By A person in the midst of drug rehab did not get where he is by waking up one day and deciding to be an addict. Rather, addiction crept up on him as a result of being careless about drug use. By the same token, a business owner who finds himself in trouble for not making payroll tax payments is usually not someone who suddenly made the conscious decision to stop paying. His payroll tax issues crept up on him through a series of unfortunate circumstances.
It does not matter how a small business owner gets into tax trouble from the government’s perspective. But it does matter from the business owner’s perspective. Why? Because understanding how problems with payroll tax can creep up on a business owner can put that person in a better position to be more proactive.
Think of payroll tax problems like a spring flood. Homeowners in flood prone areas know enough to watch weather reports on a daily basis. They are smart enough to know that when the spring rains begin, swollen creeks and rivers will only take on more water. They know that long before the local area is inundated, signs of creep are all around them. They start preparing by filling sandbags and getting their valuables up off the floor.
Causes of Payroll Tax Issues
Like homeowners in flood prone areas learn to recognize the signs of a coming flood, business owners can learn to identify the causes of payroll tax issues. So what are those causes? Why do small business owners find themselves unable to make their payroll tax payments even though they know in advance when those payments are due?
One of the leading causes is inadequate cash flow. For example, modern business operates on the principle of taking 30 days to make payment. A small business owner may provide a service today, bill the customer at the end of the week, and then have to wait 30 days before receiving payment. A business owner without enough cash in the bank can quickly run into trouble in this cycle.
Another problem business owners face is the customer who refuse to pay or issues a bad check. Not only does the lack of payment interrupt cash flow, the business owner also has to incur extra expenses in recovering what is owed. Too many deadbeat customers can put a strain on a small business’s finances.
Lastly, small business owners have a sense of loyalty to their workers inasmuch as they pay them first when cash is tight. Many business owners even forgo their own salaries to make sure employees are paid. That is the honorable thing to do, but paying employees without having money set aside for their payroll taxes creates yet another problem.
How to Avoid Payroll Tax Issues
There is no silver bullet that can eliminate payroll tax problems for companies struggling with cash flow. But there are a couple of things that can help. First, a small business should consider outsourcing payroll functions to a third-party provider like Dallas-based BenefitMall The payroll provider will establish a separate account for payroll tax deposits. That account will be off-limits for anything else. That means employers will not be tempted to spend the money on other things when cash flow is tight.
Another suggestion is to create an operating budget the same way the business owner would create a personal budget at home. Creating a budget and sticking to it makes it easier to monitor what is coming in and what’s going out. Indeed, budgeting alone can make an enormous difference.
