Don’t borrow payroll taxes from the IRS

With rising energy prices, many business owners are facing increasing costs and deteriorating cash flows. Make sure you avoid the temptation to borrow from the government. The IRS is a tough lender. Interest, penalties, and other punitive measures can be severe and even threaten the very existence of your business.

Keep in mind that payroll taxes are different from other obligations. As a business owner you have the responsibility of a trustee to remit payroll taxes. The money is not yours; it belongs to the government.

Potential consequences

• Litigation proceedings and expense. If you fail to remit taxes, dealing with the IRS can be difficult. Legal and accounting fees can be substantial, and time diverted from other business matters could prove damaging. The courts can even assess criminal penalties including prison time.
  
• Punitive penalties. The IRS has the authority to levy a 100% civil penalty for failure to deposit payroll taxes. If you are a “responsible person” within your organization, you can be personally liable for this penalty. The IRS can decide to collect directly from you.
  
• Other collection powers. The IRS can attach your bank accounts, file liens on your property, and seize your assets to satisfy payroll tax obligations.

How to protect yourself

• Educate your staff. Inform all employees who handle payroll taxes about the seriousness of this responsibility. Make compliance a high priority issue.
• Document your compliance. Track due dates and your compliance with them. A good tip is to assign one person the responsibility to remit the taxes and another person the responsibility to verify the tax deposit. Have them both notify you in writing that the taxes have been paid on time. Keep this documentation.
• Plan for all occasions. Make sure compliance occurs during employee vacations, staff illnesses, and staff changes. Take your payroll tax deposit requirements seriously.

For any assistance you need, contact our office

This newsletter is issued quarterly to provide you with an informative summary of current business, financial, and tax planning news and opportunities. Do not apply this general information to your specific situation without additional details and/or professional assistance.