Blogs by William Manchee
Defending the Small Business - Part 13 - Uncle Sam, The Sleeping Giant
11/6/2008 6:27:36 PM
[ Flag as Inappropriate ]
Massive government handouts have been dominating the news recently, but for decades the government has been involuntarily financing thousands of small businesses.
Another common killer of small businesses is taxes. Instead of accepting the fact that taxes must be paid, small business owners invariably will try to figure out a way not to pay them or feign ignorance as to their obligation to pay them. There are many different types of taxes, most of which are complicated, and the tax reporting and compliance is extremely onerous.
What makes matters worse is that most government tax collectors are understaffed and often slow to do their job. They frequently let small business owners get hopelessly behind in their taxes before they come down on them. Many times clients have come to me when they owe fifty or a hundred thousand dollars in back payroll taxes. With penalties and interest accruing, there is no way they will ever be able to pay the taxes they owe. Often they have no understanding of how to handle payroll, calculate withholding, or making tax deposits. Consequently they have no idea they are getting themselves in deep trouble.
Property tax collectors are the worst. Iíve had clients come in who havenít paid property taxes in four or five years and nothing happens to them. Finally, when the taxing authority gets around to turning the matter over to an attorney, the amount due is so high the taxpayer canít come up with the money.
In Texas, the State Comptroller over the years has been the most aggressive tax collector. Frequently, I get calls from clients who have or are about to have their businesses shut down because they havenít filed their sales tax returns. Luckily the Comptroller hasnít let them get too far behind, so in most cases they quickly pay up. Once they realize they have to file the returns timely and pay the tax, they adjust to it and it has little impact on their business.
Because a small business owner can operate for years without paying property taxes or properly reporting and paying payroll taxes, the government ends up financing their businesses. Most of the time SBOs donít realize the business is losing money because they are not paying all their expenses. If they are on a cash basis for accounting purposes, which is common for small businesses, they may well feel like they are profitable when they are not.
Almost every Chapter 11 or 13 that I file for my small business clients involves substantial payroll tax liability issues. Tax liability has often been the primary reason a bankruptcy was necessary. For the SBO, collecting taxes for the federal government is a difficult, complicated, and hazardous task. Itís a shame that a better system canít be found for handling this task. In the past, the governmentís response has been to increase the penalties and interest for not properly reporting and paying payroll taxes. This just makes matters worse, because when the small business owner finally realizes he must pay, the amount due is often double the actual amount of original tax liability and growing at a stunning rate. Even if the small business owner wanted to pay, he has no possible way of doing it short of bankruptcy.
In recent years Congress has changed the tax laws to require more frequent payroll deposits. This is a better approach, but one still difficult to enforce. Perhaps what needs to be done is to require a small business license which requires them to pass a test to show that they have a full understanding of how the tax system works and their responsibilities to pay and collect taxes for the government.
We require people to understand the driving laws before we let them out in the street, so why not make sure they understand the tax laws and other laws pertinent to operation of a small business?
A small business test would be a win-win solution because most SBOs want to be successful and want to pay all their bills. Rarely do I come across a business owner who is intentionally trying to evade taxes. Usually clients get into tax traps out of ignorance or because, when times get tough, they know the IRS will be the last one to come down on them. Optimistic by nature, the SBO believes in his heart that before the hammer will fall, his business will turn around and heíll be able to pay his taxes.
Of course the other solution is to take this liability off the shoulders of SBOs and eliminate the income tax altogether. But until that happens every SBO needs to learn how the tax systems works, accept the fact that these taxes must be paid, and then make it his first priority to properly report and pay his taxes. If this is too difficult, then the easy solution, and the one I use, is to hire a payroll service so you donít have to mess with it. These services are generally very cheap when you consider the burden they take off your shoulders, and they will allow you to focus on more important aspects of your small business.
Post a Comment
More Blogs by William Manchee
Why Many Intelligent and Talented People Fail in Business - Monday, May 07, 2012
Getting the Mail Can Be Risky Business - Friday, May 04, 2012
Consumers Suffer Grievous Injury When Creditors Improperly Report Their Credit after Bankruptcy - Thursday, May 03, 2012
The Effect of Print on Demand to the Small Press Author - Monday, July 04, 2011
Nine-Eleven's Impact on the Small Press Author - Sunday, July 03, 2011
Has Your Mortgage Company Ripped You Off? - Saturday, August 07, 2010
Wrongful Foreclosure - Tuesday, February 16, 2010
Don't Throw Away The Evidence - Friday, January 15, 2010
Brandy - Saturday, October 17, 2009
Why I Write in Different Genres - Wednesday, August 12, 2009
Cash for Clunkers Bad Idea for Many Consumers - Monday, August 03, 2009
Beware of Debt Negotiators - Tuesday, May 05, 2009
Top Ten Reviewers - Tuesday, April 28, 2009
Debt Collector Put Out of Business In Texas - Sunday, April 26, 2009
Defending the Small Business - Part 23 - Changing Your Ways - Tuesday, April 07, 2009
What Every Bankruptcy Filer Should Know - Part 3 - Will Filing Bankruptcy Ruin Your Credit? - Thursday, March 19, 2009
Defending the Small Business - Part 22 - Bookkeeping and Accounting - Wednesday, March 11, 2009
Chill, It's No Big Deal - Sunday, March 01, 2009
What All Bankruptcy Filers Should Know - Part 2 - Wednesday, February 25, 2009
Defending the Small Business - Part 21 Form of Business - Thursday, February 19, 2009
What Every Bankruptcy Filer Should Know - Saturday, January 31, 2009
Defending the Small Business - Part 20, Getting an Attorney - Sunday, January 25, 2009
Defending the Small Business - Part 19 - Employees, Double Trouble - Sunday, January 11, 2009
Defending the Small Business Under Siege - Part 18, Loan Consolidations & Workouts - Sunday, January 04, 2009
Defending the Small Business: Part 17 - Bankruptcy: Friend or Foe? - Monday, December 29, 2008
Tarizon: The Liberator Launch Update - Friday, December 26, 2008
Defending the Small Business - Part 16 - When the Constable Knocks - Friday, December 05, 2008
Defending the Small Business - Part 15 - State & Local Taxes - Saturday, November 22, 2008
Defending the Small Business - Part 14 - Dealing With IRS Collections - Wednesday, November 12, 2008
Defending the Small Business - Part 13 - Uncle Sam, The Sleeping Giant - Thursday, November 06, 2008
Defending the Small Business - Part 12 It's Not As Bad As It Looks - Monday, November 03, 2008
Defending the Small Business - Part 11. Misfortune - Tuesday, October 28, 2008
Defending the Small Business: Part 10. Competition - Thursday, October 23, 2008
Defending the Small Business. Part 9. Theft & Embezzlement - Monday, October 20, 2008
Defending the Small Business - Part 8. Greedy Lenders - Sunday, October 19, 2008
7 - Defending The Small Business: The Credit Conspiracy - Saturday, October 18, 2008
6 - Defending the Small Business - Giving it away. - Thursday, October 16, 2008
5. Defending the Small Business: Starting on A Shoe String - Wednesday, October 15, 2008
4. Defending the Small Business: Suffocation - Tuesday, October 14, 2008
3 - Defending the Small Business: Looting - Monday, October 13, 2008
Understanding the Current Economic Meltdown - Saturday, October 11, 2008
2 - Defending the Small Business - Doomed From Day One - Saturday, October 11, 2008
1 - Defending the Small Business: Introduction - Friday, October 10, 2008
The Stan Turner Mysteries - Sunday, March 25, 2007