The biggest thrill wasn’t in winning on Sunday but in meeting the payroll on Monday. — Art Rooney, Pittsburgh Steelers’ founding owner
Many of you liked last Thursday’s list of reasons as to why some folks “cannot” pay their taxes.
With mid-April upon us, I saved this installment for today because it deserves its own entry: Payroll Taxes.
The key is that income tax is paid on a yearly or quarterly basis if you are required to make quarterly payments. This differs heavily from payroll tax, which is bi-weekly or monthly, depending on your situation with the federal government and the state.
Those who cannot pay their payroll taxes have four common reasons:
- They try to do it themselves.
- No money.
- Total lack of funds.
- Depleted bank accounts.
The basic problem is that the Bank of the United States was dissolved by Andrew Jackson, and the Feds aren’t in the habit of making loans.
Tackling #1: Hire the Specialists to Specialize
Years ago when I first started hiring employees I considered handling the payroll myself, since I had the appropriate background. My associate rightfully looked at me like I had two heads. It was a terrible idea. For a few hundred bucks a month we hired someone else to handle the payroll. Why waste the time? Why expose yourself? You’re in business to do your business, and unless that involves payroll services, find someone you trust and write a check. Even with my degrees in tax and business, I still to this day would not mess around with it.
I can see where some owners think that handling it themselves is a cost-saving measure and they would be wrong, because the time and effort is not worth the funds you’d save. It’s money well-spent. When you screw it up, you may incur a 50% penalty.
Many who have tried to be the tax auteur have eventually have come to Brinen & Associates for help, and we do help them.
Tackling #2: Payroll’s Golden Rule
The Kovel Rule (which oftentimes comes in the form of a letter) gives us the opportunity to fix the problems while partnering up with an outside firm — typically a tax or accounting firm. It allows CPAs or enrolled agents to handle the case under the supervision and license of the attorney. If an enrolled agent at a tax firm does it directly, the Internal Revenue Service may sweat him/her for information. Under Kovel, the scenario is deemed in preparation of litigation; the Internal Revenue Service acknowledges this dynamic, and that the work is privileged.
All this helps us assess the situation much better.
Tackling #3: Get On A Plan
When it comes to payroll tax violations, you can bet your bottom dollar — literally — that the feds are on their way for you. These are not sympathetic IRS officers.
Getting on to a payroll company’s system and begin your payment plan to set this straight. Or you can cut some expenses. Every business has different needs, so it may be time to review them to see what funds you can free up.
Tackling #4: Another Real Strategy
The best move is to go for an offer in compromise while you are on a payment plan. This will give the Internal Revenue Service reason to assess a responsible person penalty. Hopefully you’ll be seen as someone who made a mistake and wasn’t knowingly withholding your employees’ money. Because ultimately, that’s what this is all about — other people’s money.
If you don’t pay the taxes, or at least attempt to, the Internal Revenue Service or the various states will do things to you. Bad things. Filthy things. I could go into more graphic detail but let’s just say they’ll make you squeal like a pig, “Deliverance”-style. For my younger readers, I had “Pulp Fiction” and “Oz” references lined up, but by now you’ve Googled my first reference, so you should get the idea.
Contact Brinen & Associates to discuss payroll tax issues and we’ll see how we can present you as a responsible person.