How do I deal with filing my taxes while also trying to obtain business funding? Do I have to file my taxes to obtain a business loan? If I apply for a tax extension, will I be able to obtain a business loan before filing my taxes? Are there any penalties if I do not file my taxes and I'm trying to obtain a loan for my business? Should I file an extension on my business taxes? Should I take out a loan to pay my taxes since I do not have any liquid cashflow?
With tax season in full swing and April 15th right around the corner, you probably feel the pressure with filing your taxes. You probably have also found your business had an unusually good 2019 fiscal year - the job market and the economy were up and people were spending their money more liberally. You probably made more money in 2019 than you did in the past, like so many businesses across the United States.
Remember: With an increase in revenue, you will see a higher tax bill than you saw in your previous years. Be smart about how you allocate funds.
With this increase in revenue, it is extremely important to invest that money back into your business to establish a desire and path for your business to grow. With this in mind, you may consider trying to obtain business funding. But what happens when you're trying to obtain business funding from a lender and you haven't filed your taxes yet?
Tax Payment Options
The reality is that before you go to a lender and ask for money, they're going to want a holistic view of the past few years of your finances - and that includes how and when you pay your taxes. Here is what happens when you either don't pay, delay payment, or pay on time your taxes:
1. Extend your tax filing
Is this the best option for you? It depends on what you have on your plate. Extending your tax filing period puts you in a precarious situation. By not just paying your taxes on time, you can end up paying a lot more out of pocket while not setting aside the proper funds to pay the taxes. You are charged a fee when you apply for an extension with the IRS.
Additionally, you could easily see your business's growth momentum decrease over time, which is another way to say your expansion plan wasn't worth the investment. If you need to file an extension, stay on top of it and work with a professional to get everything squared away.
2. Do not pay your taxes
The reality is that not only will your business incur fees and penalties that are not only higher in cost than the loan you've taken out, but you could trigger even worse things from the IRS. You could be audited. You could have your business bank accounts seized by the IRS. Because of this, a lender will not provide your business funding if you have not filed your taxes. The lender will not take the chance of being audited or levied against. Be smart about not only whether you pay, but the timeliness of your payment. Pay your taxes before requesting funding - you'll have fewer hoops to jump through in the long run.
3. Pay your taxes
At the end of the day, paying your taxes is the best solution for any single person and business owner. However, it is understandable that it may not be a possibility based on the way you spent your money in 2019. This is where you may consider obtaining business funding to pay your tax bill.
Taking out a Business Loan to Pay Taxes
Using the small amount of free-flowing cash you have could sink a lot of areas in your company, including your growth. Make sure you do not wait until it's too late before seeking a loan to pay your tax bill. Too many businesses who hope and pray that a tax issue will resolve themselves will only see a true resolution if you end up declaring bankruptcy...because that's the only option.
Most business loans are not considered business income because the interest you pay on your loan is considered a business expense, and you can deduct it from your taxes. To take advantage of a tax deduction, the assets and expenditures financed must be necessary to operate the business. And it's not only business loans; interest paid on mortgages and student loans also often (within the federal identified limits/) can be deducted on your annual taxes, effectively reducing your taxable income for the year.
Investing Money Back into Your Business
The smartest thing to do always is set money aside each quarter to pay your taxes - or even pay them quarterly, which the IRS does offer. This takes that money out of your business's bank account and prevents you from dipping into taxable funds. If you can set aside that money, you can then take the increased money you made and invest it back into your business. If tax season is something that you struggle with or keeping track of your business's finances could be done better, consider hiring someone to help. The reality is that no one can do it all, and if a professional can provide you insights on the best moves for your business's finances, you could have an edge up not only on the competition but create growth that puts you ahead of the curve as a business owner.
Do You Want to Look at Your Financing Options?
If you find yourself needing to find funding for your business, First Union Lending is here to help.
We have nine different business loan types to choose from. This means that we're uniquely qualified to help you find the perfect loan to open your small business.
Applying for a business loan doesn't affect your credit. Better yet, your business loan may be approved as soon as the same day.
To discuss our business loans with one of our lending experts, click here or call 863-825-5626. We'll talk about our various business loans and help you find the right one.
Get started with the process now by learning more about our business loan types.