Business Taxes: How to Avoid Trouble With The IRS
Only the government can throw you in jail when you don’t pay them and so it’s a no-brainer that managing your tax affairs is a crucial thing. Unfortunately taxes and the complicated dealings of the IRS are often beyond the understanding of us mere mortals—even those among us that have some modicum of business nous. That’s the bad news; the good news is that there is no end to the availability of qualified and very experienced tax professionals to help you sort it all out.
This article will act as a start point. In it we’ll cover the ins and outs of:
- Tax tracking
- Dispute resolution
… And a few other important things, so let’s get right into it.
Keeping Track Of Things
Taxes are one of those expenses that have a degree of predictability to them. The rates are usually well established and although they vary from state to state, the income expectations of your business is a sound measure of what your tax liability will be, come tax-time. If you have an internal accounting department or an external one, the financial reports that are generated are a good source of information in working out tax liability. Some states will allow for deferred taxes but this should not be the cornerstone of your tax planning. Always assume that you’ll have to pay something at the end of the tax year and make provisions for that amount. It’ll be an estimate for sure, but you can always hedge against problems by overestimating your tax liability.
Managing Payment Schedules
Businesses and professional have the advantage of knowing exactly when their taxes will be due. As such, there is really no excuse for being late. The IRS will almost certainly make a big deal about it and even when penal sanctions are not administered, fines are a frequent part of the equation. So, the mantra is “pay your taxes on time”. The IRS and other state tax agencies will have a raft of fees that are associated with late payments and overdue amounts. On the flipside, some states will reward early payments by offering discounts on outstanding amounts. It means therefore that where this benefit accrues to you, taking advantage of is very important. Not only will it help with cash flow (the lifeline of any businesses), it will help build up a solid reputation with these agencies. Tax authorities quite often base their enforcement upon reputation; the more compliant you are, the more room you’ll have for negotiation during lean times.
Resolving Disputes With The IRS
Your relationship with the IRS is a necessary one but unfortunately it’s not a relationship that always goes smoothly. Quite often the issue lies with ‘how much’ you (or your accountant) think is liable for taxation and the amount that the IRS or state tax authority say is due. It’s a constant battle. Fortunately there are always ways to resolve these issues and although the IRS may appear to have an iron fist in working out what is tax-allowable, the logic and practicality is more or less sound.
Another issue that may arise is the lack of cash on your part to meet the tax obligations as they fall due. If this happens, it’s important to deal with things straight on. Burying your head under the sand is never a good idea and that $2,000 tax bill that you think will go away could end up being a $20,000 tax bill. If you know and base on your estimates on the fact that you may not have enough cash to pay the IRS, get in touch with them. They’ll more often than not work with you to make payments with things such as payments plans.
Managing Employee Deductions
If you own and operate a business that employs people, you won’t be able to avoid the additional tax layer of employee tax deductions. These will have to be deducted and paid over to the government at set intervals. Having a robust accounting system is key in managing these deductions; failure at this level can be catastrophic. The tax authorities treat taxes collected from employees with a tad differently from the money your business will owe from generated profits. Having a robust system of accounting will also help in sifting through the maze of employee health benefits and employer-matched tax deductions that arise over the course of the tax year.
Prevention Is Better Than Cure
The single best way to avoid any problems at all is of course not doing all of this on your own. As I mention at the start of this article, there is no end to the availability of tax professionals that can help you navigate the tax labyrinth. These tax professionals are not only focused on working out how much you owe, they also give advice and help with regards to reducing the tax bill. You’ll find that your dealings with the IRS will be smoother, stress-free and devoid of hiccups. The end result being of course, more time to concentrate on growing your business.