Buying time on small-business taxes
When it comes to small-business taxes, you have to pay the piper. But there are ways to delay the big bill.
By Elizabeth Blackwell, TheStreet
Small-business owners are going over their 2009 financial records with various levels of dismay. Most are counting every penny. Yes, the economy seems to be picking up (gradually), and revenue may have stabilized (somewhat). But that doesn't make the looming tax bills any easier to pay.
Which leads some to wonder: Is there a way to postpone the blow? Given that so many businesses are struggling, might the Internal Revenue Service be willing to make a deal?
First, the good news: If you're in really dire straits, you can buy yourself time by delaying certain payments. If you act in good faith and follow the correct procedures, that might be enough to get you through a bad patch.
But there's no way to avoid the inevitable result. At some point, now or later, you will have to pay those taxes. No matter how hard-hit your industry has been by the recession, the IRS isn't giving anyone a break.
One miniscule upside to an economic crisis is that income taxes fall along with revenue. Many companies will find their income-tax bills dramatically lower than in years past. But if paying even those lower amounts is a struggle, companies can apply for an extension to file, just as individual taxpayers do.
Just remember that you're getting an extension to file tax forms, not a free pass on payments. If you don't pay your estimated tax by April 15, be prepared to incur penalties and interest on the amount due.
Delaying payroll taxes is even harder and comes with its own risks for owners and their companies. "As an employer, you have a fiduciary responsibility to withhold your employees' share of Social Security, Medicare and federal income taxes," says Doug Cates, a partner at the accounting firm Cherry, Bekaert & Holland and leader of its Owner Managed Business group. "The employer is acting as the trustee of a trust fund."
Given that fiduciary role, you can rack up penalties and interest of up to 25% a month on the amount owed if you don't pay those taxes on time. Even worse, the taxes are not dismissible in a bankruptcy, meaning the IRS can collect directly from an owner or an employee considered a "responsible party" (which could mean simply that they had the authority to sign paychecks).
"Because of the high carrying costs as well the liability issues, you never tell an owner not to pay their payroll taxes," Cates says.
If you need a temporary reprieve, the IRS does allow payroll taxes to be paid on an installment basis, usually for a period of between one and two years. Keep in mind, though, that you're only buying yourself some time for the amount past due. You have to stay current with payroll taxes going forward. Signing an installment agreement also means putting up your company's assets as security.
"The IRS collection division is generally easy to work with," Cates says. But you'll be in much better shape if you take the initiative and ask for help: "If you know you're getting behind, you want to contact them before they contact you."
The key is to be upfront. If you come to the IRS with the problem, it will more than likely work with you to solve it. But taxes can only be delayed, not forgiven. And whatever payment plan you sign up for will cost you more in the long run.
Still, that's a sacrifice some companies might be willing to make if it gets them through the rough months ahead.
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