Don't overlook these!
Updated for 2012
Tax penalties are not only a waste of money, you can't even deduct them!
If severe enough, tax penalties can even shut you down!
The IRS assesses a variety of penalties for failure to comply with tax reporting and tax payment rules. Some penalties are more severe than others.
For example, if you have employees, you can be subjected to the trust fund recovery penalty. This is among the harshest of penalties. It is 100% of the unpaid taxes!
You are NOT considered an employee of your own business for income tax purposes if you are a sole proprietor, partner, or LLC member (provided no election was made to treat the LLC as a corporation. However, you ARE considered both an employer and employee for retirement plan purposes.
Trust fund taxes are employment-related taxes and include the following:
Make sure you comply with the withholding requirements for these taxes and remit them timely to the U.S. Treasury.
NEVER "borrow" trust fund taxes to make other business expenditures with the intent of replacing these funds.
The IRS takes noncompliance with tax rules, particularly employment tax rules, very seriously and will aggressively enforce the rules.
And, by the way, if an employer files bankruptcy in an attempt to escape paying trust fund taxes, it won't help; they're not dischargeable in bankruptcy.
Moreover, the IRS may burrow deep into the organization to find any individual(s), beyond just the owner(s), it deems legally culpable of violating the trust relationship between the business, the employee(s), and the government for withholding and remitting of trust fund taxes.
This means even the bookkeeper is a potential target!
If you cannot pay the taxes due, at least file your tax returns timely to avoid late filing penalties.
If you fail to comply with the 4 steps mentioned above, there is still hope.
NOTE: The passing of the American Jobs Creation Act in 2004 made substantial additions in penalties relating to reportable transactions.
If you know you're going to be late filing a return or paying your taxes, you can either:
1) Letting the IRS figure your penalty
Of course, the longer you take to pay a penalty, the more you will end up paying.
2) Determining the penalty yourself
Penalties and interest are based on the balance of the tax due and the time it takes you pay the tax and/or file a return.
You can minimize the amount of the penalty if you determine it yourself and send it in quickly rather than waiting for the IRS to figure it out and send you a bill.
In order to avoid having to pay IRS Tax Penalties on your debt, or to have them refunded back to you, you need to prepare a Penalty Abatement Request.
If you can show reasonable cause for not paying the taxes and that you have shown due diligence and did not neglect to pay the debt, you have a good chance at getting some or all of your penalties rebated.
Appeals may remove (abate) your penalty(s) for any of the following reasons:
Copyright © 2008-2013 Larry Villano. All rights reserved.