Sometimes, tax problems are fairly easy to recognize. But without tax knowledge, experience and acute attention to detail, painful tax issues can cut into your bottom line and have a big impact on your small business.
One company’s owners were the potential victims of such costly problems, but fortunately their local tax consultant caught an issue that could have cost the business $10,000 in tax penalties.
What was the potentially damaging issue, and how did it go unnoticed for so long?
Identifying A Significant Tax Problem
The business employed a part-time bookkeeper who was largely responsible for preparing and filing the company’s federal income tax return, among other tasks.
In 2012, the owners began working with the aforementioned small business and tax advisor. It didn’t take long for their new partner to recognize that the business had some critical issues.
While preparing the business’s return, the tax consultant requested documentation from the company’s bookkeeper regarding payroll tax payments. Oddly, the advisor received no response to his requests. Fearing something was not right, he looked into the previous year’s returns and discover the bookkeeper never paid the business’s tax dues for 2012.
Fixing A $10,000 Problem
When the tax partner discovered this problem, he immediately notified the owners and began preparing the business’s returns. He then re-filed them and made a payment to cover the company’s unpaid dues. The owners immediately let their bookkeeper go.
Unsurprisingly, the IRS had sent notices of tax penalties worth $10,000.
Getting All Tax Penalties Waived
In 2013, the IRS assessed $4.5 billion in payroll tax penalties. These kinds of issues are not uncommon.
The business’s tax consultant wrote a letter to the IRS, explaining the situation and noting that the business made an immediate payment when the issues were discovered. In the end, the IRS waived all penalties against the owners.
In many cases, experienced tax specialists point to a client’s payment history and emphasize all positive facts to state their case with the IRS. But communicating all necessary information isn’t the only factor in getting a positive resolution: It’s critical that you respond to the IRS as soon as possible.
Learning To Handle The Basics On Their Own
After the owners let their bookkeeper go, their partner trained them to take care of basic tax responsibilities. Each month, he would let the owners know what information he needed to ensure the company’s compliance and to maximize profitability.
The owners saved the $275 they were paying each month for the bookkeeping support they no longer needed.
While painful tax problems cut into the profitability of many small businesses, these owners had the support of a partner who helped them avoid penalties that could’ve hurt their cash flow.