If you own a business or if you are self employed, you know how daunting tax season can be. With so many rules and regulations to consider, there's bound to be mistakes. Unfortunately, the IRS isn't a kind and forgiving adversary. From audits and investigations to levies, fines and criminal charges, the IRS has many ways to make sure you're paying the amount of taxes you owe. If you don't comply or if you make an innocent mistake, you could very well end up on bankruptcy row, watching your business and assets be liquidated. If you want to avoid the wrath of the tax man, avoid these things that will get you into trouble with the IRS.
Avoiding Payroll Taxes
Since small businesses account for the majority of uncollected payroll taxes, the IRS pays particular attention to the little guy. As a business owner, you have three responsibilities in regards to payroll taxes. You must file payroll taxes, deposit the payroll tax you've collected from your employees, and forward payments to the IRS. If you fail to do any of these things, you can be fined up to 33 percent of the total balance owed. You may also be prosecuted criminally. If it comes down to it, the IRS can even force you into bankruptcy by locking your doors, seizing your products and assets, and collecting any money owed to you by your customers.
Falsely Labeling Employees As Independent Contractors
Business owners are not required to withhold taxes on people who work for them as independent contractors. However, the IRS has strict guidelines on who can be considered an independent contractor. In order to be considered an independent contractor, people who do work for you must be free to work when and for whom they want to. They must be paid by the job and cannot be fired as long as they do their job. Employees, on the other hand, have to show up at a certain time and are paid by the hour, week or month. If you have a lot of control over how the worker does their work or require them to submit written or oral reports, they are considered an employee and are subject to payroll tax withholding.
If you fail to pay attention to these things, you will face strict penalties and may end up losing your business to the IRS if you are unable to pay your tax and fine burden. To avoid trouble with the IRS, make sure you are dealing with your employees properly and handling their payroll taxes in the right way, and obtain the services of a professional tax attorney.