Cannabis companies are under a lot of financial pressure, not just to turn a profit, but you pay your taxes. There is a price to pay for having a cannabis business in the form of taxes.
These companies are among the highest taxed in the country, as state and federal governments seek to get their share of your profits. The amount of taxes owed takes many cannabis business owners by surprise.
They often find themselves in a position where they can’t pay taxes. If you find your cannabis company in a position that you can’t pay taxes to the IRS, you do have some options.
Continue reading to learn what they are.
1. Installment Payments
If you find yourself owing a lot more to the IRS than expected, you may be able to enter into an installment agreement plan.
This is where you agree to pay the balance owed in monthly installment payments, rather than one lump sum.
Keep in mind that there are fees to enter into an installment agreement. You’re also going to accrue penalties and interest on the amount owed.
You also have to make sure you pay your taxes according to the agreement. Should you miss a payment, the IRS could say that you’re in default and resume collections activities against you.
2. Offer in Compromise
An offer in compromise is a way to get a fresh start on your taxes. If you know that you can’t pay your taxes and you will have trouble paying your tax bill, you may be able to make an offer for a portion of the taxes owed.
You have to make an offer that’s reasonable and show that you don’t have the resources to pay your entire bill.
This is a very long and complicated process. Be prepared for the process to take anywhere from 12-24 months. Should your offer be among the 40% of offers accepted, you have to pay your taxes on time and in full for the next 5 years.
If you fall behind on your taxes again, the IRS could rescind the agreement.
3. Pause IRS Collections
If you can’t pay your taxes because your cannabis business is going through a temporary slowdown, then you may be able to pause collections activities for a few months.
You can enter what’s called currently non-collectible status. This option will give you some breathing room to catch up on your tax obligations.
The IRS will pause collections activities over a period of time, usually 6-12 months. You are still obligated to pay your taxes, along with penalties and interest.
4. Pay What You Have
If you are done with your taxes and can’t pay your tax bill, you could pay what you can right now. You then have 120 days to pay the balance off.
Remember that your cannabis business will also have estimated taxes and payroll taxes due during that 120 day period. You need to make sure that you can take care of all of your tax obligations. Otherwise, you could find yourself in a situation where you’re constantly behind on your taxes.
Common Mistakes When You Can’t Pay Taxes
Not having enough money to pay taxes is a scary prospect for many business owners. It’s common to let fear take over and make bad decisions.
Those decisions lead to big mistakes that make the problem much worse than it needs to be. These are the mistakes that you need to avoid.
Don’t File Taxes or Ignore the Problem
If you can’t pay your taxes, the IRS won’t magically disappear. They won’t look over the fact, either. The worst thing you can do is absolutely nothing.
Keep Poor Records
Since you have a cannabis business, you’re under a lot more scrutiny by the IRS and state revenue divisions. You’re more likely to get questioned and audited, even more so if you can’t pay your taxes.
You’re going to have to prove your status, and the IRS may want to take a closer look at your books. The best defense against that is to keep clean, organized records.
What Can the IRS Do If You Don’t Pay Taxes?
There are consequences to your actions if you ignore the fact that you can’t pay your taxes or you don’t file at all.
You can be responsible for penalties and interest on your unpaid taxes. That can be about .5% for the amount owed each month.
Not only that, but the IRS has the right to pursue collections activities to recoup the taxes owed. That can mean you’ll get automated letters in the mail. With each letter that doesn’t get a response, the IRS will escalate its activities.
Eventually, you’ll get certified letters that state you’ll face bank levies or property liens. At that point, the IRS is reserving its right to seize your property and bank accounts.
Take Control of the Problem
You certainly don’t want to wait for your tax situation to get to that point. The sooner you take control of the issue, the better off you’ll be.
As you can see, you do have a few options at your disposal if you can’t pay taxes. You could try to contact the IRS yourself, but you should expect to spend a lot of time on hold.
Your other option is to work with an experienced tax team to help you find the best course of action, whether that’s to file an offer in compromise or go on an installment plan.
They’ll be able to look at your entire financial and tax picture to give you an objective view.
What to Do When You Can’t Pay Your Taxes
Like what Benjamin Franklin said, the only two certainties in life are death and taxes. Both of those things strike fear in almost everyone.
It’s not easy to run a business and find yourself in a position where you can’t pay taxes. You have to take an objective approach to the situation and take care of it as soon as possible.
Contact us today to find out how we can help you with your tax problems.