Business Compliance Issues – You did what?
It’s easy to start off wrong. A quick glance at any of the Federal, State or Local laws regulating business will show you why. Most of the instructions are complicated because they try to cover every situation. Knowing which laws apply to you is the first challenge. It’s hard enough getting the routing setup and elections down such as incorporating, getting a tax id# and electing “S” Corp status. What if you started a trucking business? There may be special state and federal highway use taxes you need to be registered for. Opening a deli? Special taxes for cigarettes and alcohol. I was mentoring an individual that wanted to shrink wrap lawn furniture and it turned out he needed a contractors license. These are some of the little annoyances that distract business owners.
That’s why I decided to insert this chapter in the beginning of the course right after lesson 1 where you cemented why you want to go into business. Some of this can be frightening and overwhelming, which is why many business owners don’t address the issues before they become problems. IE: Getting a notice about not having payroll, getting audited, etc…. Knowing what you are up against and who you may have to answer to will give you a tremendous leg up.
“We have met the enemy and he is us” Walt Kelly
This is a partial list as it seems that the more time goes by the more agencies appear. IE: Business owners can now be visited by agents of ICE (Immigration and Customs Enforcement) and be asked to produce documentation on their employees. I didn’t know this agency existed until this year when President Trump made illegal immigration. Last year Homeland Security visited one of my clients asking to see form I9 and other employment documentation. There are three main categories. Federal, state and local. Most people consider the IRS to be the watchdog but the truth is that they are usually the least of the problem.
|IRS||Income, payroll, excise, estate taxes…..||Late and unfilled returns & tax compliance, audits,|
|SOCIAL SECURITY ADMINISTRATION||Social Security taxes||All wages must match total quarterly payroll returns. If not, corrections must be made.|
|HOMELAND SECURITY||Legal status of workers||Can make unannounced visits requesting form I9 and other payroll info.|
|US DEPARTMENT OF LABOR||Click on the Agencies link||Wage and hour laws.|
|SECRETARY OF STATE||Legal formation, entity status||If your entity is not active due to non-filed returns there is no legal protection.|
|STATE SALES TAX||Sales tax collection and remittance.||Audits, late & unfiled returns, complicated laws.|
|STATE DEPARTMENT OF LABOR||Unemployment insurance, labor laws||Penalties for not posting required signs, audits and late and/or unfiled returns. Wage and hour laws.|
|STATE INSURANCE DEPARTMENT||Workers compensation, disability||Stiff penalties for not covering workers.|
|FAMILY & CIVIL COURTS||Wage garnishments||An employer can be held liable for not withholding court ordered wage garnishments for child support, civil actions, etc..|
|LOCAL||Various taxes and local laws in addition to Federal & State||Penalties for unfiled and late returns.|
|INSURANCE CARRIERS||Workers compensation, disability and general liability.||Workers compensation audits and worker classification.|
Insurance: I’ve written so many penalty abatement letters for businesses that were assessed penalties that I made a template for it. When businesses need to hire employees there are so many hoops to jump through that without the proper guidance it’s easy to miss the insurance requirements. This usually happens when the business owner does not have a good working relationship with an accountant and/or insurance professional. Many times business owners hire employees and just start paying them without understanding all of the tax and insurance requirements are.
Many business owners don’t know that subcontractors have to be covered unless they have their own insurance documented with a current, valid certificate of insurance. This can easily be picked up in an audit exposing the business owner to a large, unwanted extra premium. This is an especially big issue for construction companies.
Signage: There are requiring certain posters, information and signs that need to be displayed and or provided to employees. IE: Federal and State minimum wage laws, Current workers compensation and disability policy posters showing the policy is in force, sales tax authorization certificates, unemployment insurance certificates…. There are companies that provide posters that cover many of the federal and state requirements but they are not going to cover items like your unemployment insurance and workers compensation posters.
NYC recently passed a law where all employees had to be provided with a letter stating the company’s sexual harassment policy and display a poster about sexual harassment. I seen businesses get fined $5,000 for not displaying their unemployment poster.
Licenses: So many industries require some sort of license today that it’s impossible to list them all. I recently had an individual that wanted to start a shrink wrapping business. Wrapping lawn furniture up for the winter. We learned that this required a contractors license and getting one required working for a licensed contractor for 5 years. It seems as though as time passes there are more and more agencies springing up holding their hand out for a fee and holding business owners hostage according to some rules and regulations that often make no sense. Just opening a restaurant requires so many licenses, building permits, etc. that I stopped marketing my service to restaurants. It’s a hard enough business to run successfully and with all of the compliance requirements on top of what a regular business has to deal with makes it one of the toughest businesses to operate.
Audits: It’s not just income and sales tax audits business owners have to worry about nowadays. Because of technology and governments hunger for cash without raising taxes audits of all kinds have become commonplace. There are machine driven audits that come in the form of a letter requesting information, there are office audits where the business owner visits the auditor, on-site audits where an auditor visits the business and sometimes a combination. I just completed a sales tax audit for a client where we received a form letter asking us to call the auditor. He faxed us a request for documents, we compiled them and faxed them back. 15 years ago this audit would not have happened because it would require sending a field agent out. This audit probably took the agent 1 or 2 hours to complete. He can probably do 4 of them a day compared with 1 a day before. I have had unemployment insurance audits where they were looking for unincorporated subcontractors and union audits where they compare our payroll records to what was reported to the union. Paying workers “off the books” for overtime can result in having to pay them again “on the books” while paying all of the payroll taxes plus interest and penalties.
This is why having a good set of books and records is so important in today’s business environment. Audits now, of all kinds are inevitable. You don’t have to fear an audit when everything is in order. It just becomes another item on your to do list.
|Joe DiChiara CPA offers Small Business Advisory Services to passionate entrepreneurs that want to Start, Build and Manage a small business successfully. He enjoys being an “Out of The Box Thinker” and has helped thousands of small business owners start, build and manage their own business. In 2009 Joe discovered a new approach to business through “The Science of Getting Rich” written by Wallace Wattles and the inspiration behind the movie “The Secret”.
After successfully applying the SOGR principles as well as Napoleon Hill’s “Think And Grow Rich” to his own business, Joe discovered that there is a large market segment that is being overtaxed, unprotected and unfairly targeted by IRS. Every year over 3,000,000 entrepreneurs start businesses unaware of the dangers of operating as a sole proprietor with over 25,000,000 in the process of going bankrupt. This discovery inspired Joe to develop programs, tools, and resources to help stem the tide of these avoidable small business failures.
Currently, Joe is building an online school for small business owners www.bedrockbusinessbuildersuniversity.com and www.taxauditsmackdown.com which will help entrepreneurs create the books and records needed to survive any tax audit.
Joe is a #1 Amazon Best-Selling Author and you can Check Out Joe’s Books on Amazon by clicking here!
Do you have great business ideas but don’t know exactly where to start? Book a free 30 minute chat with me. All you have to do is CLICK HERE NOW!