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.

Acquiring a Business With Tax Debts

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.

Unpaid Payroll Taxes

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. 

Failure to Deposit Penalty

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.

Payroll Returns and ERC Audits

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. 

In some cases, the agency isn't even auditing suspicious returns. Instead, the agency is reviewing returns internally, and then, it sends out Letter 105-C for fully disallowed credits and 106-C for partially disallowed credits. If your ERC is disallowed, you have just two years to request a refund in court before you lose your chance forever.

Corporate Transparency Act

Staying compliant with the Corporate Transparency Act is critical to avoid severe penalties. If you own a small business, this law requires you to annually report your information as owner to the Financial Crimes Enforcement Network (FinCEN). 

This information includes all beneficial owners’ names, addresses, contact information, and identification documentation. If this information changes, your business has 30 days to file an updated Beneficial Ownership Information (BOI) report. 

ACA Employer Mandate Penalties

The Affordable Care Act includes specific requirements for Applicable Large Employers and the type of health coverage they must provide. If these businesses fail to provide coverage, provide unaffordable coverage, or provide low-quality coverage, they may owe an Employer Shared Responsibility Provision (ERSP). It’s important to know your legal obligations, the consequences you may face for being non-compliant, and strategies for improving compliance.

Failure to File Form 1094 or 1095-C

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. 

Letter 226-J About Shared Responsibility Payments

If you are an applicable large employer (meaning you had 50 or more full-time/full-time equivalent employees last year), you may face the Employer Shared Responsibility Payments if you don't meet certain requirements of the ACA. If the IRS believes your business owes this penalty, they will send you Letter 226-J detailing the proposed penalties. You must respond by the deadline or the penalties will be assessed, and the IRS may take collection action against you.  

Penalties for Misclassifying Employees

The IRS and the Department of Labor have strict guidelines that define the difference between an employee and an independent contractor. However, the rules can be confusing and have a lot of grey areas. If you misclassify an employee either through confusion or on purpose, you can face penalties as well as tax consequences.

Trust Fund Recovery Penalty

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.

IRC 183 IRS Business Hobby Loss Tax Rule

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.

IRS Estimated Quarterly Tax Payments: 1040-ES Guide & Due Dates

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.

IRS Letter 2800C WHC Lock-In Letter to Employer

If the IRS believes that you are not withholding enough tax from your employee's paychecks (based on your employee's W2s and their last filed tax return), they will send you Letter 2800C. This lock-in letter instructs you to increase withholding, and if you don't, you can become personally liable for the income taxes that were not withheld.