In our past several posts, we’ve been talking about good habits small-business owners should adopt to stay successful. So far we’ve tackled account reconciliation, keeping on top of bills, and staying current with receivables. This week, let’s talk taxes. It’s not a fun subject by any stretch, but it’s one you must face if you want to remain in business. The bottom line is that the more you pay people or the more you sell, the more you owe.
When it comes to liabilities, payroll and sales taxes are completely unique. When you settle up with the power utility, for example, or the landlord who owns your building, you submit the dough with a check in the mail or an electronic payment. With your payroll and sales taxes, however, it’s incumbent upon you to, in essence, send the bill to yourself, set the money aside at the time of the corresponding transactions, and remit payments by the appropriate due dates
It doesn’t matter how small your business is—this is still an item on your to-do list. Even if there’s only one employee on your roster, it’s still your responsibility to submit payroll liabilities to the government agencies for which you’ve withheld them. Depending on the size of your business, this could be monthly or quarterly. Question time: do you know exactly how often you need to submit these deposits, and when you need to submit your payroll tax returns? If you don’t, or you’re not totally sure, it’s a good idea to learn or hire someone to take care of the matter for you. A payroll management firm can pay for itself many times over. Do you have the taxes set aside that you’ve withheld from payroll or collected on sales?
There are good reasons why you should be diligent about payroll and sales taxes—if you don’t, it could sting. When you withhold taxes from employee payroll checks or collect sales tax, you are doing this on behalf of that party and obligated to submit them to the appropriate agencies. If you withhold or collect these funds and then fail to submit them, essentially you are committing fraud, as far as the government is concerned. This failure could land you seriously stiff penalties and interest—as high as 30%, depending on how much you owe and how in arrears your company is. Fines escalate quickly when payroll tax returns or payments to government agencies are received late, or not at all. The awful truth: these lofty fines can end up exceeding the original owed amount. In one instance, I encountered a company owing a $9,200 payroll-tax debt end up owing more than $12,000 when interest, fines and penalties figured in. Another client who failed to submit sales tax for several months had to go to court after the state threatened to shut down his store due to non-payment.
Payroll and sales taxes can be confusing—if these details aren’t your bag, feel free to reach out to me at Daliah@MySmallBusinessPro.com and I’ll be happy to help you make sense of things.