Do I still owe franchise tax fees if…

“I’ve sold my business and I no longer have my corporation/LLC?”  The real question is did you sell your corporation or just its assets?  If you sold the assets and never closed out the corporation/LLC with the Secretary of State, the corporation/LLC is still responsible for paying the annual franchise tax fee to the Franchise Tax Board every year.  This can come as a nasty surprise to anyone whom receives a letter sometimes years later saying that they owe for all the preceding years.  If you sold the corporation, make sure that the Secretary of State knows that you are no longer in business and/or the responsible party and file a final tax return with the Franchise Tax Board during the appropriate tax season.  Either way, the broker or escrow office should inform you of what is required at the time of the sale.  If they don’t, you may want to ask them.

“I’ve kept the corporation/LLC name so that I can use it in the future again but I haven’t done any business in years?” I’ve heard this a few times and the same rule applies:  If you have left it open with the Secretary of State, you are still liable for the annual franchise tax fee.  It comes as no surprise that many shareholders/members are shocked to find out that they have this responsibility even if they don’t do anything with the business.  It is actually cheaper to dissolve the business at the time and later re-open it and/or rename it (if needed) than it is to pay a minimum of $800 a year just to keep that name.

So who actually owes the fees?  In reality, the corporation/LLC owes them.  As they are considered separate entities, you should not be the one to personally pay these fees. However, LLC’s may also be regarded as ‘disregarded entities’ so make sure you know which you have as the rules may be different and you may have to pay the fees in that case.

You should always discuss these types of scenarios with your tax professional.  Having the right information can save you thousands of dollars in the long run.

Eight options when you owe taxes.

You owe the IRS money.  If it’s a small enough amount, then you just pay it.  What are your options when it’s a large amount?

The IRS will work with you and you have eight options available to you.

Change your payroll check withholding.  While this may not help you this year, it would help you from potentially owing taxes in future years.  File a revised W-4 with your employer and have them withhold more in taxes by either lowering your number of dependents or having them withhold an additional dollar amount.

The IRS takes debit/credit card payments.  There may be an additional fee for the transaction through a third party but it may be a cheaper fee than the one that you pay to set up a payment plan with the IRS.

Payment plans are another way to go.  Otherwise known as an installment agreement.  You can set up an agreement with the IRS to pay monthly.  You can also set up a direct debit so that the payment comes out of your account on the same date every month and you’ll never miss a payment that way.  The fees for this type of plan is $105.  An additional fee of $52 is for the direct debit agreement.  If your income is below a certain level though, they will only charge $43.

Maybe you are getting a loan or think you can come up with the money soon?  Then ask for a short term agreement.  This means that you can pay the full amount in 120 days or less.

There’s the tax bill payments option too.  Here you receive a bill from the IRS.  Pay it as soon as possible as interest and penalties accrue every month.  If you can’t pay it all, a loan may be the best option as their interest may be less than the interest and penalties that you get from the IRS.

Have you heard about electronic funds transfer?  This is a great way to pay your tax bill by phone or you can set up an account through the EFTPS website.

The IRS has a program called Fresh Start.  If you are really struggling to pay your taxes, you should look into this program. Their objective is to make it easier for you to pay back taxes and avoid tax liens.

Last, but not least, is an offer in compromise.  This program allows you to pay less than the full amount you owe. If the IRS agrees to your offer, then be prepared to pay the new and agreed upon amount in full as payment plans are not an option.  This one is the most time consuming process.  Even if everything is filled out perfectly, it can still take the IRS quite a long time to respond to it.  While you can do this yourself, you may be better off paying your accountant to do this for you.  He will know what documentation you will need to support your application for the offer.