IRS Audit Triggers: Payroll Mistakes That’ll Land You in IRS Hot Water

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You finally realized your dream when you opened up your small business.

At the time you opened the small business, you had no idea how many IRS payroll tax rules and regulations there were which apply to businesses.

IRS Payroll tax rules are important ones you need to learn more about so you never have to worry about an IRS audit. 

We’re here to help you acquire payroll tax knowledge and their many IRS audit triggers. What’s more, we will give you information on how you can avoid an IRS audit from happening to you.

We know how important it is as a small business owner to protect yourself and your small business dream. Now let’s achieve it.

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What Are The Chances of Your Business Getting Audited?

 

The chances of a small business being audited are not huge. The bigger the business and the more assets or income a business has, the greater the chance of being audited.

That being said, you cannot take a risk thinking you won’t get audited. So, it’s time to jump into some of the most common IRS payroll tax and business tax audit triggers you need to avoid.

These IRS tax audit triggers will help avoid a tax audit situation with your payroll taxes, and many other small business tax issues. 

Many people don’t realize that tax attorneys are best to consult with prior to any complicated payroll tax issues. Especially when it involves the IRS.

By the time you are getting audited, the tax situation is in a precarious state. Fines, fees, and some unexpected payments will have to be paid by you to Uncle Sam.

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Small Businesses and the IRS

 

The IRS is aware that about 66% of all small businesses fail at two years. And only half make it to five years. 

It’s important to understand the laws of payroll taxes – as they apply to every business. It doesn’t matter whether your small business is thriving or has folded and gone out of business.

Tax laws and payroll tax laws are complicated and confusing. It’s time to never have to deal with the IRS at all.

It is always a good thing to have a good tax attorney to speak with prior to filing taxes so they can review everything before sending it off to the IRS.

You’re busy running your company. We get it. We work constructively and negotiate agreements with the IRS daily for our clients on their behalf.

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IRS Audit Triggers

 

There are many IRS audit triggers, but we are going to focus on some of the most common ones. They are;

If you made significant money in the last tax year. The more money you make, the more your chances go up of getting audited.

Putting off payment. Don’t neglect or ignore what you owe because if you do, the IRS will respond with all you ignored and what you now owe because you ignored it.

Claims. if you are bringing home steady income from your business but ignoring unemployment claims from past workers you may have IRS issues. You are creating the perfect IRS storm for yourself. Even if the worker left because you had to lay him off. Or perhaps you didn’t like him. Regardless, sometimes you still may owe them unemployment compensation.

Unqualified Consultants. You hire someone who says they have payroll tax experience, and they charge you next to nothing for their payroll tax services. You think you have made the best bargain possible. Don’t hire someone to do your payroll taxes on what they say they can do for you. Check their references and qualifications. If they aren’t a certified CPA or tax attorney you may be asking for more trouble than you ever thought could happen to you. The errors which may be made by them on your payroll taxes because they didn’t know what they were doing can cost you big money in the end. 

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Small Business Payroll Taxes

 

It’s crucial that you withhold payroll taxes from your employees’ paychecks. You must withhold the money from their paychecks and you must use it to pay the federal, state, and local taxes owed. 

The withholding taxes are for FICA (Medicare and Social security taxes). Withholding taxes can also be for federal, state, local, and FUTA (Federal Unemployment Tax Act) taxes, if applicable. 

Most taxes you owe for employees fall into these categories;

  • Federal Income Tax
  • Social Security Tax
  • Medicare Tax
  • Federal Unemployment Tax
  • State Income Tax
  • State Unemployment Insurance Tax
  • Local Income Tax

It’s vital you understand these categories and what payroll taxes you pay. You need to know how often you pay taxes in these categories as well. 

We offer more in-depth information about filing taxes as a small business on our blog. It provides a wealth of information for your small business tax needs.

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Finding The Right Tax Attorney

 

There are some other payroll tax mistakes you can make in your small business. We always recommend you partner up with a tax attorney before you make your first payroll tax mistake. 

We cannot tell you how many clients we’ve had through the years who wish they would have hired a tax attorney before making some hefty penalty payroll tax mistakes.

After handing over a significant to the IRS in payroll tax penalties and fees, trust us, it’ll surely have you reconsidering how important this is.

Find a tax attorney you feel comfortable to speak to and ask them about what they can do to help your small business grow. You already have too many other headaches, don’t throw a migraine on-top.

Tax attorneys don’t just help you with your payroll tax mistakes and IRS issues. They can also help you with the best tax deductions your small business can take when filing.

You may be surprised about how a tax attorney can help you with your small business tax needs. It’ll actually save you money almost every time.

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What The IRS Looks For in Your Business

 

Some other payroll tax mistakes which are also IRS audit triggers are;

Employee Classification mistakes. This is when you classify your independent contractor as an employee. Or you classify one of your employees as an independent contract worker.

When you make a classification error about the type of employee or contractor who works for you, there is accrued penalties and interest.

The back taxes you have to pay for that mistake can be costly to you and your small business. You may also owe back wages to your employee too.

Making a mistake in not paying your employee for overtime wages can cost you big time. It is also one of the things which can trigger an IRS audit.

Federal law requires you pay your employees 1.5 times their regular amount if they work overtime for you. Each state also has its own overtime requirements so it is vital you keep current with those overtime wages as well.

Recordkeeping. When you are a small business owner it is critical that you keep accurate records on all your employees and contractors.

You need to know how many hours they work each day, what you gave them for holiday pay, vacations, and sick leave.

These records have to be ready and accessible at all times no matter what legal entity needs to see them.

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When Do I Need an Audit Defense Attorney?

 

There is nothing easy about being a small business owner. There is also nothing more challenging than dealing with the IRS.

When you incur penalties and interest on unpaid taxes you can be talking about thousands of dollars.

Staying in compliance with the IRS should be one of the most important things you do on a day-to-day basis in your small business.

That’s why IRS attorneys should be consulted with before you have any massive or challenging IRS issues.

Finding legal solutions for your payroll mistakes as a small business owner is not easy.  

If you’re a small business owner just starting out, kudos to you for reading up on this and being proactive, properly educating yourself. This is the perfect time to speak with legal counsel.

Also, small business owners who want to know how to create the best accounting system for payroll and yearly tax deductions are headed in the right direction.

We help small business owners no matter where they’re at in the process. That’s what we are good at. It’s what we do daily.

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Your Business Deserves The Best

 

Many of our clients didn’t even know they needed us until they had the IRS come after them for tax problems.

We can also provide legal tax advice if you’ve just got a few questions. Small business payroll taxes does not have to be complicated. It also doesn’t have to be something you put off if you know the right people to talk to. 

If you reach out to us, we can help you with any payroll tax issue you may be facing. Better than that, we can help you set up your small business taxes so you never again have a payroll issue with the IRS.

Every time you make a profit from your small business it is a great day for entrepreneurship. Not everyone has the skills, drive or talent you do in starting their own small business.

Don’t waste time on battling the IRS over payroll taxes. Reach out to us today, so we can show you how you can concentrate on what you love about your business. We’ll handle the IRS.

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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