The Accounting to English Translation: SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part ...

The Accounting to English Translation: SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part ...: "Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www...."

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part III

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

As we have noted in our previous blogs, there is a real temptation to delay payroll tax payments. Frankly, this is not a good cash flow solution. The failure to file payroll tax returns and/or pay payroll taxes in a timely fashion will result in substantial penalties.

Please note that interest is charged on both unpaid taxes and assessed penalties.

Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate on unpaid Federal tax is determined and posted every three months. It is the federal short–term interest rate plus 3 percent. Interest is compounded daily.

There are two components of payroll taxes. Component one is the deposit. Component two is the actual report. Each is subject to a failure to comply penalty.

Component one is the Deposit Penalty. It applies to amounts not properly or timely deposited, the penalty rates are as follows:

Days Late & Penalty
1-5 2%
6-15 5%
More than 16 10%
Upon IRS Notice 15% Begins 10 days after notice

Component two is the Late Filing Penalty. This applies if you owe tax and don't file on time. The late–filing penalty is usually 5% of the tax owed for each month, or part of a month, that your return is late up to five months (25%).

If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed.

You may be liable and not even know it. A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

At any rate, your best cash flow management tool may not be passing on this week’s payroll tax deposit.

Hotter than Hell’s Waiting Room

It’s hot outside. Really, really hot. It’s hotter than Hell’s Waiting Room. Okay, you get the picture. Throughout all this extreme heat, my husband and I have been running the AC hard. We’ve been more willing to take a punch to the pocket than suffer through a house that was hotter than 76 degrees.

Unfortunately (but not surprisingly), all this intense pressure on our AC unit caused it to go kaput…on a 102 degree day. Joy! The second kicker came when we found out the AC guy couldn’t make it out until two days later. Were we really going to have to sleep, cook, shower, dress, eat, or even sit in a house that was already at 92 degrees?

Thankfully, my sister lives a block away (there are some benefits to living close to family!), so we were able to stay with her during The Wait From Hell. Forgive me for my dramatics as I’m currently sitting in the 90 degree house *patiently* waiting for it to cool down enough so that I can take a shower to get clean rather than to just cool off.

The AC guy was here for 4 hours. During that time, I did some work, but I also ruminated over this unexpected cost we were facing. I don’t know about you, but I’d much rather use my savings on a vacation than a home repair. Nevertheless, it’s out of my hands and I’m okay with it (or maybe it’s the blessed relief of cool air on the back of my neck making me say these things).
Getting to the point. How does this have anything to do with accounting or business? During my rumination, I realized that we would be eligible for an Energy Tax Credit on our 2011 return. While it’s not a huge amount, it’s enough to make me feel slightly better about this sudden expense.
So if you find yourself in Hell’s Waiting Room, 1) don’t waste your time showering in your own house…you’ll just have to do it again 5 minutes later, 2) find a nearby relative to impose on, 3) breathe – some of your money will likely come back to you in the form of a credit.

To see what products qualify and how much credit you could receive, go to: http://www.energysavers.gov/financial/.

LeAnn Gola, CPA, MAcy is a member, assurance services with Cook, Gla and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas. www.cookgola.com

SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…..part II

…….Or, beware of what you seek

I have been out of the Blog circuit for a couple of weeks. We moved our San Antonio offices to 45 N E Loop 410, Suite 210. San Antonio National Bank is the anchor tenant. Moving was a bear. The actual move went off relatively well save a broken picture frame and a dropped table. Getting everything setup and operational took two weeks. Finally, after a full weekend of hanging pictures, relocating desks and tinkering with the computers, we are good to go.

As I noted in my last blog, the IRS is the largest, most powerful collection agency in the world. The monster is alive and well. The Service has become very active in the auditing and monitoring of businesses that do not pay their payroll taxes and properly report their contract labor.

We have just completed a payroll tax audit with one of our clients. A client, I might add that tries very hard to comply with every rule, no exceptions. Most businesses really don’t understand payroll taxes so even if they try to comply, there are still issues. Typically, they don’t know what “pay items” are subject to payroll taxes. Every year small business owners bring in their work, usually on Quickbooks, for us to prepare their tax returns. I will scan the general ledger and find checks labeled “Bonus” or “Commission”. The business owner generally will treat these as separate checks. They don’t take any payroll taxes out, nor do they pay TWC (Texas) taxes. For some unknown reason, business owners think that by renaming an item that you change its character. This is not true. Any moneys paid to an employee are considered compensation.

Sometimes part of the compensation is not taxable. This would be the case when an employee is being reimbursed for out-of-pocket expenses. There also could be retirement contributions that are not subject to federal payroll taxes. It doesn’t take an IRS examiner long to find “Bonuses” and “Commissions”.
The big thing that came out of the audit, however, was the Service’s aggressive position on “Contract Labor”. Briefly, contract labor is a service provided by an independent entity that works without your direct supervision and is paid for the completion of the contracted service. A good example would be calling a plumber to unstop your drains. You don’t do the work, you don’t supervise, you just write the check when the water goes down.

The examiner scoured the general ledger for any potential contract services. The examiner was looking for services that were rendered but a form 1099-Miscellaneous was not generated. They asked to see form W-9 for each of these vendors. Needless to say most of us do not get a completed W-9 for each vendor. Each unfiled 1099-Miscellaneous is subject to a “per form” penalty.
So this week’s IRS lesson is simple. Be sure you know what constitutes taxable wages. And, get a completed W-9 from every vendor or trade that provides personal services to your company.

In our next blog, we will outline some of the penalties associated with both payroll and contract labor reporting.

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin, Texas.