Most business owners start their companies with the intention of being successful. However, life – and especially life outside of our control – happens. This has never been more evident than in the past couple of years, with COVID, rising inflation, and a changing workforce.
According to the U.S. Small Business Administration, almost 68 percent of new businesses survive the first two years, almost 50 percent survive five years, and just over 33 percent survive ten. And these statistics are from before the global pandemic.
When businesses face financial challenges, they may choose to file for bankruptcy and restructure their debt. However, declaring bankruptcy doesn’t necessarily relieve small businesses from any taxes owed to the Internal Revenue Service (IRS).
Keep reading to learn three things about business bankruptcy taxes.
1. Can my business taxes be discharged in a bankruptcy filing?
Businesses are responsible for filing and paying their taxes, even when they file for bankruptcy. However, the law provides some ways to discharge (or cancel) tax obligations during the bankruptcy process.
For example, you may be able to discharge your taxes if:
- Your taxes were due at least three years before filing your bankruptcy petition;
- Two years have passed since you filed your last tax return; and
- Two hundred forty (240) days have passed since the IRS determined the amount of taxes owed.
Next, you must file the last four years of tax returns before the first creditors meeting for the bankruptcy court to discharge these taxes.
2. How are unfiled tax returns handled when filing a business bankruptcy?
If your business hasn’t filed taxes for the past three years, then the IRS may discharge any related tax debts unless your tax returns are late-filed.
This is a complex process. Business owners should have a knowledgeable bankruptcy attorney in their corner to help them understand which taxes can be discharged when filing for bankruptcy.
3. How can I lessen my business’s tax burden when declaring bankruptcy?
While discharging your taxes may sound like the most ideal option, you may have other opportunities to lessen your business’s tax burdens when declaring bankruptcy.
For example, you may pay a reduced amount owed by entering into an IRS Offer in Compromise. Additionally, you may enter into an approved IRS installment payment plan, allowing you to pay your taxes over time.
However, you may be able to restructure your tax debts under a Chapter 11 bankruptcy, allowing you up to five years to pay taxes owed.
Business Bankruptcy Lawyers in Milwaukee
To protect your interests and the long-term financial health of your company, you must have the skill and understanding of a capable firm. At Kerkman & Dunn, our team of attorneys has the tax background and ability to foresee potential implications that may arise during the bankruptcy process and in the years to follow.
We have bankruptcy tax attorneys on staff that provide the insight of a master in accounting, helping to forecast how this will affect your future filings and providing alternatives to mitigate costly consequences. And best of all, we’re located right here in Milwaukee, WI. Contact us today!