When it comes to taxes, very few people are excited about paying them. From the rates, to the paperwork to the time and hassle, it is simply not something most of us like to deal with. For the small business owner the issues are multiplied. In addition to personal income tax, a business owner is faced with filing and paying income taxes, sales taxes, and payroll taxes for the business.
Unfortunately, failure to properly manage taxes has been a downfall for too many small business owners. From failing to file all necessary returns, failure to file returns properly, and failure to make prompt payments, many business owners find themselves in positions which put not only their business’s financial health, but also their personal financial health at risk. And while we all know taxes are unavoidable, too many business owners procrastinate and delay addressing problems while still manageable. They wait too long and the situation becomes dire.
But there are many things business owners can do to make it easier to manage their taxes.
1) Utilize a payroll service
Most small business owners didn’t go in to business hoping for an opportunity to do accounting, let alone payroll accounting. Additionally, withholding taxes is one area in which the law will allow the Internal Revenue Service to pierce the corporate veil and pursue the business owner for any unpaid liabilities. A qualified payroll service will not only free up the business owner to spend time on their core business, they will ensure that returns are filed promptly and payments made when due. Because the payroll service will take the necessary taxes when taking the funds to pay employees, the business owner knows the funds have been set aside without having to do so themselves. In the event of an error, a qualified payroll service is responsible for correcting the issues with the agency involved.
2) Escrow your tax payments
One of the simplest things a business can do to ensure tax compliance is to escrow funds for payment. By simply setting up bank accounts outside the main operating accounts to hold the funds, a disciplined business owner can avoid coming up short when it is time to make a deposit. One strategy is to escrow payroll taxes as employees are paid and to escrow sales and liquor taxes on a weekly basis. By segregating the funds a business owner can better manage their day to day cash flow while also preparing for future obligations.
3) File returns promptly
Many times when a business owner is concerned they will not be able to pay taxes due they simply fail to file the return. This only makes a bad situation worse. By failing to file not only will the unpaid taxes accrue interest, but also penalties will be added to the balance. The amount that is eventually paid will be much larger, and this larger balance can increase the priority level at the agency.
4) Don’t ignore tax notices
When your business receives a notice from any taxing agency it is important to deal with the situation promptly. A business owner who is working with the agency to resolve an issue is more likely to reach an amicable solution than one who fails to open a dialog. By nipping the problem in the bud it may be possible to avoid liens and levies, as well as to implement a payment plan that is achievable. On the contrary, ignoring the notices may increase the likelihood of more aggressive actions and necessitate a plan with large, hard to make payments.
5) Get help
Regardless of the situation, when the problems escalate it is best to have someone with experience to help you work through them. Ideally, it is best to use an individual or firm that specializes in resolving tax issues. While it may be tempting to go it alone or stick with your accountant, there is value in working with someone who deals with the agencies, the legal issues, and the necessary documentation on a daily basis. Tax resolution is a very specialized area, and just as one wouldn’t want a General Practitioner to perform open heart surgery, it may be best to utilize an expert to help you evaluate the issues and come to a resolution.
Taxes can be one of the least enjoyable aspects of being a small business owner, but managing taxes properly is a key to running a successful and healthy business. Whether you are paying sales and use tax, liquor tax, withholding taxes, or income taxes, failure to manage the process and payments can ruin any small business, and often results in serious consequences for the business owner. Utilizing these 5 tactics can assist you in keeping your business healthy, and reducing your tax related stress.