Lessons from the courts: Make employment-tax connection — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Lessons from the courts: Make employment-tax connection

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in Small Business Tax,Small Business Tax Deduction Strategies

The IRS now requires many small business owners to use its Electronic Federal Tax Payment System (EFTPS) to deposit employment taxes.

Currently, your business must use the electronic method if it has aggregate tax deposits of more than $200,000, including employment taxes, corporate income taxes and corporate excise taxes. Also, the EFTPS is required for startup companies.

If your company doesn’t comply with this requirement, it may be assessed a 10% excise tax for failing to deposit taxes on time—even if the taxes are deposited in a timely manner by other means.

New case: The IRS assessed an automobile dealership a failure-to-deposit penalty because it did not use the EFTPS. Its owners contended that the failure was due to reasonable cause and not willful neglect. Their main point: The dealership’s comptroller had made previous tax deposits by coupon at a federally authorized bank depository without any objection from the IRS.

But the district court in Georgia rejected this argument. It didn’t help that the comptroller admitted he didn’t refer to the relevant regulations and other published guidance regarding electronic deposits. Therefore, the tax penalty stands. (Heartland Automotive Enterprises, Inc., 2009-1 USTC 50,417, 5/27/09)

You might want to deposit taxes through EFTPS even if your business is exempt from the requirement. The system is easy-to-use, fast and secure. Payments can be made 24 hours a day, seven days a week.

Tip: Enroll in EFTPS at www.eftps.gov/eftps or call the IRS at (800) 555-4477.

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