If you own a small business, you may have been put in a position where you don’t have enough money to cover your entire gross payroll. Whether it’s because your largest account didn’t pay on time, there was a downturn in the industry or you simply didn’t foresee this cash problem early enough, it is a situation that there’s no easy answer for.
When you’re faced with this situation, what should you do? Go to your employees and ask them to hold your check? If you want to keep your employees, probably not. Get short term financing? Beg, borrow or steal?
Most of the time there is no good answer. Employees need and deserve to get paid and paid on time. What happens the majority of the time is that the net payroll is met and withholding taxes go unpaid. Obviously, this is costly. The IRS will charge a late payment penalty and interest that exacerbate the problem. When the quarterly 941 tax return becomes due, many people decide against filing it with a balance due for the previous quarter’s liability, generating another penalty for failure to file timely.
All of this snowballs and before you realize it, there is a significant payroll tax problem on your hands. If you are in this situation, it’s time to act now. Contact us today and find a solution that will end this.
To learn more about business payroll tax problems, click here.
Let’s start by saying you have a business tax liability with the IRS. After you have begun making your current deposits and filed all of your back tax returns, it becomes time to focus on the debt.
Now, let’s take a look at how the IRS views this exact situation:
- A: Do you have assets (liquid or illiquid) to pay the debt? In other words, do you have the cash or something that you can sell for cash to write the IRS a check? Probably not, but that’s the first thing it will look at.
- B: Do you have the cash flow to pay back the debt over time? What does the businesses’ cash flow look like? This is what the IRS will evaluate to determine if you can afford an Installment Agreement (Payment Plan).
You may be curious as to how the IRS knows these things about your business. For starters, it will ask you for a financial statement and require that the statement be submitted on one of its standard forms. In this particular case, Form 433 B: Collection Information Statement for Businesses, would be requested. This form is what the IRS will use to determine how much and how fast you can pay it back.
It’s very important to be accurate when filling out this form because it will back up any statements you make to the IRS about how much you can afford to pay. If your financial statement overstates your cash flow and / or assets, you guessed it, the IRS will ask you to pay back more than you can actually afford. If you understate your cash flow and / or assets, the IRS will think that your business is insolvent.
The bottom line: don’t view the task of filling out one of these forms as something that is merely a formality and fail to put the proper attention towards this essential task. Completing these forms without mistakes is a very important part of the negotiating process.
Once you’ve taken the first step and hired a representative to help you negotiate your tax debt, he or she should conduct a thorough examination of your financial situation before proceeding with a set resolution strategy.
At 20/20 Tax Resolution, this initial examination begins immediately after you hire us. Your representative will schedule a conference call with you and anyone else that you’d like to be involved (CPA, Attorney, significant other, etc.) to discuss your current financial situation as well as your expectations for a resolution. During this conversation, your 20/20 representative will ask you questions about you or your businesses financial condition so that he or she can assess the correct strategy for your situation. Additionally, your representative will be able to understand the desired outcome(s) that you expect during your relationship with our firm.
Keep in mind, any authorized representative can propose a cookie cutter resolution strategy based on your financial state. However, at 20/20 Tax Resolution we strive to understand what our clients need and want out of the relationship while simultaneously addressing any concerns.
The reality is: every situation is different. Some clients are worried about the IRS taking aggressive action, while others have had a history of dealing with aggressive action and are not necessarily worried about the threat of a levy. There are clients who are looking for additional time in order to file their returns, and there are those that want a resolution on the debt immediately through a payment plan or compromise.
At 20/20 Tax Resolution we take the time to understand your entire tax debt situation, not just the black and white reality of numbers on a page. We pride ourselves on this personalized approach and hope that within the first 24 hours of our representation you are able to see that clearly.
As soon as you make the decision to hire someone to represent you in from of the IRS or state, things should start to more pretty quickly if you’ve brought on an experienced and reliable representative.
The very first thing any representative should do when working on a case is to get a signed Power of Attorney (POA) over to the IRS. This allows the representative to contact the IRS on your behalf and discuss your situation with whomever is in control of the case – whether it be Automated Collections or a Revenue Officer. One major thing to note is that many companies pre-populate a Power of Attorney form for you to sign even before you decide to hire them. This is a big no-no. Ultimately you will have an individual who is licensed at that company represent you, but if you receive a blank Power of Attorney, you will not know who your representative is until after they have signed the form. You should always be the last one to sign a Power of Attorney so that you know what tax periods the document covers and who your representative is.
If you hired a representative and you haven’t received a signed Power of Attorney with the tax periods indicated on the first page within the first 24-48 hours after your decision, you may want to rethink who you want representing you.
The moment a tax issue is brought to your attention, you begin to notice the television ads. And if you’ve had a state or federal tax lien, you definitely have received phone calls with offers to help you resolve your tax debt situation.
What’s important to note is that you can tell a lot about a company and their ability to represent you by asking these two simple questions during that first call:
Question 1: Are you yourself licensed to practice before the IRS?
If you are talking to a company about your tax liability and their representative is diagnosing your situation and describing what they’ll do to help you, wouldn’t you think they would have the proper credentials to negotiate your liability themselves? Unfortunately, the majority of the individuals you speak with are unlicensed, commission based salespersons. Think of it like this: would you get a medical diagnosis from anyone other than a licensed medical practitioner? Probably not. Keep in mind that the consultants at 20/20 Tax Resolution are licensed Enrolled Agents, so you know the advice you are receiving on that initial phone call is correct.
Question 2: Does it cost money to evaluate my case?
Many companies that advertise on television are paying you for information when you respond to their ad. This means they need to recoup that money whether you hire them or not. There are some companies that charge a large fee just to speak with a consultant. In many cases, you end up paying an unlicensed salesperson to simply tell you what they can do for you – which may or may not be accurate information. Remember, all initial consultations at 20/20 Tax Resolution are completed free of charge.
We understand that the world of tax resolution can be incredibly confusing, but if you’d like to hire a tax resolution company you can easily weed out many by asking these upfront questions. At the end of the day, if they aren’t licensed and it costs money to speak to them, think twice about proceeding.
If you are a business owner or an individual with tax debt, there are many thoughts running through your head. What will the Taxing Authority do if I don’t pay this back? Should I file my return with a balance due? Will my receivables pay me in time for payroll? Should I pay this year’s taxes or last year’s balance? And that’s just the beginning.
Take a step back and imagine you are in a rowboat in the middle of a lake and the hull springs a leak. Water is flowing in and panic begins
to ensue. Fortunately you have a bucket and a repair kit to stop the leak. The following question then presents itself: should you begin to bail water with the bucket or try to plug the leak with the tools in your kit? What is obvious to most people is that the leak needs to stop before you begin bailing out the water. Unfortunately, when you think of this situation in terms of resolving a tax debt, people tend to reach for their bucket first.
Now, think of the water as your tax debt. Each month, more and more debt accrues, and with it accrues penalties and interest. However, you also have received tax bills from last year showing an amount due, along with scary language about levies or garnishments if that bill is not paid within a certain time frame. While the temptation would be to pay the bill with the unnerving language, don’t. Instead, concentrate on the leak – your current taxes. Without paying your current tax obligation, the Taxing Authorities will not entertain any sort of payment plan when it comes to your back tax liability. Also, with the penalties and interest that accrue with the new liability, it will be very difficult to catch up.
The moral of the story? Once you’ve stopped the leak in the boat and your taxes are current, then you can focus your attention on your back taxes and start bailing water.