New Tips And Triks For You

The countdown is on! Only a few days left until April 15, the deadline for filing individual income tax returns, which includes Schedule C for sole proprietors. If your business is incorporated or an LLC electing corporate tax treatment, your due date was March 15. If your corporation filed an extension the due date is now September 15. Sole proprietors filing an extension face a due date of October 15.

Bear in mind that regardless of what type of entity your business is established under, an extension to file tax returns is not an extension of time to pay. Therefore, if you anticipate a tax liability, it is important that you remit payment with the extension form.

Depending upon the state in which your corporation does business, a minimum estimated tax payment for the current year is also likely due on April 15. Check with your tax pro or your state taxing agency to determine if this is a requirement and to find out how much to pay.

Sole proprietors and partners in a partnership must pay the first installment of federal and state (if applicable) 2014 estimated tax payments on April 15 as well.

But what if you don't have enough cash on hand to do both?

If you are unable to meet your 2013 liability and make the first installment of the 2014 estimated, I encourage you to give the 2013 liability priority. The penalties are not as harsh for failure to prepay a current estimated payment as they are for failure to pay the prior year liability. You have the remainder of the year to catch up.

Regarding estimated payments and penalties, the IRS states: "Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen. Please refer to Publication 505 Tax Withholding and Estimated Tax, for additional information."

You might be facing another dilemma as well: should you pay your income taxes or pay your payroll tax liabilities. If you are a monthly depositor of payroll taxes, your March liability will be due on April 15. The answer is to always choose payroll tax liabilities over income tax liabilities.

Here's why: The IRS views payroll taxes as a trust account and that's exactly what it is. When you promise to pay a person $20 per hour, let's say, you end up writing a check with net pay equivalent to approximately $15 per hour give or take. The difference between the gross pay and net pay are withholdings: the employee's federal income tax liability, state income taxes, social security and Medicare taxes (which you are required to match). This is not your money to play with. You are required to turn it over to the government. Failure to do so can create not only severe penalties and interest but the exacting of a civil penalty not on your business but on you personally for $100% of the tax liability.

The severity of a civil penalty may actually put you out of business.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, "Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know." Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.