Question:

I bought a corporation, of which I am the sole owner. I didn't know how to file a return for the business last year since I had losses, so I didn't file at all. What should I have done? What kind of trouble am I in? And, what can I do to fix this?

Answer:

Have a Small Business Question?

Send us an email and we’ll try to answer it for you. Due to the volume of questions we receive, we are not able to answer all questions. Questions that are selected for publication may be edited for length and clarity. For tax purposes, a corporation is considered a separate legal entity and its owners are therefore required to file a U.S. Corporation Income Tax Return, Form 1120, even if the business registered losses, says Jay R. Brennan, an accountant and financial planner in Princeton, N.J. That's actually a good thing: Those losses can not only offset future gains in years when the company is profitable, but they can also offset previous years’ losses.

Thanks to the stimulus act, businesses with annual receipts averaging $15 million or less can carry the losses they incurred in 2008 as far back as 2003. Typically, you can only carry back losses for two years. (For our story on other tax perks within the Stimulus Act, click here).

Failing to file the company’s tax return on time can result in a "failure-to-file penalty," which at minimum is the smaller of $135, or 100% of the unpaid tax. If taxes are owed, interest and penalties will continue to pile up, on top of the unpaid balance. (Click here for our story on failing to file).

To right the situation, pay up immediately. Then, call the number or write to the address on the bill you receive. Or, visit the nearest Internal Revenue Service office to explain what happened. If you can’t afford to pay in full, look into the IRS’s installment plan. (Note that fees and interest charges will apply.)