Items for the Business Owner to Consider When Unpaid Payroll Taxes Exist
Normally people don’t start out planning to use payroll tax withholdings as a source of funding the business. It just sort of happens. A business finds itself having to make payroll but only having enough money to fund the net pay checks to its employees. The owners or other financial people associated with the business convince themselves that this is a one-time occurrence while the business awaits the receipt of funds from a customer or a loan. Soon one payroll period with no payroll taxes remitted becomes another and then another. At this point, the responsible parties become convinced that they have to continue this practice in order not to lose the business.
Unfortunately, this unauthorized financing of working capital for the business from the government is extremely expensive money. Late deposit penalties of up to 15% of the unpaid taxes plus additional late payment penalties and interest on top of that can be devastating. Even worse, if the associated payroll tax returns are filed late the business can be looking at a total cost of capital approaching 45% for this form of financing. Obviously, there are very few businesses that can survive for any length of time with this level of cost for working capital.
With this cost of capital, many businesses in this situation quickly enter a death spiral in which not only the business but the financial lives of the responsible individuals associated with the business are taken down.
If a business finds itself with several payroll periods of unpaid payroll taxes, the responsible parties need to seriously consider whether this business can succeed. As the Kenny Rogers’ song says, “You’ve got to know when to hold them and know when to fold them.” If the business is facing mounting levels of unpaid payroll taxes, it may be way past time to walk away; it may be time to run (meaning, it may be time to close the business).
If you have unpaid payroll taxes and/or unfiled payroll tax returns, you have a serious tax problem that needs to be addressed promptly. We can assist you in resolving these problems with the IRS. Please call us at 813-760-0722 or contact us by clicking here to set up an appointment.