The Taxman Cometh… Pay Him

Sometimes, struggling business owners don’t pay taxes when cashflow is slow. This is always a mistake.

Once a business falls behind in tax payments on the state or federal level, the negative effects can snowball rapidly. Interest and penalties accrue; the liability is often personal to the business owner, directors, managers, or officers despite having a corporation or limited liability company; there can be criminal penalties; and the government often will not negotiate. Unfortunately, the IRS or state Department of Revenue will not hesitate to padlock an ongoing business that gets behind in tax payments.

The penalty for failure to pay North Carolina sales and use taxes when such is owed is: both (1) a failure to file a penalty of 5% per month with a maximum of 25% (minimum $5.00 state and $5.00 county) and (2) a failure to pay penalty of 10% (minimum $5.00 state and $5.00 county) will be due. Interest is due on the amount of tax due from the date the tax was due until it is paid.

The Internal Revenue Code imposes a penalty equal to the entire amount of unpaid payroll taxes on every “responsible person” who “willfully” fails to see that the taxes are paid. This liability accrues to the individual, not just to the company. In North Carolina, there is a 10% penalty for late payment of the tax due.

If your business is having cashflow problems, notify your accountant or attorney to help you negotiate with your creditors upfront. The worst thing you can do is to short the tax payments.