In the income tax world, tax professionals often cringe when a client tells them that their information is the “same as last year.” The acronym for this is SALY.
SALY information is dangerous and should always be avoided; this is true for income tax and for many other situations as well. A Best Practice is for Business Owners to review their operations, on at least an annual basis, to ensure that which was true last year, still remains true for the current year. Don’t rely upon SALY.
Owners and/or Managers may be accustomed to an annual review for select items. Let’s use insurance as an example. Each year, before you renew your business insurance policies, you need to provide current exposures, to be used as underwriting criteria, to price your renewal policies correctly:
- Building and Personal Property values
- Payroll, by classification, for Worker’s Compensation
- Vehicle and Driver information for your Auto policy
Smaller items, if not watched, could “fall through the crack” and roll over, year after year, with the SALY data. While this may be the easy way to do it, it can also lead to the expensive way to do it. Financial penalties and/or legal costs can be costly.
Checklists are recommended tools for process improvement. Regular and thorough use can reduce errors, improve safety, and potentially save money, which can improve or protect the bottom line on our financial statements.
I encourage you to consider creating a checklist with items to be reviewed each year, on/about the same date, and to briefly document and date your answers. A process like this is good risk management and may provide a little audit insurance, if you are audited, because it shows you know, you reviewed, and you documented. At least you tried.
If you want to create a year-end checklist, here are 3 ideas to help get you started :
- Do the people you pay as an Independent Contractor, work in that capacity, by IRS standards or should they now be Employees? Use the IRS 20 factor control test as a guide.
- Do you pay your Employment Tax Return obligations on time? The Required Deposit can change from Monthly to Semi-Weekly. IRS PUB 15 shows: “Before the beginning of each calendar year, you must determine which of the two deposit schedules you’re required to use.” This is important because a deposit penalty may be accessed for every time you do not pay on time.
- Do you know who is a Responsible Party at your company for “Trust Fund Taxes”? Do they know too?
The 3rd suggestion is a bit of a curveball (Baseball Sidebar: I am excited because the World Series starts tonight), and is included to build awareness for something most business people, generally, do not know, but should, if it applies to them. This isn’t important if payroll taxes are always fully paid, on time. However, if they are not, IRS PUB 15 Employers Tax Guide shows:
Trust Fund Recovery Penalty :
If federal income, social security, or Medicare taxes that must be withheld (that is, trust fund taxes) aren’t withheld or aren’t deposited or paid to the U.S. Treasury, the trust fund recovery penalty may apply. The penalty is 100% of the unpaid trust fund tax. If these unpaid taxes can’t be immediately collected from the employer or business, the trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so.
Responsible Person as :
A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, or paying over trust fund taxes. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.
Closing Thoughts :
Education can prevent problems; hopefully, you learned something today by taking the time to read my blog. I wrote it to help you avoid financial risk and also avoid, potentially, learning the hard way by experience.
Fall is the perfect time to work on your business to prepare for year-end close and a new year. When winter arrives on 12/21, most of us are out of time and are busy with family, holidays, and work.
If I can answer questions or help you, please let me know. Thanks for Reading,
Deborah Ann Fox, CPA helps Small Business Owners & Individuals build and protect their financial wealth though education, strategy, and proactive tax planning.
She offers free 30 minute no obligation consultations.
E-Mail me @ firstname.lastname@example.org
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The blog is provided as general information only and should not be considered a substitute for specific advice and services of a Certified Public Accountant, Enrolled Agent, or an Attorney