Am I Personally Responsible for the Taxes Owed On My Business?
The Internal Revenue Service (IRS) uses a basic logic that if you have any signing authority over the business bank account, then you can be held personally responsible for certain taxes owed by that business. So, yes, if you own a business or part of a business, be prepared to pay certain accrued taxes. This is especially true if you have a sole proprietorship. Additionally, no matter what type of business you own or owned, you also need to be careful when it comes to taxes that you should have paid as an employer – for example, the necessary taxes you pay to the government for your employees (social security, etc.). These can later be assessed as “civil penalties” which you are personally responsible for, even if the business later dissolves.
The general rule when it comes to taxes is that the government – state or federal – almost always gets paid.
What if you have dissolved the company? Unfortunately, dissolving a business will not eliminate any tax debt or liability. Even filing bankruptcy will not take care of all taxes. Generally speaking, the only time taxes may be wiped out in a bankruptcy is if they were filed three years prior to the bankruptcy filing date. The civil penalties mentioned above are also taxes that you can be personally responsible for even if the business has been dissolved.
If you owe a large amount to the government for taxes and are having a hard time coming to terms for a payment plan with the IRS, you may want to look into filing a Chapter 13 bankruptcy, which is a structured repayment plan. This will keep the penalties from accruing and enlarging your original balance owed.
If your business is still operational, you may look into reorganizing your business debt in a Chapter 11 bankruptcy.
The bottom line is that even though you can still be held personally responsible for certain business taxes, you are not limited to repaying your taxes outside of bankruptcy. Certain types of bankruptcy may actually be a better alternative for you when it comes to setting up a repayment plan.
