The IRS assigns a much higher priority to the collection of payroll taxes mainly because at the end of the year, most employees can claim the taxes deducted on their W-2s as a credit and get a refund for their money. All the while, the employer may have never sent out the tax payments to the IRS which means the government is out of their money on a double-whammy.
So what can you do as a small business owner to avoid the wrath of the IRS? Here’s the top 7 that I went over on the show:
- Budget at least 10% of an employee’s annual salary for payroll taxes. If you’re also paying health insurance costs to your employees, you need to budget about 22-23%.
- Use a payroll service to handle the payroll. I strongly recommend this for a number of reasons: (1) You won’t be tempted to dip into your payroll tax fund when you’re strapped for cash; (2) You as a business owner do not have the expertise to handle your own payroll taxes—chances are, you don’t know all the filing requirements, deadlines, and so forth. So hire a payroll service—it will be the best investment you can make. And make sure you get on tax filing service with that payroll.
- Take a look at your head count. It’s possible that you can use independent contractors instead of employees. Check out the IRS’s website for criteria for independent contractors versus employees and see if you pass that test. If you do, it would behoove you to use independent contractors instead of employees so you can save the payroll taxes.
- Beware of the IRS “Cascading Penalties.” This means if you’re late on a payroll tax and miss a $10,000 deposit, you get slammed with a $1,000 failure to pay deposit penalty. Every week after that when you submit your $10,000 payroll tax deposits, the IRS is always applying it to the quarter you missed. So for the next 7 times you submit your payroll tax deposit, the IRS is assessing that $1,000 penalty for the next 7 weeks. All of the sudden you have a $7,000 penalty and all this time you thought you were paying your payroll taxes on time. Make sure that when you miss a payment that you designate those federal tax deposits to the right period.
- Beware of the corporate veil. The IRS is a very special creditor when it comes to payroll taxes for corporations. They can pierce the corporate veil if the corporation does not pay payroll taxes. That means they can assess payroll tax against your individual social security number. So you can find yourself suddenly personally owing the payroll taxes of the entire corporation. So don’t think that because you have a “corp.” that you’re protected or shielded from the IRS—you are not.
- Get professional help if you owe more than $20k or $25k in payroll taxes. A well-qualified tax expert can help you keep your doors open, the lights on, and customers paying their bills to YOU instead of to the IRS. Since the IRS has the power to circumvent your accounts receivable and and take the money from your customers who owe money to you, it is important that you don’t let the IRS get this far.
- Consider a properly structured payment plan. You may qualify for an Offer in Compromise or penalty abatement because the penalties are going to be huge with payroll tax deposits. [Note: after you’re late 16 days on a payroll tax deposit, the penalties are at 33%.]
Being a small business owner, I’m sure you love what you do and have a passion for your work. Don’t let the IRS take that away from you because of payroll tax problems. The IRS will not hesitate to board your doors up and shut you down if you are non-compliant. Get professional tax help now to resolve your IRS payroll tax problems so that you can focus on running your business.
Tune in tomorrow Wednesday, March 23 to the Big Biz Show at 12:40pm PST for more tax help tips during our Tax Day Countdown!
Tax Resolution Services, Co., is dedicated to providing affordable solutions to businesses and individuals alike who find themselves in trouble with the IRS. Our tax attorneys, CPAs, and tax relief professionals have successfully resolved thousands of cases since 1998 and are committed to making sure our clients’ experiences exceed their expectations. For more information or to receive a FREE tax relief consultation, visit www.TaxResolution.com or call (888) 699-7630.
More Tax Help, IRS News and Tax Relief Tips:
- Your Unfiled Delinquent Tax Return Checklist: Stop the IRS Now and Avoid Steep Interest and Penalties from Accumulating
- Tax Help: Brian Compton Shares 7 Secret Weapons For Taxpayers to Fight the IRS on Big Biz Show
- Tax Relief – Top 10 Ways to Reduce Back Taxes and IRS Debt
- Top Tax Help Tips For Small Business Owners Who Want to Avoid Payroll Tax Problems
- Tax Resolution Services, Co., Helps Taxpayer Resolve $150K in Back Taxes and Receive IRS Refund