Table of Contents
Table of Contents
Dealing with the Internal Revenue Service as a small business
owner can be stressful at times. With knowledge (learning from
mistakes and making changes) and perseverance it can be done
successfully. Many people have great ideas about a good business
but do not have a clue as to how to run one. This is only one of
the many reasons new businesses fail, but an important one. A
professional book keeping service
can save you time and headaches. Unlike expenses such as our
registered agent services, payroll is much more complex.
Planning to pay on time
Payroll withholding taxes have to be paid. (sooner or later)
Each business, based on the amount of payroll, is assigned a
time for depositing payroll withholding taxes. Our business
employed from 3 to 9 people at any given time and we were
assigned a monthly time frame for deposits. This seems
reasonable, until there is no money. Rent, utilities and
employees have to be paid. We were a service orientated company
so it was important as well to keep our suppliers paid. We could
not work if we had no supplies with which to work. Somewhere in
there the IRS has to be paid. Being the Owner means you are at
the bottom of the "food chain". You may read differently or be
told differently, but in reality........the Owner is at the
bottom of the list!
It works in theory
In school accounting class there is an orderly process for
paying expenses and the taxes are always high on the list. This
works because there is always enough money in the bank to pay
the bills. It works that way - there. But, what about real life?
Business has its ups and downs and what do you do in the down
times?
Living through the "down" times
The IRS would prefer to have their money on time. They do not
always get it. There are penalties and interest to be paid on
late payments, but, this is not necessarily a bad thing. One
year we used the tax deposit monies to make payroll (for the
employees) for a period of about 4 months. The taxes were paid
by the year end. We ran an audit on how much it cost us to use
the IRS money versus what it would have cost us to borrow that
money from the bank. It was a lot cheaper than the bank would
have charged us! A "line of credit" for a small business by a
bank is not as good as the bank would have you believe. They are
not necessarily "your friend" and will make their money at your
expense, whereas, the IRS just asks you to pay their share.
Always have a plan "B"
This is very important! Always have a plan B. The taxes must be
paid in full or mostly paid by the year end. There is no getting
around it, that is just the way it is. Whether extra work,
credit card (careful here) or lastly borrowing from the bank is
the plan B, we always knew how we were going to cover the
expense of taxes. Our work would usually slow down for only a
few months so by the year end the income was sufficient to cover
the current tax and past tax expense. One year we did carry a
balance forward into the following year and caught it up. This
created extra penalties and interest expense, but we did it
successfully.
Filing reports on time (with or without the money)
One of the major things I learned about the IRS is to file the
reports on time, whether we had the money or not! There are
several points of contact (offices) all over the United States
that deal with payroll tax deductions and here "the right hand
surely does not know what the left hand is doing". You are not
dealing with a person, you are dealing with a computer. Thus,
the importance of the dates. Never, I repeat never confuse them!
It takes years to get the mess straightened out! Of course I
learned this from experience. There are HUGE penalties for
filing the reports late. There is absolutely no excuse for this
expense since the money does not have to be paid with the
report.
Using a good Certified Public Accountant
A good one is hard to find. We used 4 before we finally found
one that did what he said he would do for us. We used him for
monitoring our business throughout the year, our quarterly
reports and filings and reports for the year end. We were a
Corporation and there is a lot of information needed. The CPA
was invaluable to us and gave us helpful information and a
"heads up" when we were about to get into trouble.
Why is this important anyway?
In a small service business, payroll is 60% to 80% of the
expenses of the entire company. Federal and State taxes are a
large part of the balance of the expenses. Uncle Sam was the
highest paid employee and with due diligence you can keep him
happy! Did you enjoy this article? Learn here how to
form an LLC here.
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