Tax Advice from Your Small Business Attorney
I recently heard a story about how someone’s husband’s early experience as a business owner, and some very serious tax issues he found himself in the middle of after purchasing a company from his parents. The most difficult part of the story is knowing, as a small business attorney, that the entire problem could have been avoided had the family sought legal advice either before the business changed hands, or once the family knew there were problems with the tax obligations the company owed.
Small Business Law and Tax Law
Unfortunately, this scenario is not uncommon; a mom and pop shop grows faster than their knowledge of small business law and tax law and they continue to operate on incorrect assumptions about the rules their small business should follow with regard to state, local, and federal taxes. By the time they realize they have made a mistake, rectifying the problem looks impossible. The worst choice is often the first choice; feeling overwhelmed and afraid, a small business owner may decide to look the other way and hope the problem goes away. In the case of the story I was told, the husband, his parents did just that, and as a result, they accrued a very large debt to the IRS which their son inherited as soon as he became the owner of the business.
New and Established Businesses
Whether your business is a one-person show or you have many employees, both your interactions with the Internal Revenue Service and the Colorado Department of Revenue can have consequences for your business. Failure to pay your taxes on time, withhold the correct amount for employment wages, or tax preparation done wrong can be devastating for both new and established businesses. This was the case for the husband in the story.
After the husband had moved his family to a new community and taken over his parent’s business, his mother mentioned in passing that the IRS had been calling her and she was not sure what they wanted. His heart was in his throat before he even picked up the phone, but the phone call made it that much worse. His parents had failed to pay their business taxes on time, and had failed to withhold and pay employee taxes properly. Their son had unwittingly taken on all of their tax issues when he became the owner of the business without having sought any business formation advice, or legal review, or business planning advice from a small business attorney here in Colorado, where the business was owned.
For this family, one meeting with a small business attorney who could provide tax advice regarding the best business structure before the business changed hands could have protected the son and helped the parents find a way to meet their tax obligations without the type of stress and worry approaching the IRS on their own created for them. Going back further in time, his parents would have been wise to get tips for paying the right taxes, and paying them on time as soon as the business started to grow and acquire employees and profits. They may not have thought about asking an attorney for tax help, but it would have been a wise choice. Even for businesses that do everything right, a letter stating the business returns are being audited can make a business owner worry, but facing the IRS on your own, as this family did, is a recipe for disaster. Make sure you have spoken to an attorney for tax planning before you ever get a phone call or a letter from the IRS.
If your small business encounters tax problems, or better yet, if you own a small business and haven’t met with an attorney to talk about tax planning, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney. Phone: 720-258-6647. Email: firstname.lastname@example.org
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