Cash flow struggles lie at the heart of operations for many small and midsize businesses. These problems don’t just make it tough to pull a profit; they can lead to a variety of IRS concerns, as discussed below:
Issues with Estimated Taxes
The IRS deals with irregular business income, in part, by arranging for quarterly estimated tax payments. Unfortunately, while these are designed to spread the burden over several months, they can cause problems in and of themselves. Unexpected expenses or a limited income may prevent struggling businesses from setting aside sufficient funds for quarterly payments. This, in turn, can lead to extensive IRS penalties—which can cause a downward spiral for businesses unable to afford quarterly payments or penalties.
The good news? Options are available when cash flow is a problem. If you can’t make your quarterly payment, you may be eligible for an extension or an installment plan. If you can demonstrate that you’ve experienced an economic hardship, you may be eligible for an Offer in Compromise.
Increased Risk of Audit
It doesn’t take much to put your business on the IRS radar. If you see sudden influxes of income followed by periods of hardship, you’re bound to attract attention. It is therefore imperative that you document your finances thoroughly and accurately. Minimize audit risk by filing on time, making quarterly payments, and making arrangements promptly if you struggle to pay your balance.
If you’re dealing with cash flow problems or otherwise think you might attract unwanted attention from the IRS, it’s best to get a handle on the situation before you’re hit with an audit. Work with a professional to get your affairs in order. You’ll feel greater peace of mind knowing that, should the worst-case scenario arise, you’ll be fully prepared.
Dealing with cash flow issues or other concerns that place you at risk of IRS action? Support from an IRS enrolled agent could make all the difference. Get in touch with Highland Tax Resolution today at 720-398-6088 to learn how you can get your business affairs in order.