The old line "Nothing is certain but death and taxes," is often attributed to Benjamin Franklin. Whoever said it, it probably rings true to many Kentucky business owners. Unfortunately, for many of them, they didn't expect that the two might be related when it comes to their businesses. Especially for small business ventures, the complexity of the tax code can lead to issues when the business files taxes, creating a situation in which the business ends up with a large amount of tax liability.
Most businesses operate with expenses that create debts above and beyond any taxes owed. This means that when the tax bill, along with any penalties assessed for the missing tax payments, the business may find itself in an untenable position. When such a company is in a position where it appears it will not be able to pay its debts and become profitable, ownership may consider filing for bankruptcy.
Unfortunately, because bankruptcy, as a general matter, will not discharge tax debt, using a restructuring may not be particularly helpful in such circumstances. This means the possibility of a Chapter 7 liquidation of the business. When thinking about this, business owners need to continue to take the tax code into consideration. For example, a company organized to allow 'pass-through' taxation, such as an S-Corp, may create a personal tax burden on the business owner due to the forgiveness of business debts. In such case, contemplating changing corporate structure before bankruptcy may be something to consider.
Closing one's business is always a difficult decision, especially when it is being forced upon one due to tax problems or other debt issues. It is important for Kentucky business people to remember that there are many complicated components to business bankruptcies and that they should carefully think about speaking with a qualified legal professional.