Common Small Business IRS Tax Problems – Payroll & More


The average owner of a small business typically reports a loss in their first year of operation. But when the IRS steps in, many first-timers do not even stand a chance. It is important to stay one step ahead of the game when it comes to obeying Tax Laws. Small Business owners need to make sure they avoid the common problems Small Businesses run into with the IRS.

Payroll 941 Penalty

Failing to withhold payroll taxes is the fast track to trouble with the IRS (consequences of not withholding payroll taxes). The penalty for this equals the amount of the taxes that are owed. It is called the 100% Payroll Penalty or “Trust Fund Recovery.” The results of this mishap can be devastating for any Small Business regardless of how successful they are. If you are having issues with payroll taxes, it is possible to resolve these types of taxes, but it may not be easy.

Classifying Workers

It is a little tricky, but it is important to properly classify your Small Business workers. The two classifications are “Employees” and “Independent Contractors.” If Employees are misclassified as Independent Contractors, they would avoid Tax Reporting. This is the same as stealing from the IRS, and the punishments imposed for this are not light. Form 22-8 “Determination of Employee Work Status for Purposes of Federal Income Tax Withholding” will help you determine the important differences between an “Employee” and an “Independent Contractor.”

Overstating Deductions

Knowing and taking advantage of Tax Credits is important if you want your Small Business to survive and thrive. But you can only deduct the cost of items you use for work. This means no deducting expensive vacations, limo rides, or new editions to your house. The deductions you claim must be reasonable and responsible. Additionally, you have to be ready to prove the deducted items are used for work. If a taxpayer is caught making false deductions, they will owe IRS Tax Debt plus penalties and interest. Do not get greedy when it comes to the IRS.

With proper planning and understanding, you can beat the IRS and avoid the Common Problems Small Businesses Encounter. Don’t forget that although there are many issues that come with owning a small business, there are also a few advantages. Do not overlook valuable Tax Credits. Practically everything purchased that goes towards operating your business is Tax Deductible. This means everything from pens and notepads to ovens, delivery trucks, computers, and more.

If you are in need of business tax relief call or fill out the form to connect with IRS and State tax professionals that can help you resolve business tax debt.

Business Solutions & Related Topics

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IRS Trust Fund Recovery Penalty
The trust fund recovery penalty (TFRP) is a strict tax penalty created to encourage businesses to pay their federal withholding taxes in a timely manner

How to Resolve Payroll Taxes
Resolving the issues that arise from being delinquent on Business Payroll Taxes is no easy task. However, in the mid 90s provisions were added to the Taxpayer’s Bill of Rights.

Consequences of Delinquent Business Payroll Taxes
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