The “Big Three” keys to compliance with the IRS if you are a small business owner
Whether you’re currently in compliance with the IRS and want to make sure and stay that way, you are currently in an installment plan and need to ensure you’re compliant and don’t default on a payment, or have just finished paying off a debt or penalty to the IRS and never want to go through it again, here are the “Big Three” items to keep in mind:
- File all tax returns
- Keep returns up-to-date and accurate for the most recent year due.
- The largest “red flag” for the IRS is a failure to file taxes.
- Also, willful failure to file taxes may result in severe penalties.
- Depending on your entity classification and business activity, you need to file, pay and send certain information throughout the year. This may include 1040, 1120, 1120S, 1065, 1099, 940, 941, W-2 and other employer and personal tax and information returns.
- Stay current on all estimated taxes
- And make sure to pay them.
- If you don’t have the full amount available, pay as much as you can.
- Interest and penalties will begin to add up quickly in addition to the unpaid taxes. These are usually due quarterly and are remitted on a 1040ES or 1120W.
- Remit payroll taxes
- Do this consistently and in a timely manner.
- These include state payroll and mandatory taxes in addition to 940 and 941 withholding taxes. In some cases these are due within hours after you pay a payroll.
- It is best to use a reputable payroll service and have them remit the taxes for you. Note, you will still need to have the cash available at the time you pay your payroll.
If you are doing all three of these, you are setting yourself up to be in good standing with the IRS. The takeaway rule is your financial statements and tax paperwork needs to be up-to-date and accurate. Most importantly, your personal and business activities can’t be undermining the IRS. Remember the IRS doesn’t want to levy your house. They would much prefer if you - and everyone - paid all their taxes on time.
If you think about the IRS’s penalty structure, it’s built to encourage compliance from taxpayers - failure to file penalties, failure to pay penalties, estimated tax penalties - you must pay income tax when income is earned.
Putting It All Together
Like anything else, having the knowledge - but also setting up the structures, processes and good habits - will make you successful in that area. Here are some common things people tell us:
- “I’m not a tax person, I didn’t know I was supposed to submit my estimated business taxes each quarter.”
- “I’m not an accountant, I don’t know the best way to set up a payroll system for more than one type of employee.”
- “I know I’m supposed to do that, but I was slammed and I just didn’t get around to it for the last few months and now I’m behind.”
- “I know how to do the paperwork, but it takes time away from what I really want to be doing in my business.”
If any of this sounds like you, it’s completely understandable, they sound like me. And these tasks may very well NOT be the best use of your time depending on the situation.
Make the decision for yourself and make the best decision for your business about how to stay in compliance with the IRS.
If you need a helping hand, Safe Harbor can show you how to do any of the Big Three or do it for you. We can do a one-time clean-up of back taxes, setup a new bookkeeping system and show you how to use it (we can show you once or stick with you for a few months - we know it may take a while to get the hang of it), or we can take on everything on an ongoing basis so you don’t have to think about it and you can focus on the things that matter most to you.
If you just want to talk with a professional and get some best practice recommendations and tips and tricks, we’d love to support you with a consulting call.