Five Things to Avoid When It Comes to Owing Taxes
Part 2 of a 2-part series. Read part 1.
As a business owner, there are a host of responsibilities and expectations that come along with the role. And when it comes to owing taxes, there is no exception. To some, it may feel easier to ignore the problem entirely, but this type of issue doesn’t just go away on its own. Even as a seasoned tax controversy expert, there is a list of “must-dos” that I urge with every new client.
Arm yourself with the knowledge and tools of a tax pro to face an employment tax liability head-on:
1. Never throw money at the problem without a sound strategy – A good resolution is one that is thought out and manageable. Simply dumping money against a back tax liability may not be an effective strategy. It doesn’t produce the consistency of payment expected by the IRS and it may cause other cash flow problems within your business. Resolving an IRS liability requires a sound budget and regular payments.
2. Make filing and paying current taxes a priority – Whatever you do, do the best you can. The more a taxpayer can do by paying as much as possible each time a return is due, the better off the situation will be. In fact, a significant amount of penalty accrues within the first five months of a tax return being due and the IRS requires that a taxpayer establish the ability to maintain future tax payments in order to enter into resolution options. Therefore, ensuring current taxes are paid first is usually the most sensible approach to a liability.
3. Always read, interpret and respond (if necessary) to notices from the IRS – There is arguably no theme more powerful when dealing with the IRS than knowledge is power. The IRS’ collection system relies quite heavily on a mail campaign and as such IRS mail should not go unopened. IRS mail correspondence can tell taxpayers exactly where they stand in the collection process, what risks are upcoming and what appeal rights are available. By failing to open and understand IRS mail, a taxpayer is losing a significant opportunity. If the issue is identifying what to do in response to a notice seek out professional advice.
4. Always maintain control of your business – In the end, the responsibility for a company’s tax liability is going to fall to those that run the business. As early as identifying the problem, business owners need to have an active role in the resolution. It’s difficult for a business owner to wear every hat but employment taxes is one in which error is unaffordable. An owner is ultimately responsible for ensuring that employment taxes are paid and as such shouldn’t delegate the resolution process.
5. Consider options for doing business differently – In many cases the existence of an IRS liability signals a cash flow problem. Certainly, there can be extenuating circumstances that exacerbate the situation, but there is often an underlying theme of not having enough capital. Part of working to resolve a tax liability should be taking a good, hard look at all of the financial aspects of your business including pricing, costs, and other creative solutions. Ask yourself: in what ways can I be doing business different and better?
There are numerous different effective tax resolutions. The key is identifying and qualifying them. As you work towards accomplishing that goal follow this list of what should be done in each case of an employment tax liability in order to put you and your company in a position to keep your doors open and move towards profitability.