Small Business Payroll Tax Dangers
The Trouble Payroll Taxes Can Cause for Your Business
Sep 12, 2008
As a small business owner there always seems to be something you do not know enough about. Whether it is about business planning, human resources, management, or marketing, there always seems to be something else to learn. Normally this would be a good thing as most people like having the opportunity to learn about new things. But when it comes to the taxes that your business must pay, you want to know everything you can about them right from the start. Because if you fail to learn all you can about taxes early on, you might cost your business thousands of dollars. You might even cause it to fail because you don’t know enough.
Payroll Taxes Are the Most Dangerous
The single biggest tax danger that you and your business will face is the issue of payroll taxes. This is because payroll taxes are easily the largest tax that you will be responsible for collecting and paying to the government. And if your business issues W-2s then your business will also have to pay the matching portion of the Social Security and Medicare tax. The matching portion is 7.65% of an employee's check. This can quickly add up to a large amount of money.
Why Are Payroll Taxes Dangerous?
The danger of payroll taxes resides in the fact that the bill can quickly become very large. And the larger the amount of money owed to the government the more often you will have to send them their money. If your business is flush with cash no problem, but if your business is regularly cash strapped because you have to wait for checks to show up in the mail, then this can become a problem. The dates that the IRS wants you to deposit your tax money on are concrete and if you are late then they immediately start to penalize you and your business.
How Often Are Taxes Due?
Depending on the amount of payroll taxes that are owed to the government, the IRS will want you to deposit your tax money either quarterly, monthly, biweekly, or weekly. For this to happen you really need to make sure that your business has good cash flow or a line of credit with your bank that you can draw upon to make sure your taxes are paid on time. It’s all well and good for the IRS to say that you are withholding taxes from a person’s check but in truth it is just money you have not yet paid out to someone. And when you do make the payment you’ll need money in the bank account to cover the check.
The Trouble Payroll Taxes Can Cause
This is how small business owners end up in trouble because they don’t have the money yet for the payment. But payroll taxes are even more dangerous than you might think. If you are the owner or primary shareholder of a business or corporation then you are the person responsible for making the actual tax payment. And even if your business was to go bankrupt the IRS can hold you personally responsible for any unpaid payroll taxes. Even if you personally declare bankruptcy the IRS can still come after you for those taxes.
The IRS Can Kick You When You Are Down
It’s kind of a funny thing really. You can lose everything you have worked so hard to build and yet the IRS can continue to come after you for the money even though you don’t have anything left. They do allow you to prove that you cannot pay the bill but even if you cannot pay them they can take any money owed to you from tax returns until the statute of limitations runs out. It’s a lot like continuing to kick you while you're down and once a year they get to kick you again and remind you of what you have lost. Payroll taxes are not something to take lightly because they can have long term consequences on your life.
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