Continue Operating Your Business by Gaining Control over Tax Debts

Law Office of Robert L. Firth Nov. 7, 2016

If you own a small business and are way behind on taxes to the IRS/state, Chapter 13 protects you and your business.

Have a Sole Proprietorship?

Do you operate your own small business and are seriously behind on income and/or withholding taxes? Is your business in your own name or operated under an assumed business name? (It’s not a corporation, a limited liability company (LLC) or a formal partnership?)

If so, and your business itself owes taxes—for payroll withholding, for example—you are personally liable on those taxes.

You may well also owe personal income taxes because your business hasn’t generated enough cash flow for you to pay enough quarterly estimated federal (and state?) payments.

Need a Break from Tax Pressure?

If your business does bring in income, you may believe it has potential to do better. You’ve probably put your blood, sweat, and tears into the business and want to give it a chance to thrive.

But if you’re behind on taxes you are under a lot of financial pressure by the IRS and/or the state. You’re probably being pressured to make payments on your back taxes that you just can’t afford, while at the same time trying to keep up on the current year. And it’s just not working. You need relief from the relentless tax payment pressure so that you can focus on making your business successful.

A Possible Solution

Imagine a situation in which you could make more reasonable catch-up tax payments based on what you could really afford. Then imagine if this payment amount took into account what you needed to pay on the current year’s quarterly taxes. Wouldn’t it be nice if you could afford to pay the current quarterly taxes payments as they became due? Consider the possibility of maybe even discharging (permanently, legally writing off) some of your older taxes. And most important, imagine throughout this time being protected from any collection action by the IRS/state. Chapter 13 can likely do these for you, and more.

The Advantages of Chapter 13

Chapter 13 is called an “Adjustment of Debts of an Individual with Regular Income.” A corporation cannot file under Chapter 13. But you and your business can file one together IF, as mentioned above, you operate the business as a sole proprietorship. Then you and business are treated as a single legal entity.

As a result, one Chapter 13 case may be able to solve both your personal and business tax debt problems.

What Chapter 13 Can Do

Its 10 advantages:

1) Payments in your Chapter 13 plan are based on a reasonable budget. So your payments will likely be much more manageable.

2) Business and personal taxes and debts are dealt with together. Your tax debts don’t get in the way of meeting your other important obligations.

3) The “automatic stay” stops all creditor collections—including by tax creditors. This protection allows you to focus on your business, improve your income, and get back on a healthy financial track faster.

4) You may be able to discharge some older tax debt. This could greatly reduce what you need to pay monthly and also during the whole Chapter 13 case.

5) Pay less even on those tax debts that can’t be discharged, by usually avoiding ongoing interest and penalties. This gets you out of tax debt faster.

6) Keep necessary business and personal assets. Chapter 13 is specifically designed to let you keep the assets you need to keep operating your business.

7) Continue operating your business. Unlike Chapter 7 “liquidation” in which it can be difficult to keep an ongoing business, Chapter 13 is better designed to enables you to keep and continue your business.

8) Keep important business and personal collateral. Chapter 13 provides ways to keep collateral that you would otherwise lose, and often under much better payment terms.

9) Numerous other benefits dealing with other debts. Beyond taxes, Chapter 13 handles child support arrears, vehicle loans, second mortgages, and other challenging types of debts, enabling you to re-take financial control.

10) A reasonable path to a great goal. At the end of your Chapter 13 case, you would not owe any taxes, and (other than voluntarily retained long-term debt like a home mortgage) you would be debt-free.