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Today is the deadline for providing 2008 tax forms to employees (Form W-2 for employees who earned any amount) and independent contractors (Form 1099-MISC for independent contractors who earned a total of $600 or more from you).

If keeping up with these types of tax deadlines is a thorn in your side, difficult, stressful, or you never seem to get around to it, you may want to hire a payroll service, such as PrimePay or Paychex. I know if I ran my own business, this would be one of my first phone calls. Not only would I have more time to spend on the things I love in my core business (advising clients, drafting legal documents, blogging), but many payroll companies will indemnify your company for penalties and interest caused by their mistakes in making your tax filings and withholdings. This is a good way to minimize risk for tax issues.

You may not realize that even if you have formed a corporation or LLC to minimize your personal risk, you may be personally liable for payroll withholdings that are not properly paid to the IRS, or business taxes not properly paid to state governments. The FICA and FUTA taxes are required to be withheld on behalf of an employee, and are considered held in trust by the employer for benefit of the United States. Shareholders, officers, directors or employees who have authority to decide the order of bill paying and/or have check-writing authority can be held personally liable for withholdings that are not properly paid to the IRS. There can be a 100% “trust fund penalty” against the “responsible person.”

If you are having trouble paying your bills, we strongly advise paying all taxes in full first. If you can’t, contact your accountant or attorney and negotiate up front with the IRS or Department of Revenue. You can typically get a payment plan to catch up without penalties if you disclose early. Once you are behind, it is more difficult to negotiate a solution.

That’s my 2 ¢. What tax advise to the small business owner readers have for their peers?

Tags: 100% Trust Fund Penalty, corporation, FICA, FUTA, LLC, Payroll Taxes, personal liability, withholding taxes

This entry was posted on Monday, February 2nd, 2009 at 11:35 am and is filed under business law, LLC, NC Department of Revenue. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.