IRS Payroll Tax – Figure out a way to pay it or it will “pyramid”

IRS Payroll Tax

Access to capital is often difficult for a small business. Especially right now. Many small businesses faced with a pyramid - egypt-thumb-350x232-49259cash flow problem can’t pay the FICA or Payroll tax. The money just doesn’t exist. The problem often gets worse and eventually the IRS shows up and asks for it.

Some businesses avoid the payroll tax on purpose. They don’t do it when times are tough; they do it as part of the business plan. They will do one of the following:

Filing Fake Payroll Tax Returns

The Employer pays the employee than files a return that doesn’t match the reality. Typically, the return understates the amount of wages paid to the employee.

Cash Payroll

Many businesses pay employees in cash. The employee loses future social security and Medicare “credit” as a result, but is often satisfied with the arrangement because they aren’t paying any tax at all.

Sometimes businesses get into trouble innocently:

Leasing Employment

The employee works for business Y but his paycheck is signed by employment leasing company x. Perfectly legal but sometimes abused. These companies will sometimes collect the money from the underlying business, and neglect to forward the payroll tax to the IRS. They often have a volume business and the amounts of money not forward can be very large. The employment leasing company will “dissolve” and the business owners who are paying for the leasing services can become personally responsible for a portion of the unpaid tax.

Every small business will “pyramid” the debt if they don’t figure out a way to get it under control.

Pyramiding

No, this isn’t a cheerleading move. This is IRS lingo for the business that withholds and doesn’t pay the tax for a number of quarters in a row. The IRS hates this. In fact, the IRS doesn’t have to negotiate a settlement or a payment plan with a taxpayer business until a certain number of quarters are caught up.

The problem with Pyramiding is that some businesses use it in a failed attempt to avoid the tax. The business will build up the tax debt, dissolve and start under a new name with the thought that the payroll tax will simply stay with the old business.

The problem is that IRS can in certain circumstances continue to collect the tax from the new business and if it can’t, it will assess against the owners of the business a penalty in the amount of the employee portion of the payroll tax that wasn’t paid.

Conclusion

If you are starting a business, you will have to accept the fact that if you have employees you will have to collect and forward payroll tax. It is part of the cost of doing business until the tax code is changed.

Payroll tax problems can be some of the most difficult to deal with for owners of small businesses as the trust fund portion of the tax isn’t dischargeable in bankruptcy and the IRS is not as willing to negotiate this type of debt in an offer in compromise.

If you are having problems with payroll tax withholding, find a way to nip it in the bud now. If you have payroll tax now that is insurmountable, get some help.

ARIZONA BANKRUPTCY – Is It Time To Talk To An Attorney About It?

Arizona Bankruptcy – Is it time to talk about it?

Collection Letters, Bills, Late Notices, IRS Statements.

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If you are like me, you probably don’t want to open a bill when you get it. You put it in your bill pile to be dealt with later that month.

But what if you are in trouble financially and you know the bill isn’t going to be paid later that month. It probably goes in a different pile. IT sits there and sits there and in the meantime the creditors start to call, the IRS begins the wage garnishment process, and you may even get sued.

When the debt gets to the point where you have created a “special” pile for it, and the calls are coming in, you need to understand your options.

Bankruptcy is a powerful option that many with debt problems wait to consider until they are already in real trouble.

Bankruptcy is found in the U.S. Constitution and it allows for the modification of the ways your debts can be collected.

The initial modification of the creditors ability to collect is found at 11 USC Sect. 362.
This code section empowers the bankruptcy court to stop collection activity by almost all creditors, including the IRS.

Once the collection activity is stopped. The rest of the Bankruptcy Code kicks in.

The Bankruptcy Code forces your creditors into categories and than can eliminate many of those categories entirely. Other categories of debt like new tax debt, don’t always get eliminated, but they can often by adjusted in a way that allows you to more easily find a way to pay them.

The first question you must answer when deciding whether bankruptcy should be considered is whether or not you can deal with your creditors without it’s protections. Do you have funds sufficient to make reasonable offers to settle? If so, are you willing to accept the negative aspects of settling debt?

If you don’t have funds to try to convince the creditors to settle, are you susceptible to levy, garnishment or seizure, ie. do you have wages or assets?

If so, and the pile of bills you haven’t looked at for a while is large, there is probably good reason to at least speak to an Attorney who is knowledgeable about bankruptcy.