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Mind your payroll tax obligations

July 10, 2009

It's a good bet that more businesses fail because of failure to pay payroll taxes than for any other tax-related reason. When cash is tight, it's tempting to put off the IRS to pay that howling vendor. For many businesses, it's a fatal mistake.

When you start a new business the IRS will tell you how frequently you should pay your payroll taxes when they assign your tax identification number. They will update your payment schedule based on the size of your payroll remittances. Keep up with your schedule religiously. If the IRS requires electronic payment for your business, pay electronically; the IRS will penalize you for paying the right amount if you pay it the wrong way.

IRS payroll tax penalties start at 2% for taxes paid as little as one day late and quickly reach 15%. Of course the IRS also charges interest on late payments. And if the business goes under before you pay the payroll taxes, any "responsible person" who fails to remit payroll taxes - whether or not an owner - may be assessed the entire amount of unpaid taxes. The states are no more forgiving.

Many taxpayers outsource their payroll tax obligations to a payroll service. That may well be a wise expenditure, saving you time to grow your business. Even so, you can't outsource your responsibility for payroll taxes. Be sure to sign up for EFTPS, the Electronic Federal Tax Payment System; this will enable you to check online to see whether your provider is remitting your payroll taxes on schedule.

Next: Federal Income Taxes

While the Tax Update takes its summer vacation, we are serializing my chapter in "How Business Gets Done: Words of Wisdom by Central Iowa Experts." You can buy your own copy at Lulu.com by clicking on the link.

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