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Fear the 100% penalty

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in Small Business Tax

One of the most onerous provisions in the tax code is the “100% penalty.” Essentially, if your company fails to deposit payroll taxes that were withheld from employee paychecks with the IRS, you could be personally liable for 100% of the unpaid amount.

Strategy: Make sure that payroll taxes are paid on time. Establish backup procedures to avoid slipups.

The 100% penalty can potentially be assessed against any person who (1) is responsible for collecting or paying withheld federal income and employment taxes and (2) willfully fails to collect or pay them. It doesn’t take much for a failure to be “willful.” For instance, the IRS says the penalty applies if the responsible person was aware, or should have been aware, of the tax liability and intentionally disregarded the law or was indifferent to its requirements.

Furthermore, the IRS is aggressive about collecting the 100% penalty. As a new Tax Court decision shows, it could g...(register to read more)

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