“When I incorporated my business, I received a letter listing the tax responsibility for the new corporation.”
WRONG………..In the past twelve years not one of my clients has ever received a “Welcome to the World of Tax” letter from any taxing agency.
No one ever gives you this information before or when you open your business, “Remember to file and pay: employment taxes quarterly, sales tax quarterly and corporate tax annually”. If you don’t pay, you will get a penalty and then interest will accrue daily from the time you were supposed to pay or file. Owing the IRS, or any government agency, is expensive and sometimes detrimental.
Tax liabilities occur long before you get that first “Demand for Payment” Letter. Here are five things you should address immediately to keep you out of trouble.
1. Determine the company’s tax responsibilities.
If you are selling products and certain services, then you may be responsible for collecting and remitting sales taxes on behalf of the taxing authority. If you have employees, withholding taxes are a must. Corporate taxes are filed annually. Determine if your state and county/town has a corporate or business tax return requirement; file and pay them. Ignorance of the law is no excuse.
2. Hire an accountant.
Businesses hire accountants to file their tax returns when they are due; and, sometimes after they are due. Tax liabilities are due on the filing due date. If the business lacks the funds to pay the liability, then the business’ tax risk exposure increases. The amount owed increases once the taxing agencies impose penalties and interest. Hiring a tax professional who provides a tax plan to avoid these situations will be well worth it.
3. If you receive a notice from a taxing authority, “OPEN IT AND RESPOND TO IT”.
Once a tax liability or a questionable tax return exists, the taxing authority will contact you via snail mail. It is important that correspondences from these agencies are opened as soon as they are received. It may be a request for additional information, or the authority may be asking how you intend to pay your outstanding liability. Either way, not responding can lead to liens and eventually levies being imposed. Business financing is near impossible with a lien, and levies results in reduced cash flow.
4. If you owe, request an installment agreement.
Most lending companies will not approve financing for a business with tax liens against them or their owners. Some taxing agencies will not file a lien if you set up an installment agreement within the first month of the initial contact. That is one way to settle a tax liability without jeopardizing a business’s financial viability.
5. Hire a reputable company to tend to your tax needs.
If all else fails or if you are unable to resolve your tax problems, then hire a reputable tax professional to negotiate with the taxing authority on your behalf. Enrolled Agents (EA), Certified Public Accountants (CPA’s), and Attorneys are professionals who can legally represent anyone before a taxing agency. However, before engaging one of these professionals, do your research as you are handing over one of the most important cases of your life to them. Look for knowledge, experience and integrity when interviewing a professional.