Business owners and managers spend hours filling out payroll tax paperwork for the federal government, but if it is not done properly, they can be held personally responsible. The IRS has policies for filing tax cases against owners and managers when income taxes are not withheld and promptly sent to the IRS. An innocent oversight has the potential to cause tremendous frustration, be very costly – and can even be considered a crime!
Know Your Responsibilities
The IRS identifies small businesses as the largest source of uncollected taxes, so it focuses attention on the accuracy of payroll taxes. A failure to file, a failure to deposit, or a failure to pay can incur significant penalties – some lofty and which only increase over time as interest is added.
Failing to file your payroll taxes can be considered a crime. Additionally, any business owner who borrows against their payroll taxes is violating federal law, as the money collected from an employee’s paycheck doesn’t technically belong to the company.
Problematic payroll tax filings can result in the business owner being personally liable. In some instances, a past due amount owed can result in the IRS putting you out of business – permanently, or until the debt is settled. When you enlist the help of qualified tax and accounting professionals such as BMH Accounting, we can help you and your team reach an amicable solution that satisfies your obligation to the IRS, allowing you to hold onto your company’s finances, as well as your own.
IRS Compliance is Key
Insufficient documentation can trigger an investigation, but each business is judged individually and held to different standards. If a business does not demonstrate a “willfulness” to comply, the IRS may assume that they are intentionally evading tax payments. If the IRS feels it is being misled, they may seek to enforce greater penalties.
Individuals who are technically in authority over tax payments, but do not have that as part of the duties in their job description, still will be held responsible by the IRS. Business owners, officers, and managers can be penalized for mistakes made by bookkeepers, whether or not they were intentional.
Be Prepared for a Payroll Audit
If the IRS has requested to audit your payroll taxes, a business owner who has kept organized records will be able to provide the necessary documents to resolve any discrepancies with ease. IRS workers inspect the following documents to determine liability when penalties are being charged:
- Articles of Incorporation
- Copies of Cancelled Checks to Creditors
- Interviews with each person using form 4180. You may be asked of your responsibilities, money allocated for payroll taxes.
It’s important to understand how your payroll works when the IRS wants to audit your records. Many companies run into trouble in how they designate independent contractors versus salaried employees. Independent contractors help with the budget since they aren’t receiving paid time off, health benefits, or other perks that some ventures offer when signing on as an employee. Company owners who incorrectly account for this can be subject to penalties for the incorrect designation. A qualified accounting team can assist you with these determinations, and help determine how to amend any misclassifications.
Call BMH Accounting for Payroll Tax Advice
Having a qualified accounting team to help your business manage its payroll taxes may prevent an audit which can financially cripple a business. Give the capable and qualified accountants at BMH Accounting a call for professional help to keep the IRS at a safe distance.