Tax Troubles Get Business Loan Relief Now
Learn all about using a personal or business loan to pay your tax obligations, including if you can use a Small Business Administration (SBA) loan.
Explore the pros and cons of using loans for federal taxes, and find out when it makes sense to finance tax payments with loan funds.
“You should consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card. The interest rate and any applicable fees charged by a bank or credit card company may be lower than the combination of interest and penalties set by the Internal Revenue Code.”
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Keep in mind, however, some lenders may impose restrictions on the use of those funds. Check your lender’s policy before borrowing money to pay tax obligations.
Yes, you can use a business loan to pay taxes. If you do, be sure to account for your loan on your balance sheet . The cash from your loan counts as an asset, while the amount you owe counts as a liability.
SBA regulations only permit use of SBA loans for paying taxes under certain conditions. Specifically, the SBA’s standard operating procedure for CDC/504 and 7(a) loan programs (SOP 50 10 6 ) states, “Payment of delinquent business income taxes may be permitted if the applicant has an approved payment arrangement with the IRS and the applicant is current on the payments in the arrangement.”
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Otherwise, however, the SBA states loan proceeds cannot be used for the payment of delinquent taxes or for the replacement of funds used or borrowed for that purpose. The agency notes, “Loan proceeds must not be used to pay past-due federal, state or local payroll taxes, sales taxes or similar taxes that are required to be collected by the applicant and held in trust on behalf of a federal, state or local government entity.”
Additionally, an SBA exception did allow borrowers to use the temporary COVID economic injury disaster loans (EIDL) to pay federal business tax debt. However, traditional EIDL funds cannot be used for the same purpose, as funds from non-COVID-related EIDLs are specifically meant to cover operating expenses.
If you have additional questions about whether your SBA loan may be used to pay for taxes, consult your local SBA office , lender, tax adviser or attorney.
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In some cases where it could save you money or help you avoid legal hassles, these benefits make a good case for using a loan to pay your taxes.
These drawbacks should be considered in consultation with a qualified professional, such as a tax attorney, before using a loan to pay taxes.
Using a loan to pay taxes may be a viable tax strategy in some situations. However, restrictions by the SBA or your lender may limit your ability to use some loans for taxes, so you’ll need to check the specifics of your loan.
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If your lending conditions allow it, using a loan to pay for taxes may help you avoid late fees, interest and penalties. Whether this represents your best option depends on what other sources of financing you have available and how much you would pay in loan interest compared to what you’d pay for late taxes.
Fast Capital 360 helps match small business owners with sources of financing. If you’re looking to finance your taxes or other business expenses, take a few minutes to fill out our free, no-obligation prequalifying form and compare your loan options.
Roy is a respected, published author on topics including business coaching, small business management and business automation as well as an expert business plan writer and strategist.In fact, the IRS recommends that tax payers consider taking out a loan to cover their tax bill since the cost is usually lower than the combination of interest and penalties set by the Internal Revenue Code.
Should You Use A Business Loan To Pay Taxes? Pros And Cons
If your business is faced with a tax bill it can’t afford, you may benefit from using a business loan to pay it off. That way, you won't have to take way funds from other crucial area of your business, such as payroll, rent, and inventory.
In this post, we’ll explain how not paying taxes can be extremely damaging to your business's future, and how a small business loan can help with your business's tax preparations.
For 2021, the interest rate for underpayment is 3 percent. Therefore, interest on your small business's tax debt is compounded daily until your balance is paid off, which means the amount you owe can grow quickly. Due to this, you should pay in full as quickly as possible to avoid expensive interest charges on your remaining balance.
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Many alternative lenders offer small business loans that can be used to cover your tax liability and at a far lower cost. Plus, unlike interest accrued on outstanding tax debt, interest on loan payments can sometimes be taken as deductions on your next tax bill.
If you'd like to learn more about how a loan will affect your small business's tax situation, you can ask for insight from your lender or accountant. Most likely, they can review your business finances, and provide useful tax advice that will help you navigate this process. In addition, they can show you how to file your tax return, and give you access to their state-of-the-art tax software.
If you neglect to pay your bill, the IRS will impose an additional fee of half of one percent of your outstanding taxes due for every month that your payment is late. What’s worse, the late payment penalty is on top of accrued interest. To avoid this, apply for a business loan prior to tax season, so that you can avoid paying money in late fees.
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As a department of the Federal government, the IRS has the authority to dole out punishments for avoiding payment on your tax bill. The IRS may issue a tax lien, which gives them legal ownership of all your collateral assets, including personal and business property.
A tax lien can have far-reaching implications for your business. It can affect everything from selling your business to obtaining a business credit card. That is because the government will have first dibs on your firm’s assets if you default, which makes lending you money a much bigger risk.
If there is a tax lien on your business, you may not be able to obtain business financing through a bank. You may, however, be able to borrow from alternative lenders that may be more willing to work with special situations.
What Happens If You Can't Make Your Business Loan Payments?
However, it is more prudent to apply for a loan for small business tax preparation, rather than being unable to pay your taxes. If you miss your tax deadline, it's most likely that you won't be able to get approved for funding in the future.
If your business doesn’t have the funds to pay its tax bill, there are options other than defaulting. The nuclear option comes with far-reaching consequences, including damage to personal and business credit. Even if you decide to keep your business running, it may be crippled by the effects of your bankruptcy.
Using a business loan to pay taxes can help you avoid expensive interest payments and penalty fees. It can also prevent your operations from experiencing penal action from the IRS, such as tax liens.
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Consider seeking business financing from alternative lenders, which are typically easier to obtain, and place less restrictions on how funds can be used. At Fora Financial, we don't restrict business owners on how they can spend their business loan. Once the funds are in your business bank account, you can decide how you'd like to use them - without restrictions!Let’s talk about taxes. I know – it is the part of running a company that any business owner, both new business owners and well-established business owners, dread. But why is this? There are a variety of complicated tax requirements, codes, rules, and obligations that vary based on many factors. What type of business is your business classified as? Do you have employees? Does sales tax apply to your business? Are you selling goods or services? What are your local state and city tax requirements? The questions are endless. In the end, there are two major distinctions for deciding how to file your business taxes: filing taxes for small businesses, which is further broken down into subcategories, and corporate business taxes.
Based on these two basic classifications, we can start to break down the tax system for each type of business while ensuring that all business owners have a basic understanding of their business’s tax requirements and obligations. However, many business owners will still opt to hire an accountant, which is never a bad idea! While we can provide a brief outline of important tax components, having a trustworthy accountant on hand can always help for more personalized business tax concerns and questions.
Small businesses are vital to the United States economy, but many new and first-time business owners are overwhelmed with the confusion associated with taxes – and rightfully so! There are many different considerations for small businesses that must be identified before understanding which tax codes are applicable to your