If you own your own business or are a partner in a business with others, your personal tax debt can affect your business if you fail to pay your taxes or own a significant amount of back taxes. Depending on the legal setup of your business, the IRS can seize both cash and assets from your business to resolve the personal tax debt that you owe them.
If you are in a business partnership, your business is not safe from the IRS. The IRS can use your portion of the assets in the business to settle your tax debt. That means that if you have a 25% stake in a company with three other individuals, the IRS can come in and seize up to 25% of the value of the business in physical or cash assets. Your business liability is not protected from your personal liability.
It doesn't matter if the other partners in your business are up to date on their personal taxes; the IRS doesn't care if it ruins the business for them. The IRS's sole purpose is to settle your debt to the IRS through the seizure of any cash or physical asset they can, including but not limited to any business partnerships you have set up.
Limited Liability Company
Many people mistakenly believe that their business assets will be safe from seizure from the IRS for personal debt if they set up a limited liability company or LLC. However, your assets are only safe if you set up a particular kind of LLC. If you set up either a sole proprietorship or partnership as an LLC, your business assets can still be seized for your personal debt. However, if you set up your LLC and file your taxes as a corporation, your business assets will be safe from being seized to settle any personal tax debt that you may carry.
When you set up your business so you are a sole proprietor, you have no protection from the IRS. They can take money from your business accounts for the purpose of settling your personal tax debts. They can also seize property from your business to settle your debts. Once again, the IRS does not care if seizing this property impedes your ability to do business; their main purpose is to make sure that you pay your debts. Your business and personal accounts are the same in the eyes of the IRS when you have a sole proprietorship set up.
The best way to protect your business from the IRS is by paying all of your personal taxes on time and by having a professional tax accountant go over your books and your taxes before you file to make sure that you are not making any mistakes that will cause you to owe back taxes in the future. For help with your books, consult an accounting firm, such as Homer Wilson & Co Ltd.