Taxes, Penalties And Your Business

business (9)The cost of starting a new business depends on the business model or the industry you are entering. A home based, consulting home business or free lance is much cheaper that opening offices some place, and buying office furniture, installing new phones, electric, insurance, etc. The cost of starting a home based business could be only a few thousand dollars, compared to the figures of the small business administration a few years back that estimated the opening of a new business as $30,000.  The cost associated with opening and running a small business is high, but there are many expenses that you may be able to postpone or even get by without worrying too much about it.  One of the expenses that you can absolutely not postpone is getting an accountant that will take care of the taxes and government filings your business needs to do to avoid penalties that you could incur otherwise.

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Small Business Owners Have a $4.5 Billion Payroll Tax Problem

Every month, employers across the U.S. send money to the IRS to cover payroll taxes—levies drawn from employee pay to cover Social Security, Medicare, and unemployment insurance. Many botch the process. The IRS issued 6.8 million penalties totaling $4.5 billion related to these employment taxes for the year ending last September, according to recently published data from the IRS (PDF).

Those numbers are down from 2009, when the IRS issued 7.9 million penalties for $7.1 billion. The government doesn’t say what share of the fines were handed out to small businesses, but large employers are generally better equipped to stay current on ever-changing tax rules.

Why are businesses incurring enough in annual penalties to pay for a new Navy destroyer?

As companies get bigger or smaller and hire different types of employees, the rules they must follow can shift. Tax collectors often change rules on their own accord, meaning a business that paid payroll taxes on a monthly basis one year might be expected to pay every two weeks in the next. “There are so many little rules for a small business owner to stay on top of,” says David McKelvey, a New York-based partner at accounting firm Friedman.

McKelvey advises his clients, which generally have at least $1 million in annual sales, to outsource payroll services. Companies such as ADP (ADP) and Paychex (PAYX), to name two of the largest payroll firms, have the resources to stay current on tax rules and in many cases will guarantee customers against payment of IRS penalties, McKelvey says.

Small Businesses in Limbo Again on Tax Breaks

Small businesses are in limbo as they wait for Congress to make decisions that could save them a lot of money.

Bills in Congress would extend tax deductions widely used by small businesses making equipment or property purchases. One, known as the Section 179 deduction, has shrunk to a maximum $25,000 this year from $500,000 in 2013. Another, called bonus depreciation, expired at the end of last year.

The deductions are a big deal for small companies, saving them thousands or even millions of dollars on capital investments. But because Congress decides every year how big the deductions will be, owners can’t plan their equipment budgets until lawmakers vote. And in recent years, worried about the ballooning federal deficit, Congress has put off those votes, sometimes until late in the year.

The annual uncertainty hurts small businesses looking for a break when their combined federal and state tax rates run as high as 40 percent, says Doug Bekker, a certified public accountant with the firm BDO in Grand Rapids, Mich. They don’t know if they should make the purchase in the current year or defer it. And as the economy gets stronger and businesses are more profitable, they’re concerned about tax bills.

“If you talk to the typical small business out there, there’s a very high level of frustration,” Bekker says.

It’s getting cheaper to buy a small business in Baltimore

The cost of buying a small business in Baltimore has dropped by more than 11 percent during the last year, according to

The website reports that the median asking price of  businesses for sale in Baltimore is $255,000, a $33,000 decline (11.6 percent) from the end of the first quarter in 2013.

Meanwhile, small businesses are generating more revenue than they were a year ago. BizBuySell reports business had median revenue of $496,654 during the first quarter, up from $480,000 during the first quarter last year.

BizBuySell compiled its numbers based on listing data from 248 businesses.