120 days. However, you must do so prior to April 15.
  • Don’t be afraid of the IRS. If you can’t pay your whole tax bill at once and you’re faced with a mounting tax debt, contact the IRS and ask about setting up a monthly payment schedule. The IRS may seem like bad guys, but they can help you out of a tough situation. They want you to be able to pay your taxes, so they can do a few things to accommodate your situation and help ensure you can afford to do so.
  • Sell some assets. If you’ve asked for an extension and you still don’t think you’ll be able to pay your taxes on time, you’ll need to raise some money quickly. Try selling off some investments or other assets.
  • Take out a loan or cash advance. This option should only be used as a last resort (and only if your financial situation is temporary). If you can’t get enough money together to pay your taxes, but you know you’ll soon have earned enough money, taking out a short-term loan may be the best option for you.

Record Keeping

Keep all records of your income, taking extra care to keep all receipts you may need for tax deductions. Keep a calendar handy with all important tax dates marked. Don’t allow yourself to be surprised by the filing deadline. It comes up at the same time every year, so make sure you start preparing to file your taxes well in advance of the cut-off date. Don’t look at taxes as a once-a-year thing. Stay on top of it year-round.