Business Tax Problems, Filings, and Considerations
Business taxes have many complexities. Failing to understand the various tax laws regarding business can lead to some serious tax problems with the IRS and/or state. Here are some of the most common tax problems and tax considerations to stay in good standing with tax authorities.
If you buy a business that owes taxes, you may end up being responsible for the unpaid tax liability. To protect yourself, you need to do due diligence. You also need to understand when the buyer is liable and when the tax debt stays with the seller.
If your business has unpaid payroll taxes or is behind on employment taxes, acting quickly to resolve the situation can save your business from additional penalties and interest, and also prevent the IRS from issuing a Trust Fund Recovery Penalty whereby the business owner and those responsible can be held personally liable. Remember, many states and the IRS consider it stealing since the business was collecting taxes on behalf of their employees. Hence, the IRS prioritizes back payroll taxes over other types of taxes such as income taxes. Understand what payroll taxes encompass, why having unpaid payroll taxes can be a major issue, and what are some resolution options available to businesses.
The IRS requires employers to withhold taxes from your employee’s paychecks. If you don’t periodically deposit these amounts to the United States Treasury, the IRS will charge a failure-to-deposit penalty (FTD). Use the link above to understand the FTD penalty, as well as when and how the IRS assesses it.
The IRS can audit payroll returns, just as it audits personal or corporate income tax returns. If you're selected for an audit, you will need to verify the information on your payroll tax return. In particular, the IRS audits payroll returns that claim employee retention credits (ERC) at high rates. The ERC was a credit designed to help businesses that employed people through the COVID pandemic, but due to the rise of aggressive ERC mills, it has been falsely claimed many times. That's why the IRS is more likely to audit these returns.
Form 1094 or 1095-C is a form that is used to report information about an individual's health insurance coverage. This form is used by employers to report information to the IRS about the health insurance coverage they offer to their employees. The information reported on this form is used to determine whether an individual is eligible for a tax credit or subsidy for their health insurance coverage. If your business does not file Form 1094 or 1095-C, you may be subject to a penalty. Understand what happens and what to do as a business if you fail to file Form 1094/1095-C.
When you have employees, you withhold their Medicare and Social Security contributions from their checks, and in most cases, you also withhold some income tax. The IRS classifies these withholdings as trust fund taxes. Here is how trust fund taxes work, who is responsible, what if the IRS assesses a trust fund recovery penalty and how to resolve issues with trust fund taxes.
- IRS Letter 1153 and Form 2751: There are two key forms related to the Trust Fund Recovery Penalty. They are Letter 1153 and Form 2751. Understand what these mean and what actions you need to take with them.
- Form 4180 Interview for the Trust Fund Recovery Penalty: If you can’t get out of the 4180 interview, you need to prepare for what’s going to happen. Understand the purpose of the meeting and if it is something you should likely avoid.
- How to Avoid the 4180 Trust Fund Recovery Penalty: If the IRS believes you are the responsible one for the trust fund taxes, the agency will request an interview with you. This interview can be very stressful, but there are a few ways to avoid it.
If you have an income-generating hobby, you need to understand a few basics. IRC Section 183 is specific in what the IRS considers a business and a hobby. Understand the difference so you know what you can deduct as expenses and how much depending upon the classification.
The IRS requires some pass-through entities to make estimated quarterly tax payments. This guide will go through the details on who must make estimated tax payments, how to calculate the payment amount, options to pay the amount owed, and due dates for the payments.