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.

WHY THE INCREASE IN AUDIT COSTS?

Time. It all comes down to the amount of time a firm and its employees must spend gathering support and documentation. An increase in audit hours leads to an increase in overall audit costs due to the per hour rate that most firms institute. Why the increased support and documentation? Two words: new standards.

These new accounting and auditing standards are often difficult to interpret and can be even harder to apply. Some of the more wide-known changes include:

• Greater responsibility related to the detection of material fraud
• Gaining a better understanding of the design and operation of a client’s internal controls
• Obtaining specialized knowledge regarding fair value measurements
• Determining the best answer when presented with conflicting guidance in professional literature
What can firms (who require audits) do to assist the auditors and decrease audit costs? The following list provides a few basic rules to follow to make an audit as smooth as butter (butter? Maybe crunchy peanut butter):

• Ask your auditors for a list outlining what documents they will need. Some likely suspects:
o Articles of incorporation
o Debt agreements
o Significant leases
o Minutes of the Board of Directors
o IRS filings
• Designate sufficient personnel to the audit. For example:
o CFO
o Controller
o Accounts receivable manager
o Accounts payable manager
o Internal auditor
• Hold a meeting to introduce the audit firm to any personnel they may need to have contact with.
• Develop a joint audit plan that identifies deadlines and the materials needed at those deadlines.

Instituting these simple steps can greatly reduce confusion, excessive communications, and thus audit hours. For further questions regarding the audit process and how to simplify it, contact your local Certified Public Accounting firm.