Today I received the sad news that a client was going to have to close his doors because the financial pressures were just too much and he couldn’t raise the capital to stay afloat. Over the years I’ve come to consider him a friend and it is very sad that this is the end of our professional relationship. That said; there is a lesson that he’s had to learn the hard way that I hope can serve as a cautionary tale for someone reading.
The Client had decided to try to keep things going by choosing not to pay his payroll taxes rather than any other means. He did try to get financing but by then it was too late. We tried to talk to him about not doing exactly what he did but he didn’t listen. We tried to let us deduct the taxes from his account each pay period and pay them for him but he objected. The lesson is not “Always listen to your Payroll Provider”. We’re a pretty bright group and all but we didn’t want to be right and we’re not always right. The lesson is “ALWAYS STAY CURRENT ON YOUR TAXES!”
I know that it can seem easier to pay it later but there are a couple of things that ultimately foul up that idea. First, the interest and penalties can be staggering, especially if you compound it by choosing to not file your tax returns. Your worst credit card has better terms on cash advances than the State and the IRS. Second, the IRS and State will not just go away if you close your business. You can’t file bankruptcy and erase the tax debt. The government may choose to work with you but more times than not, the effective cost of money from them is still much higher than anywhere else. In the end, you’ll personally owe the government even if you’re incorporated or an LLC. Believe me; they’ll get theirs from you one way or another. They take any tax refunds you might ever get, place liens on your property and levy your bank account. It’s a terrible place to be.
Now, some of you may say that if he had paid his taxes as he went along, that he still would be out of business and he wouldn’t have made it this far. You know what? You’re right! But, what did these extra months or years get him? He got more debt that he’ll owe the government. I think if he had a time machine he’d happily go back to that day he missed the first tax payment and stop the losses right there.
Others may say that this is a plug for having your payroll provider take your tax money and pay the taxes for you. It’s not. I always allow the client to choose if we pay the taxes for them or if they do. There has never been an additional charge either way. Personally, I prefer the client to pay them as it takes the liability off me and my personal guarantee to pay any penalties and interest for late payments that were my responsibility. Not that I’ve ever had issues with it and I never plan to but sometimes crazy things happen.
The friend’s business was going to fail. Businesses fail every day. My friend will survive. But it didn’t have to be this bad.
