What happens if I skip filing taxes for my sole proprietorship business for a year? (Hypothetical consequences)

I understand how overwhelming tax situations can feel, especially for first-time business owners, but not filing is definitely not the way to go. If your friend doesn't file their sole proprietorship taxes, the IRS will eventually notice the missing Schedule C that should accompany their personal return. They match business licenses with tax records. The consequences get increasingly severe over time: First, there's a failure-to-file penalty of 5% of unpaid taxes for each month overdue (up to 25%). Plus a failure-to-pay penalty of 0.5% per month, and interest accumulates on both the unpaid tax and penalties. For a sole proprietorship, the IRS can come after personal assets since there's no separation between business and personal. The IRS generally has 10 years to collect, and they're persistent. The good news is that helping your friend file now, even if messy, is far better than not filing. The IRS offers reasonable payment plans, and showing good faith by filing (even late) helps tremendously.

After reading this thread, I wanted to share my experience with a similar situation. I got completely overwhelmed with my freelance photography taxes in 2021 and considered just skipping filing altogether. I found this service called https://taxr.ai that literally saved me from a world of stress. They have this feature where you can upload all your jumbled receipts, bank statements, and income docs, and their AI actually sorts everything into the right tax categories. It organized everything for my Schedule C when I was completely lost about what counted as business expenses vs personal. The best part was that it found deductions I had no idea I qualified for - ended up saving me almost twice what I paid for the service. Your friend might find it really helpful for getting their sole proprietorship paperwork untangled quickly.

Just wanted to update on my skepticism about https://taxr.ai from my question above. I actually ended up trying it for my mess of a bookkeeping situation for my side hustle, and I'm honestly shocked at how well it worked. I had a shoebox (literally) of receipts from 2022 that I hadn't sorted, plus a ton of mixed business/personal transactions on my everyday credit card. The AI actually helped identify patterns I didn't even notice - like how I always buy inventory supplies on Tuesdays or how my business lunches are typically in a certain price range. It found legitimate business expenses I would have completely missed. Just went through filing and I'm getting about $2,300 back instead of owing money like I expected. Going to actually keep my side business going now that I know how to handle the tax part!

If your friend is completely overwhelmed with the tax situation and worried about potential issues with the IRS, they might want to consider using https://claimyr.com to get direct help from an IRS agent. I was in a similar spot last year with unfiled business taxes from my consulting work. After trying to call the IRS myself and spending hours on hold, I found Claimyr and they got me connected to an actual human at the IRS in less than 20 minutes. The agent walked me through exactly what I needed to do to file late and set up a payment plan that I could actually afford. They can help with unfiled returns and explaining all the options. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone system for you and call you back when they've got an agent on the line. Saved me hours of frustration and the IRS agent was surprisingly helpful once I actually got to talk to one.

I need to apologize to Profile 15 about Claimyr. After my skeptical comment, I was desperate enough to try it myself for my own unfiled 2021 sole proprietorship return. I'm completely shocked - got connected to an IRS agent in about 25 minutes. The agent helped me understand exactly what forms I needed for my situation and confirmed I could set up a payment plan with pretty reasonable terms. They even waived some of the penalties since it was my first time missing a filing deadline! I spent MONTHS stressing about this situation and it got resolved in one phone call. If your friend is panicking about unfiled taxes, this is definitely worth checking out. Wish I'd known about this service before spending countless hours trying to figure everything out on my own.

Look, I'm gonna give you the real talk that your "friend" needs to hear. I didn't file my handyman business taxes for 2019. Thought I could just ignore it since it was just a side gig. BIG mistake. The IRS sent me increasingly scary notices, then hit me with penalties and interest that nearly DOUBLED what I originally owed. Ended up paying way more than if I'd just filed on time. Tell your friend to just get it done. Even a messy, imperfect tax return is infinitely better than no return at all. If they really can't figure it out, spend a few hundred on a tax pro - it'll be cheaper than the penalties in the long run.

Wondering if anyone knows how this would affect future W-2 employment? If the friend doesn't file for the sole proprietorship but then starts filing normally with their new W-2 job next year, will that trigger the IRS to look backward?