The Relationship Between Cash Flow and IRS Tax Liabilities

Every business strives to maintain a positive cash flow. At the same time, each business needs to manage quarterly IRS tax liabilities to avoid penalties. Both cash flow and IRS tax liabilities are intertwined, but the relationship can be complex and confusing.

Understanding Cash Flow

In simplest terms, cash flow is a measure of revenue against expenses. Typical business expenses include:

  • Overhead
  • Payroll
  • Utilities
  • Rent or commercial mortgage
  • Insurance
  • Loan payments
  • Marketing

Expenses can also include unexpected costs, or additional spending to take advantage of business opportunities, investments, and more.

Expenses are measured against revenue, which usually comes from sales. Outside of the retail sector, most revenue comes from invoices with staggered payment schedules of 30, 60, or even 90 days. We’ll circle back to this a little later.

What Are IRS Tax Liabilities?

Every quarter, businesses need to file 941 forms, which determine the amount owed to the IRS. These liabilities are based on the size of the workforce and quarterly earnings. Additionally, IRS liabilities include income and unemployment taxes. If forms are not filed and taxes are not paid, the inactivity will send up flags at the IRS. Since filing quarterly liabilities is very important, unless an extension is requested, the IRS will take the necessary steps to ensure a business is paying its fair share.

If IRS tax liabilities are unpaid, the business will receive a notice as a reminder that money is owed. If the notice is ignored or the business does not reach out to the IRS, the outstanding tax liabilities will be sent to the IRS Collections Division, where a Revenue Officer will handle the account. The first measure against a business that does not pay IRS liabilities is to issue a tax lien, which can place a heavy strain on cash flow. Once received, a business can pay the taxes owed or file an appeal. If a business takes no action after the lien is issued, then the IRS can take more severe measures, such as levying a forced collection. A forced collection resulting from unpaid IRS tax liabilities can force business owners to divest from assets. In extreme cases, business owners may have to remove themselves from their operations completely.

Balancing Cash Flow and IRS Tax Liabilities

In order to keep capital on hand to pay IRS tax liabilities, businesses need to maintain a healthy cash flow. In fact, many businesses that end up falling behind in their quarterly IRS payments do so because they have revenue tied up in unpaid customer invoices. One simple way to prevent tax liens and forced collections is to use invoice factoring. Instead of dealing with staggered payment schedules of 30, 60, or even 90 days, factoring converts unpaid invoices to cash, and funds are made available quickly. The boosted cash flow allows businesses to cover expenses and build up capital reserves to handle IRS tax liabilities. Invoice factoring does not place any debt on the balance sheet, and businesses get to preserve their credit ratings. Falling behind on IRS tax liabilities has dire consequences. Businesses with tax liens usually cannot take advantage of factoring services because it places the factoring company between the business and the IRS, and businesses cannot use another party as a shield when a tax lien is in place. This is why most businesses use factoring as soon as possible, to put in place preventive measures and improve cash flow.

Accelerate Your Cash Flow Today

Single Point Capital provides comprehensive factoring services to help businesses accelerate their cash flow so they can cover expenses, IRS tax liabilities, and build up capital reserves for growth. We can factor unpaid receivables and make funds available to your business in a single day, so you can focus on running your business, instead of waiting a month or longer to receive payments from your customers. Additionally, you will get access to a suite of tools to track invoices, payments, and much more.

Don’t fall behind on your quarterly IRS tax liabilities. Stay up to date and accelerate your cash flow at the same time by using factoring services from Single Point Capital. Contact our offices today to get started.

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