Business tax relief options, including loans for taxes owed

Key takeaways

• Small businesses can owe back taxes for many reasons, including expansion into new states, remote hiring, employee misclassification, or changes in state and local tax rules.
• Business tax relief options may include payment plans, debt settlement, penalty relief, or financing, depending on what you owe and which tax authority is involved.
• Financing for taxes owed can help businesses pay tax debt up front, then repay the borrowed funds over time while preserving operating cash flow.

Determining which types of taxes your business owes can be confusing. Depending on the structure and size of your business, you may need to calculate sales tax, payroll tax, property tax, and more. If you miscalculate or make an error when paying taxes, in subsequent years your business may end up owing what’s known as “back taxes” — debt that’s overdue from a previous filing year.

Learn the reasons why a small business might owe back taxes, when you could use loans for taxes owed (or another relief method), and how to pay back your taxes over time.

When SMBs might owe back taxes

The government frequently modifies and updates state and federal tax laws. With so many fluctuations over time, small businesses often find it challenging to maintain compliance with the latest tax obligations. You might owe back taxes if:

• Your business recently expanded into new states or jurisdictions.
• You hired new employees in a different location (or remotely).
• Your employee classifications changed or were miscategorized.
• Your products or services were taxed incorrectly in certain states.
• Your jurisdiction changed certain tax laws without your knowledge.

Even if nothing significant appears to have changed, you likely still need to go through your business tax obligations with a fine-tooth comb. Something seemingly innocuous — like selling more products in one state than another — can mean a difference in your tax calculations for this year.

Which business tax-relief options are available to you?

Many businesses delay paying back tax debt because they don’t want to jeopardize operational cash flow and create even more problems. Unfortunately, avoiding the situation won’t make it go away, and the balance owed to the IRS, state tax agencies, or local tax authorities can grow over time through penalties and interest. If your business owes back taxes at the federal, state, or local level, there are assistance programs, payment arrangements, and financing options that may help ease the financial burden.

Confirm tax status: The first step toward tax relief is to confirm your tax status with each relevant tax authority. Make sure your business is in compliance with current federal, state, and local tax requirements. If the IRS, your state department of revenue, or a local tax office says you owe back taxes, verify that the balance is accurate. Review your IRS online account, request federal and state tax transcripts where available, and check notices from local taxing authorities to understand how each agency calculated what you owe. You may also be able to correct errors or amend returns by calling or writing to the appropriate tax agency.

Debt settlement options: In the right circumstances, tax authorities may be willing to negotiate or settle your debt. At the federal level, an Offer in Compromise may allow you to settle tax debt for less than the full amount you owe. Some state and local tax authorities may also offer settlement programs, hardship relief, or other resolution options, depending on the jurisdiction. These agencies typically consider factors such as your income, expenses, assets, and ability to pay when reviewing your case.

Payment plan options: If full payment is required, you may still be able to get relief through a short-term extension, an installment agreement, or another structured payment arrangement with the IRS, your state tax agency, or a local tax authority. Depending on the jurisdiction, you may also qualify for penalty abatement or other relief that can reduce certain penalties and help limit additional collection actions.

Loans and financing. Outside of government programs, private loans and financing might be a sensible relief option for your business. Bank loans or alternative lines of credit can put your business in a position to pay back taxes up front, then pay back the borrowed debt over time with more favorable rates and terms.

Consider the penalties, interest, and required documentation of your relief options. You’ll want to create a plan that demands the least amount of debt and effort in order to regain compliance.

How to pay back taxes over time

Even armed with knowledge about business tax-relief options, it can feel overwhelming to get started on the process. Take it one step at a time. With the right support in place, you can pay your back taxes while protecting the cash flow of your business.

1. Determine your tax obligations

You can’t do anything else until you understand your tax obligations. Sales and property taxes tend to vary based on location and industry, and other taxes (like payroll) are determined by the size and structure of your business. Speak with a tax professional who understands the nuances of your business. Together, you can determine what type of taxes you owe and how to get started on payment plans.

