RESOLVE PAYROLL BACK TAXES
WHERE DO YOU BEGIN?
This blog has three tips on how to begin your payroll tax resolution.
Payroll tax liability can be a huge problem for businesses. Especially when payroll taxes accumulate for several months (or years) without being paid to the federal or state governments.
It starts with one payroll and then another. And then an entire quarter is still unpaid. Before too long, the company has accumulated payroll “back-tax” tax liability for several quarters, and sometimes even several years. This is an extremely common problem.
However, it does not mean that your business is failing. You are probably growing! You will need some additional steps in managing your new business growth. After that – your business can resume its growth journey and its success.
What can a business do about back taxes?
We recommend three important steps in resolving any payroll back tax problem. They may seem obvious, but sometimes businesses just need to be reminded. Use this simple outline to get started.
Number 1: Make a profit and loss statement.
Many business owners do not look at reports of their income and expenses until it is time to prepare their business tax returns. (Some owners won’t even do that much!)
But for the attorney who helps resolve your payroll liability, it is an important first step to have your profit and loss compiled and calculated. Also, it is a great step towards being better able to manage your payroll taxes in the future.
Number 2: Keep up with your current payroll taxes.
As mentioned in Step One, having your business profit and loss prepared helps you to manage your current payroll tax liability. You will have a better awareness of exactly what you spend in payroll taxes.
Also, you will be better equipped to identify the amount of money per payroll that you have fallen short. Only when you are aware of the actual payroll tax expense are you able to manage the current, ongoing payroll tax expense.
Most payroll tax liability represents taxes that were withheld from employee’s pay. Usually, in small businesses, it is the owner’s responsibility to withhold these taxes and pay them over to the government.
Most of this “payroll tax” is not the business’s money to spend, at its discretion.
Note that failure to collect, report, and pay over that tax is a violation of federal Tax Code §6672. This violation results in financial penalties to the business owner or other responsible party.
But also, the same failure to collect, report, and pay over that tax represents a criminal violation under Tax Code §7202. This violation is a felony and could result in actual imprisonment.
The simple step of knowing what your current payroll tax expenses is, including the withholding taxes, helps you 1) to plan for payment of those taxes and 2) to also stay out of further trouble.
Number 3: Hire a tax attorney experienced with resolving payroll debt.
The previous section mentions that “failure to collect, account for, and pay over” the company’s payroll taxes is a civil violation under Tax Code §6672. Also, it’s a criminal violation under Tax Code §7202.
The same acts (or failures) by the business owner could result both in monetary penalties and imprisonment.
Many people think that the tax accountant is the person who can resolve these issues, not so. These are not just “accounting” issues. Instead, these are significant legal problems.
An attorney is recommended to guide your company (and you) through the pitfalls. Always allow a tax lawyer to argue for the best position for you and the company. An experienced legal counsel will help the owner or other responsible party avoid further fines and penalties.
Many business owners fail to select adequate representation:
- The payroll tax accountant is not equipped to make effective legal arguments.
- The tax return preparer is not familiar with the rules for disclosures made to the government.
- The CPA is not trained to know which facts and circumstances create further problems for the business owner.
Additionally, if there is an IRS Revenue Officer or Special Agent involved, the process becomes much more difficult for the business owner. An experienced attorney will help the business navigate through the overall process with less interference from a hostile IRS Officer or Agent.
We recommend that you find a Tax Attorney with specific experience in resolving payroll taxes. There are many steps to the process, including procedural steps that require this specialized knowledge and experience.
Follow these steps as the beginning of your resolution for payroll tax.