Past due payroll taxes can cause you to lose your business and in some cases, your freedom. The IRS is focusing increased tax compliance efforts on small businesses so it is important to know the common payroll tax audit triggers and learn how to avoid severe IRS penalties, huge tax debt and federal criminal investigation.

1. Small businesses are the most likely target of increased tax compliance enforcement Small business owners have been identified by the IRS as the largest source of uncollected taxes. And because they are known to be big tax evaders, the IRS tends to focus their enforcement efforts on small businesses, especially during economic downturns.

2. You can lose your business due to extremely aggressive IRS collection tactics for past due payroll taxes When it comes to payroll tax debt, the IRS collection Revenue Officer has unyielding power and authority. They have the power to padlock your front doors, putting you out of business, without obtaining a court order. They can seize your machinery and equipment. They can contact your customers, and if your customers owe you any money, the IRS will intercept these funds through their powerful levying authority. You must take immediate action to deal with a payroll tax issues, or you will find yourself out of business.

3. Payroll tax penalties can add up quickly and generate huge tax debt The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase your total tax bill. Whether you operate your small business owners as a sole proprietorship, corporation, or LLCs, the taxes you owe can cause you to lose your business. There are three major penalties you can be hit with (failure to file, failure to deposit, and the failure to pay), which can add up to about 33% plus interest if you don’t pay in just 16 days after you have filed the 941 (Payroll Tax Return) past the due date!

4. Not filing or paying your payroll taxes can be considered a federal crime. The IRS can refer your case to the Criminal Investigation Division and ultimately to the Department of Justice if they can prove that you intentionally (very low thresholds) didn’t file and/or pay.

5. Borrowing from payroll taxes is against the law. Many small and mid-size businesses use the money they collect from payroll taxes to pay their operating expenses. The money collected from employees to pay their share of federal withheld tax, FICA and Medicare (Social Security) does not belong to the business and must be accounted for and paid to the government. Generally, one must make a federal tax deposit (by tax filing service, phone, or in person at a bank) 3 days after the pay date of the pay roll checks.

6. The IRS can come after business owners individually for payroll taxes owed. The IRS can access what is called the Trust Fund Recovery Penalty (TFRP) against owners and shareholders. The IRS is the only creditor on the planet that can “pierce” the corporate veil and go after individuals, which can be a very scary situation.

7. What do I do if I get audited? If you owe payroll taxes, you need to get expert professional help before it’s too late. Representing yourself before the IRS would be like going to court without a lawyer. And you do not want to take any chances when dealing with the IRS.

You need the help of experienced Tax Attorneys and/or a Certified Tax Resolution Specialist who have experience negotiating hundreds of these cases. They can defend you and advise you on viable options including Payment (”stepped”) plans, Offers in Compromise, Computational Abatement of Penalties, Abatement of penalties due to reasonable cause, and analyzing the Statute of limitation to assess.

For more advice and information on payroll tax debt and how to get professional help if you’re in trouble with the IRS, visit the Tax Resolution Services web site for a free tax relief consultation, or check out the Tax Resolution University Blog.

First examine the facts as they exist in the current financial year 2007-08. The current approved mileage allowances were set five years ago in the financial year 2002-03 and while the current rates in no way reflect the increases in fuel costs in recent years that all businesses including small business. The Inland Revenue is actually considering a revised scale of tax allowances that may even lower the overall amount that can be claimed which will be detrimental to small business.

The approved mileage allowance for cars and vans is 40p per mile for the first 10,000 business miles and 25p per mile for each business mile over 10,000 miles in each tax year. The approved mileage allowance for motor cycles is 24p per mile for the first 10,000 business miles and 24p per mile for each business mile over 10,000 miles in each tax year. The approved mileage allowance for bicycles is 20p per mile for the first 10,000 business miles and 20p per mile for each business mile over 10,000 miles in each tax year.

These approved mileage allowances demonstrate complete irrelevance to the actual costs incurred in performing the business journey. The purchase price of a new motor vehicle would not be unusually 100 times the price of a bicycle, plus vehicle maintenance costs, vehicle insurance, licence fees and substantial fuel charges in operating the motor vehicle compared with zero costs for a bicycle. Few small businesses claim tax allowances for bicycle business journeys in their small business accounts.

The startling anomaly is that vehicle allowances are only twice the bicycle rate on the first 10,000 miles and only 25% more over 10,000 miles. Not that many people are likely to use a bicycle and cover in excess of 10,000 business miles in a single tax year.

In addition to the approved mileage allowances an additional 5p per business mile may also be claimed as a tax free expense if a fellow passenger is also carried on the business journey in the small business accounting records. That fellow passenger must also be on a work journey to enable the mileage allowance to be claimed in the small business accounts

Generally there are specific rules on justifying a business journey and the information that must be supplied to support the claim for a tax free mileage allowance. In practise the Inland Revenue often take a reasonable view of any claims provided the information provided in the small business accounts indicates that the claim is valid and has been incurred for real business journeys as opposed to an invention by the claimant.

When claiming a mileage allowance the essential information to provide is the date of the journey, the reason for that journey, the place visited and the actual mileage covered. Small businesses who claim this tax free allowance should maintain detailed records as part of the small business accounting to substantiate their expense claim should it later be challenged by the tax authority. Devising an expense sheet and submitting this sheet to the business is one way of ensuring sufficient documentation exists within the small business accounts.

Another way a small business can substantiate a mileage allowance expense claim is to enter each journey directly into the accounts for small businesses, perhaps recording the mileage against either sales invoices to customers or against purchase invoices from suppliers. With these transactions having already been recorded in the small business accounting records with a date, the location also stated on the invoice and the purpose of the journey being obvious the rules on supporting information are covered.

That is the easy part of making a valid claim but for many small businesses making such claims would seriously understate the true level of business journeys. Therefore also include in the small business accounts all other business journeys undertaken which may or may not have resulted in a specific purchase or a specific sale.

So what other journeys can the small business accounting system claim as a deductible expense against the taxable profit. The answer is basically any business journey and that should include all incidental journeys, perhaps visiting a supplier or a customer, visiting customers to quote for work, attending a business meeting, taking money to the bank.

Mileage allowances cannot be claimed for a business vehicle where the running costs of that vehicle are being claimed as a deduction from net taxable profits. Vehicle running costs include the capital tax allowances, licence fees, insurance, repairs and maintenance, membership of breakdown services and fuel costs.

Many small businesses may find that more than one vehicle is used for business journeys. The business vehicle running costs may be claimed for a specific business vehicle on which mileage allowances are not claimed this tax allowances may be claimed for the use of a private vehicle in the small business accounts.

Perhaps the small business runs a van for its main business and the running costs exceed the potential mileage allowance in which case the business should claim the vehicle running costs. If a different private vehicle is also used for some business journeys, perhaps even a spouse taking cheques to the bank, then mileage allowances could be claimed for that journey.

Each business should examine their tax allowance practises to ensure the maximum tax free allowance is claimed and supported with the required documentation to lower the tax burden when preparing the small business accounts.