Past due payroll taxes can make you lose your cleaning business as well as your freedom. The IRS is currently pushing for strict compliance when it comes to small businesses so it is respectively important for you as the business owner to know what basic payroll tax audit can trigger and learn too how to avoid penalties, huge tax debts and federal criminal investigation.
1. Small Businesses particularly cleaning businesses are the Most Likely Target of Increased Tax Compliance Enforcement
The IRS has directly identified small business owners as the greatest source of uncollected taxes and because they are known to be big tax evaders, the IRS focuses their enforcement efforts on small businesses, especially during economic crises.
2. Losing your small business is possible due to extremely aggressive IRS collection tactics for past due payroll taxes
The IRS collection revenue officer has the highest power and authority when it comes to payroll tax debts. They are the ones who have the power to ask you to leave your home and basically put you out of your business without having to issue a court order. The IRS collection revenue officer can seize your machinery and equipment, contact your customers and intercept the funds that your customers owe you with the use of their power and authority. It is therefore necessary for you to address payroll tax related issues if you do not want to find yourself out of business.
3. Payroll tax penalties can double in no time and result to huge tax debt
Your total tax bill can increase due to the penalties assessed on incorrect payroll tax deposits or filings. You can definitely lose your business with the taxes you owe regardless of what type of business you operate. There are three major penalties you can be hit with (failure to file, failure to deposit, and the failure to pay), which can add up to about 33% plus interest if you don’t pay sixteen days after you have filed the 941 (Payroll Tax Return) past the due date.
4. Failure to file and pay your payroll taxes is considered a federal crime.
If the IRS is able to prove that you intentionally did not file or pay your payroll taxes, they can refer your case to the Criminal Investigation Division and ultimately to the Department of Justice.
5. Borrowing from payroll taxes is illegal.
Many small and mid-size businesses like cleaning business use the money they collect from payroll taxes to pay their operating expenses. The money collected from employees to pay their share of federal withheld tax, FICA and Medicare (Social Security) does not belong to the business and must be accounted for and paid to the government. Generally, one must make a federal tax deposit (by tax filing service, phone, or in person at a bank) 3 days after the pay date of the pay roll checks.
6. The IRS can individually come after business owners for payroll taxes owed.
The IRS have direct access to the Trust Fund Recovery Penalty (TFRP) against owners and shareholders. The IRS is the only creditor on the planet that can “pierce” the corporate veil and go after individuals, which can be a very scary situation.
Accurate Calculation of Payroll Tax
The IRS is known for having a very strict inclination when it comes to payroll tax as well as deductions. Even a small miscalculation can result to grave and serious trouble with the organization as well as the small business. It is therefore important to maintain careful records of payroll accounts in an organization to ensure that incorrect calculation can never take place.
Each of your employees in your small cleaning business is required to fill up the W-4 form from the IRS and this is considered to be the first step in calculating payroll tax. The W-4 form aims to calculate the payroll tax depending on the marital status of an employee and the number of dependants he or she has. Since most states have payroll structures that are based on the federal system formulated by the IRS, this form helps organizations calculate the payroll tax withholding for both federal and state governments.
These calculations and deductions have to be done accurately to avoid any confusion. Each company must have a payroll account to that these deductions are transferred to and paid to the state and central governments at the end of the year.
Payroll Tax Calculation – Reasons For Its Importance In Small Companies
There are a number of things to be kept in mind if you are an owner of a cleaning company. If it is a small business, then you will need to handle all the sides of the business yourself. This can be an ordeal if you do not possess the necessary qualifications in accounting, advertising and other business aspects.
One such area is accounting and this aspect of your business requires professional help most of the times. Business accounting involves maintaining books of accounts, setting up accounts receivables and payments. If you hire employees to work for you, then you have to calculate payroll taxes, which is a specialized job. Payroll taxes are mandatory and there are no exceptions to the rule.
Payroll taxes are an important part of accounting. Calculation and payment of Payroll taxes is the company owner’s commitment to the Internal Revenue Service. It is mandatory to pay the taxes or there will be penalties and fine that you will have to pay. Even a mistake in the calculation of payroll tax will attract a penalty and you may end up losing a lot of money in fines. Therefore, it is crucial to be accurate in the calculation of payroll taxes for your employees as well as your company.
Handling the calculation of Payroll tax can be done in two ways. One method is to hire a professional accountant to do the job and the second is to use accounting software for payroll tax calculation. The better option of the two is to hire an accountant, because they are trained for this kind of work. It is advisable to hire a corporate accountant since they are well versed with the laws and rules applicable for the corporate business.
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