Small Business IRS Tax Problems

IRS Tax Problems that are Common Small Business – Payroll and More

On average, a small business owner will report a loss within their first full operation year. However, when the IRS becomes involved, many new small business owners are not able to fight them. It is necessary to remain ahead of the IRS game and maintain a complete understanding of tax laws and how to obey them. Understanding the law is vital to avoiding common pitfalls associated with small businesses and their run-ins with the IRS.


Payroll 941 penalty

If you are looking to get on a fast track to an IRS audit, all you need to do is commit failure to withhold payroll taxes. The penalty faced by the small business owner is in the amount that is equal to the taxes owed. This is often known as “Trust Fund Recovery” or 100% payroll penalty. No matter how successful a small business may be, this penalty and the following results could prove to be devastating. If you currently have difficulties when trying to deal with payroll taxes, there are possible ways to resolve the taxes, but it is not always easy.


Classifying workers

All employees in your small business need to be classified, no matter how difficult it might be. The two classifications offered are “independent contractors” and “employees.” If you misclassify an employee as an independent contractor, they avoid tax reporting, which is considered unlawfully taking money from the IRS. The punishments in this scenario are not good. To assist you in determining the differences between what the IRS considers an “independent contractor” and an “employee,” you can read form 22-8, entitled “Determination of Employee Work Status for Purposes of Federal Income Tax Withholding.”


Overstating deductions

Everyone wants their small business to thrive and understanding tax credits and how to take advantage of it, is necessary. However, with tax credits, you are only allowed to subtract the cost of things utilized for work purposes. As a small business owner, you cannot deduct limo rides, expensive vacations, or new construction to your home, even if you try to write it off as a work related purchase. All deductions must be responsible and reasonable for them to count. You will also have to prove to the IRS that the items you listed as deductions were, in fact, used for work purposes. If a small business owner is found to be making false deduction, they will have to pay the IRS Tax Debt plus any interest and penalties. It is to prove that you cannot be greedy when dealing with the IRS.


To avoid common problems encountered by small businesses, just have the right planning and understanding of different tax laws. Yes, there can be issues that arise when running a small business, but the IRS does allot a few benefits as well. Tax Credits allows you to put everything you purchased to business operations on a list of tax deductible items. This includes everything from the big items to even pads of paper, boxes of pens, and paperclips.


For individuals requesting business tax assistance, we offer a complete qualified service of professional state tax and IRS specialists to assist you in resolving any business tax debt you have incurred.

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