The myth most business owners believe: There are really two things that many business owners do that can, and often do, lead to a visit to the bankruptcy attorney. First, they hire an employee but they either ignore the filing and paying of their payroll taxes, or they hire someone to do it and never check to ensure that everything is being done correctly.
The second serious mistake many business owners make is to delay paying their payroll taxes when they are short of cash.
Why this myth causes a problem: You, as the business owner, are personally responsible for any unpaid 941 taxes – even if your business is a corporation! So if you are not personally reviewing that your returns and payments are done correctly, you are putting your business's survival into someone else’s hands.
When a business owner “borrows” from their payroll tax returns, they are driving straight into quicksand. This leads to high penalties that can often add up to 50 percent to the original taxes. Since the business owner is short of cash, the ability to "borrow" from the IRS allows them to ignore the real underlying problem that is causing them to be short of cash. Until they address that real problem, they will continue “borrowing” from the IRS until the IRS closes the business down.
The truth successful business owners learn the hard way! Experienced business owners know that they must take personal responsibility for making sure that payroll tax returns are filed and paid correctly and on time. They do this by:
- Electronically paying their 941 taxes online after every payroll. Those companies that pay their 941 deposits after every payroll, even if they are not due, never get into trouble.
- The owner checks that the 941 taxes are paid every pay period. Even if you outsource the preparation of your payroll, you must check that they are paying the taxes to the IRS. There have been many cases where the taxes were taken out by the payroll company but not paid to the IRS. The owners have been held responsible even though they had already paid them. You can do this easily now by signing in to the EFTPS system yourself and checking that the payments are made.
- Outsource the preparation of the payroll returns and W-2s to an expert. I have seen too many times where a business owner tried to save money by preparing required payroll reports themselves or by trusting their bookkeeper. Many of them have ended up paying penalties for errors they have made that were many times the price of hiring an expert.
Lesson learned: DON’T MESS WITH TAXES! (Bad pun intended.) You, as the business owner, must make sure that your payroll tax returns are filed and paid correctly and on time.