Did you know that 46.9% of all people who file tax returns pay no taxes at all?
Did you know that people who represent the top 10% of wage earners (adjusted gross income of $112,124) pay 70% of the taxes?
Yes it is true. Almost ½ of all people who file tax returns don't pay any taxes. In fact, the bottom 50% of all tax filers (people with adjusted gross income of $32,396) pay only 2.25% of all taxes.
You, the small business person typically falls into the top 10% of all tax payers. I have yet to hear one of you say "I am ok with putting my hard earned money at risk building a business and making money so almost 50% of the people can pay virtually no taxes at all".
The data above is based upon 2009 tax returns and is straight from the IRS. I am not making this up!!!
The political jockeying and rhetoric is at a fever pitch since this is an election year. We have all heard the President talk about increasing the tax burden on those who make over $250,000. That sounds like a lot of money to the guy who is only making $32,396. So of course, the low wage earner is in support of that solution. Why wouldn't he be in favor of it! Great, tax the other guy!
So what can the small business person do?
The current political tide is not in your favor. With deficits soaring and the politicians catering to the guy that isn't paying much in taxes, it doesn't look good. There is lots of discussion about the Fair Tax which is basically a national sales tax and the Value Added Tax which is a taxing system common in Europe but nothing is likely to be done this year to our tax system. So what can you do now........?
Make them pay!
Yes. Make the other guy pay his fair share. How? Put everything on the W-2. Stop paying cash to your employees as spiffs and bonuses. These types of payments are required to be declared on their W-2's. Make sure you send a 1099 to your contractors, lawyers and others who must get a 1099. The IRS knows these are the guys who under declare income but can't catch them unless you guys send them W-2's.
The Big Stick of the IRS
So if your desire to get "the other guy" to pay his fair share is not incentive enough, then Congress has increased the penalties with which the IRS can slap you with. So pay attention to this......
- The penalty for failing to file a W-2 or a 1099 increased to $100 per return (up from $50)
- If corrected returns are filed within 30 days of the due date (or you file your return late), the penalty is $30 per return.
- The penalty for filing corrections more than 30 days after the due date (or filing late), but before Aug. 1 is $60 per return
- The penalty for failing to file due to intentional disregard has increased from $100 to $250 per return.
One W-2 or one 1099 counts as a return. So the more you don't comply, the bigger the penalties.
Change of Attitude
I challenge each of you to make sure your business has the right attitude. Encourage a culture of declaring what is paid. Don't pay employees under the table. Don't pay contractors without a W-9 in your hand. If they do not furnish you with a W-9, the law requires you to withhold 28% of their pay. Once you hold back payment, the W-9 will land on your desk in a hurry.
Also, make sure you are using your accounting system to record all relevant information. 1099 reporting is not easy in QuickBooks, so if you want help, please give us a call.
Stay tuned to our almost weekly newsletter, because we will be giving you more details on 1099 rules.