NEW YORK — Not having enough money to pay taxes is a small business owner's nightmare.
Debra Locker Griffin has gone through it. She found out at the start of 2010 that she owed the Internal Revenue Service $15,000. She had started her company, Locker Public Relations, in Lexington, Ky., just over a year earlier. The realization that she had that big of a bill was a shock.
The good news is that Griffin found a way to pay the bill. Her story offers valuable lessons that may help many small business owners avoid this scary situation.
When Griffin launched her company in September 2008, she hired a certified public accountant to help her with her firm's finances and taxes. But her accountant didn't tell her that she needed to meet with him at least once a quarter so he could go over her income and expenses and help her plan for tax season.
"I was new to this and didn't know what I was doing. I should have been checking in with him and I didn't, and he didn't check in with me," she said.
He also didn't tell Griffin that she needed to pay her income taxes quarterly, and that she needed to pay self-employment taxes. It was a big shock when her accountant told Griffin that she owed the government $15,000 for 2009.
"His reaction to me was, wow, you had a much better year than I had anticipated," she said. "I am sure I cried. I literally had no idea where to get $15,000."
"Fortunately, I had a good relationship with my bank and they allowed me to take out a line of credit," Griffin said. That gave her $8,000 toward her tax bill. Griffin got the loan even though banks in general were wary about lending after the financial crisis of 2008.
Another $3,000 came from her savings. That left Griffin owing the government $4,000. So she asked the IRS to let her pay on an installment plan.
"I didn't expect them to be helpful at all, but they were," Griffin said. "It was as simple as calling them. And it was very cut and dried: How much do you want to pay per month?"
Griffin had the payments automatically withdrawn from her checking account each month. It took a year and a half to pay off the IRS. She's still paying down her credit line.
Griffin also fired her accountant. She now has one who keeps track of her finances and tax payments.
"I'm much smarter with my taxes. For 2010, I owed just $4,000, and for 2011, only $1,500. My CPA (Certified Public Accountant) has watched me and really taught me what I have to do. And we meet about once a quarter," Griffin said.
IF IT HAPPENS TO YOU
— Like Griffin, small business owners who can't pay their taxes can ask to pay their bill over time. In addition to the tax you owe, you'll also face a late payment penalty of 0.5 percent per month and interest on the unpaid portion of your taxes. For the second quarter (April to June) the IRS will charge annual interest of 3 percent.Comment on this story
— You can learn more about installment agreements with the IRS at the agency's website. Visit www.irs.gov and download Publication 594, The IRS Collection Process. The publication explains the mechanics of requesting an agreement, and also discusses your options if you have no money to pay the government, even with an installment plan.
— File your tax return even if you can't pay your bill. The penalty for not filing is 4.5 percent per month, on top of the late payment penalty and interest.
Joyce Rosenberg can be reached at http://twitter.com/JoyceMRosenberg.