2. Fill out the necessary forms with the government

You must complete certain business licenses, forms, and registrations in order to collect and remit sales taxes. Make sure your business is properly registered in all the states where you conduct business.

Expanding to new states without the proper paperwork can trigger back tax obligations. Work with your tax professional to determine the best timing for your paperwork. Depending on your state and situation, you may need to file voluntary disclosure agreements or other forms for small business tax loan programs to avoid larger penalties.

3. Choose a lending or payment option

With the guidance of a professional, it’s time to choose the payment options that best suit your business. You’ll have to balance repayment with ongoing operating expenses; both need sufficient funds to move forward without consequences.

You might rely on government programs and repayment plans from the IRS or state and local tax authorities to get caught up. Alternatively, you might opt to draw on private loans or funding to pay the IRS immediately, then pay back the lender over time.

Lenders generally assess risk (and the terms of your loan) by looking at your creditworthiness and cash flow. You’ll qualify for lower interest rates and longer payback periods with better credit or more robust assets. Review all your options to see which will cost the least in the end.

4. Pay back debt in agreed-upon installments

Once you have a plan in place, be sure to stay current on your payments. Whether you’re paying the IRS or state and local tax authorities directly or making payments on a loan, missed or late installments can result in additional interest charges or other fees. These can make it even more difficult to keep up and can eat into funds for crucial operating expenses.

5. Prepare for next tax season

It can be easy to fall into a perpetually behind payment cycle with taxes. They can come due again while you still feel like you’re trying to catch up on previous years. As you make plans for back taxes, look ahead to future years. Put systems into place so that you’re not caught off guard again. This can include new technology, additional finance professionals on your team, or clearer cash flow forecasting tools.

How to find other small business tax loan programs

If you find yourself in a position where tax obligations are weighing on you, but repayment programs and loans aren’t lifting the burden, other financing options may provide relief that fits more comfortably into your operations.

Look beyond traditional bank loans to find other lending programs. Avalara Capital offers a line of credit that funds compliance liabilities like taxes. Existing Avalara users can qualify and access funding in minutes with limited forms and paperwork. The automated repayment process keeps your business on track while preventing overborrowing cycles.

Start your tax journey with Avalara Capital

Taxes aren’t optional, but your stress about them can be. With the help of tax compliance software and lending solutions, you can take a few simple steps to understand your tax obligations and stay compliant — or catch up on back taxes with the right financing solutions on your side.

See how Avalara Capital integrates needed financing right into your AvaTax dashboard.

FAQs

What are back taxes for a business?

Back taxes are unpaid tax debts from a previous filing period or tax year. A business may owe back taxes to the IRS, a state tax agency, or a local tax authority if it underpaid, missed a payment, filed incorrectly, or failed to account for new tax obligations.

Can a business get a loan to pay taxes owed?

Yes, some businesses use loans or lines of credit to pay taxes owed. This can allow the business to pay the tax authority up front, then repay the lender over time. Before choosing this option, compare the loan’s interest rate, fees, repayment terms, and total cost against other tax-relief options.

What tax-relief options are available for small businesses?

Small business tax-relief options may include IRS installment agreements, short-term payment extensions, Offers in Compromise, penalty abatement, state or local hardship programs, and private financing. The right option depends on your balance owed, cash flow, assets, and ability to repay.

Should I pay back taxes with a payment plan or a loan?

It depends on your business’s financial situation. A government payment plan may let you repay the tax authority directly over time, while a loan may help you resolve the tax debt sooner and manage repayment through a lender. Review interest, penalties, fees, documentation requirements, and cash flow impact before deciding.

How can my business avoid owing back taxes again?

To reduce the risk of future back taxes, review your tax obligations regularly, especially after expanding into new states, hiring employees, changing products or services, or entering new jurisdictions. Tax compliance software, cash flow forecasting, and guidance from a tax professional can help your business stay current.