What to Do If You’re Behind on Taxes

What to Do If You’re Behind on Taxes

A practical guide to catching up, staying calm, and rebuilding confidence in your business finances

Falling behind on taxes is more common than most business owners think. Whether it’s unpaid quarterly estimates, missing tax filings, or a surprise IRS notice, it’s easy to feel overwhelmed or ashamed.

But the truth is, falling behind on taxes doesn’t make you a bad business owner — it means you need better systems and support. And the sooner you take action, the more options (and peace of mind) you’ll have.

Here’s exactly what to do if you’re behind on taxes — whether it’s last quarter or the last few years.

Step 1: Get Clear on What You Owe

Before you can make a plan, you need the full picture. That includes:

  • Any missing tax filings (federal, state, sales tax, payroll tax)

  • Outstanding tax balances

  • Interest and penalties

  • Upcoming payment deadlines

You can request an IRS transcript online or by mail to confirm what’s on record. If you’re unsure where to start, a CPA or tax resolution specialist can help you review everything and identify next steps.

Step 2: File Any Missing Returns

Even if you can’t afford to pay your tax bill right now, file your returns anyway. The penalties for failing to file are often higher than the penalties for not paying in full.

Once your filings are caught up, you’ll be in a stronger position to negotiate payment options or request penalty relief.

Step 3: Contact the IRS or Your State Tax Agency

You don’t need to wait for a letter to take action. In fact, being proactive often leads to more favorable options.

You may be able to:

  • Request an installment agreement (payment plan)

  • Settle part of your debt through an Offer in Compromise (if eligible)

  • Ask for a temporary delay in collections (if you’re facing hardship)

  • Request penalty abatement for reasonable cause

If you owe less than $50,000, you can often apply for a payment plan online without needing to speak to anyone.

Step 4: Create a Tax Recovery Budget

You’ll need to build a repayment plan into your business budget. Start by:

  • Estimating your current and upcoming revenue

  • Listing all current operating expenses

  • Setting aside 25–30% of income for current tax obligations

  • Allocating an additional amount toward your back taxes

This may mean cutting unnecessary expenses or temporarily reducing your Owner Pay. But it’s a short-term sacrifice for long-term stability.

The Small Business Planner includes tools to help you break this down and rebuild a tax-resilient financial system.

Step 5: Set Up a Better System Going Forward

Falling behind usually stems from inconsistent income, lack of visibility, or not having the right bank accounts in place. You can avoid future issues by:

  • Setting up separate business bank accounts (Income, Tax, Expenses, Owner Pay)

  • Transferring 25–30% of net income into your Tax Account as revenue comes in

  • Reviewing income and tax savings monthly

  • Meeting with a CPA at least once a year to check your estimates

When you build a money routine, you stop scrambling and start leading with clarity.

Final Takeaway

Being behind on taxes isn’t the end of your business — it’s a sign that you’re ready to build a stronger foundation. With the right information and a solid system, you can get current, stay compliant, and move forward with confidence.

The Small Business Planner is built to help you create that foundation — whether you’re just getting started or making a comeback.

Explore The Small Business Planner now → https://smallbusinessplanner.com/products/planner

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