Tax Debt Pervasive in Small Biz Bankruptcies
Feb 24th, 2008 | By Dawn R. Rivers | Category: ResearchA new study released by the SBA Office of Advocacy last week has found that the tax burden of small businesses in bankruptcy is more pervasive than that of consumers in the same unfortunate circumstances. In fact, while fewer than 25% of consumer petitioners report some tax debt, more than half of small business petitioners owe taxes when they filed for bankruptcy. The study did not find that bankruptcy is caused by taxes but one thing it did find is that filers hardest hit by tax debt are individual business owners (the self-employed) and that their average tax debt was $120,000. That is particularly interesting in light of the relationship between this set of taxpayers and the tax gap. This research suggests that, for at least a portion of the sole proprietorships responsible for the tax gap, the problem may reduce to the sudden appearance of a tax debt that they did not expect. That, in turn, points to an urgent need for education for the newly self-employed.
