Importance Of Payroll Tax Compliance For Business Owners
In simple terms, payroll taxes are defined as the federal and state taxes that an employer is required to withhold and pay to the government on behalf of the employees. An employer is required to withhold federal and state income taxes along with Medicare taxes and Social Security. It’s a non-core function for most businesses and this is the reason experts recommend outsourcing payroll functions in order to reduce costs and risks. Here is a list of some of the reason why small businesses need to be extra cautious on payroll.
IRS has identified small business owners as the biggest source of uncollected taxes and they are increasingly the target of increased tax compliance enforcement. Many small business owners do not realize that there are huge penalties involved with past due payroll taxes. The IRS officers have unyielding power for collecting payroll tax.
Keep in mind that the IRS officers can put you out of business and padlock the front doors in case they identify your business has not paid its share of taxes. In addition, the IRS officers have the power to seize the machinery and equipment of the business in order to collect any past due taxes. Also, the IRS officers can get in touch with your customers to intercept any funds in case your customers owe any money to your business.
There are huge tax penalties on past due taxes and it can lead to huge tax debt. The total tax cost for a business is huge in case penalties are levied by the IRS. It doesn’t matter whether you operate your business as a LLC, a corporation or as a sole proprietorship, these taxes are unavoidable and can make you lose your business. Some of the major penalties that a business can be hit with include failure to pay, failure to deposit or failure to file and these penalties can add up to 33% plus interest.
If the taxes are not paid are filed on time, it may be considered a federal crime. The matter may be referred to the Department of Justice in case it is proved that a business has intentionally not paid or filed their returns. It has also been observed that many small businesses tend to use the money collected from taxes for their day-to-day operating expenses. Keep in mind that any money withheld by a business for paying federal taxes, Social Security or other such things needs to be paid to the government. Also, business owners are not safe in case they owe any taxes as IRS officers have the power to come after business owners to recover the taxes.
There are several advantages of outsourcing your payroll taxes to a specialist. One of the biggest advantages is that it allows you to focus on your core business. When you outsource your payroll function to a reputed and experienced company, like Vitale & Associates, you also get access to their expertise as well as technology. There are extremely complex laws that a small business needs to adhere to and the laws are increasingly becoming more complex. Needless to say, a small business owner often does not have the expertise or technology to ensure compliance with varied tax laws. Therefore, small businesses can cut down on risks by outsourcing their payroll function.
IRS has reported that around 40% small businesses pay an average penalty in excess of USD 800 each year for incorrect or late filings. By outsourcing your payroll function, you can reduce costs and risk associated with incorrect or late filings. The best way to ensure compliance is to partner with a reputable tax accounting firm in order to make sure your taxes are filed on time and you get more time to focus on your core business.