IRS Requirement to pay your business taxes electronically

If you are in business you probably got a notice from the IRS recently telling you that you must pay your taxes electronically. This new rule takes effect January 1, 2011.

Up to now, businesses could pay most of their taxes by completing Form 8109 and paying their taxes at their bank. This system has been in effect for decades and worked well. The Internet has changed all that. It is now easier, and cheaper, for the government to have you use the Electronic Federal Tax Payment System (EFTPS) than to have you go to your bank to make the payments.

Use of the EFTPS system is required for business taxes. So if you must remit payroll taxes, income taxes, and various excise taxes, this system must be used starting January 1, 2011. Individuals may use the system to pay their federal income taxes and estimates.

Here is a link to some basic information about the system:

https://www.eftps.gov/eftps/direct/HelpAboutMain.page


The system is fairly easy to sign up for and to use. Here is the link to sign up:

https://www.eftps.gov/eftps/enrollment/new-enrollment-flow?execution=e1s1

You can always go to the IRS website at http://www.irs.ustreas.gov/ and search for information.

Massachusetts has required businesses to remit taxes electronically for several years. Information can be found at:

https://wfb.dor.state.ma.us/webfile/business/Public/Webforms/Login/Login.aspx

These systems are reasonably easy to use and will save you the time of driving off to the bank when you have to make these payments.

Question of the Day

A client called to ask if the State of Massachusetts was willing to forgive penalties on sales taxes that were paid late.

Here is one of the unfortunate facts about sales taxes. No matter what the business structure, the owner of the business is personally liable for sales taxes plus the penalties and interest on them. So the corporate structure will not shield the owner from paying these taxes out of personal funds.

There is a possibility that the state will abate penalties if it is the first time they have been imposed and the person can give a good reason for not paying them on time. This abatement is requested using form CA-6. Here is a website where you can find the forms. http://bit.ly/MassForms

It will take the state a minimum of two months to process the request, they will continue to bill you, and you will still accrue the penalties and interest on the balance due.

The best policy is to pay your taxes on time.

Can't Pay the IRS?

What do you do if you can’t pay the IRS the taxes you might owe in April? You have a few options:

You could borrow the money from a bank or your parents. You could put it on a charge card. Or you could borrow the money from the IRS.

Taxpayers have always had the option of paying their taxes over time by entering into an installment agreement with the IRS, a process that has recently been made easier. Historically, you had to prove you couldn’t pay the taxes in full before they would agree to a payment plan. Then the IRS realized they could save time and effort and raise more money by making the installment agreement process almost automatic.

To make such an agreement with the IRS you just need to complete Form 9465. You will have to divulge personal information such as your phone number and bank account information. You then submit a down payment and determine how much you will pay each month so you can pay off what you owe within one year. You can even pick a day when the payment is due and have the IRS automatically deduct it from your checking account each month.

Some good advice: Don’t skip a payment. The IRS gets really testy if you do. This could void your installment agreement and cause the IRS to put a lien on your bank account and other property. And expect a problem if you ask for an installment agreement every year.

Here is the catch: You are going to be charged interest and penalties on the balance due until it is paid in full. The total interest and penalties can rival charge card interest rates, so make the payments as high as you can afford, and pay extra if you can.

If you cannot pay your federal taxes, you may not be able to pay your state taxes either. The states also have installment plans in place to collect the taxes. However, if all the states are like Massachusetts, the process is difficult to go through. Usually, your state taxes are much less than your federal taxes, so my suggestion is to pay the state taxes in full if you can, and get the installment agreement with the IRS for your federal taxes.

Estimates

This is a real quick one.


Your estimates are due by January 15th. Ignore this if you have no idea what I'm talking about.