Article Directory :: Business - General Articles

What Tax Dangers Should You Be Aware Of?

By Cash Miller

Republish: EasyPublish™ Published: 17Jun2008 Word count: 792 Viewed: 297 time(s) Get Free Content For Your Site

Whether you own a small business or not we all dread the IRS. They always seem to want more money and if you fail to pay them or pay them late they'll penalize you straight into the poor house. But as a small business owner your worries about the IRS are compounded by the fact that you may now or in the future have employees to deal with also.

With employees comes more taxes to pay and returns to file. It seems to be never ending. Death and taxes as they say are the only two inevitables in life. Oh how true. But besides having to pay those taxes and file those returns there are a couple of other stipulations that also come with those responsibilities that you may not be aware of.

For those of you that are new to running a business and having employees I'll give a quick rundown of how employee taxes work. Once you opened your doors and started doing business you put yourself in position to pay payroll taxes. When you hire your first employee you'll be responsible for witholding taxes from checks, sending in those taxes to the IRS, filing 941 quarterly tax returns, W-3 yearly returns, and issuing W-2's.

What you might not realize is just how far the IRS will go when holding you responsible for those taxes. A responsibility that can extend past even the closure of the business. Of course paying the taxes late will result in some hefty penalties. And as the number of employees in your business grows the larger your tax bill becomes. Because not only do you have to send in the taxes you withheld but you have to pay the matching taxes as well. And as your tax bill grows the IRS will require you to send those tax payments in more often. You'll go from paying on a quarterly basis to a monthly basis, down to a biweekly time frame. So as your tax burden grows the amount of time your given between payments shortens up by a lot.

Not that you can't handle all that pressure though right? Well as if that wasn't enough we have one more piece of good news for you. Even if your business was to go bankrupt and you still owed taxes you can be held personally liable by the IRS. The bankruptcy court won't necessarily protect you from having to pay those taxes.

I know of a case a few years ago about a small business owner that ran into such a problem. Due to cash flow problems trouble arose in paying bills. Eventually the trouble extended to paying the payroll taxes on time. Finally the owner was forced to file for bankruptcy protection and close the doors. Once the paperwork was filed the bankruptcy court took control of all the assets. As there wasn't enough money in the bank account to pay the taxes in full anyway they went unpaid and were listed as the top creditor in the bankruptcy court filing. The problem though seems to be the IRS bureaucracy. You see the court notifies creditors of the bankruptcy and requires them to file a claim. If they don't then they cannot receive any of the proceeds from the sale of assets. Now since the IRS was owed taxes they are supposed to receive all the proceeds up to the point of the taxes being paid. But they are still just a creditor and must file a claim. In this case no claim was filed. Most likely the court paperwork was lost in the system.

So what does the IRS do? They hold the person that signs the 941 tax returns responsible. In this case it was to the tune of about $28,000.00. Now this could have been avoided if the taxes had been paid before the court took possession of the company but of course the owner didn't have the means to pay anyway. There is a silver lining to the story though. The taxman that is normally the big bad bully in most cases was not here. Besides needing to provide copies of the bankruptcy paperwork and some other documents the IRS allows you to show whether you actually have the ability to pay the amount back yourself. Due to the fact you just filed bankruptcy and most likely lost your own livelyhood you may not have to pay any of it. Of course each situation is different .

The main thing to learn here is that you need to be aware of your responsibilities as an owner when it comes to payroll taxes. The consequences of not knowing or fulfilling your obligations could ruin not only your business but you personally.

EasyPublish™ this article - publishers click here

More articles by Cash Miller

Free Report!
Ten Essential Secrets Of Article Marketing ... Grab Your Free
Copy Now:

Need Content?
Regular Top Quality Content for your Blog, Ezine or Website ...
Delivered Direct,
For Free!
Click For Details