Small Business Tax Issues
Support resources for business owners navigating payroll, S-Corp, and contractor compliance. Educational content only — not tax advice.
Articles in This Section
Missed Payroll Filings
Employers are required to file Form 941 (Employer's Quarterly Federal Tax Return) to report payroll taxes withheld from employees. Missing a 941 deadline results in a failure-to-file penalty plus potential interest and penalties on any unpaid deposits.
The IRS tracks payroll filings closely and will contact employers who fail to file. A series of missed filings can escalate quickly to collection action, including the Trust Fund Recovery Penalty against responsible individuals.
Filing delinquent 941 returns — even late — is always better than not filing at all.
Key Takeaways
Back Payroll Taxes
Unpaid payroll taxes (941 balances) are among the most serious tax obligations. The IRS assigns high priority to payroll tax collection because these funds include employee withholdings that were collected on behalf of the government.
Back payroll taxes can result in the Trust Fund Recovery Penalty (TFRP), which makes owners, officers, and certain employees personally liable for the employee portion of unpaid taxes.
Payment plans are available for back payroll taxes, but the IRS monitors compliance closely during repayment.
Key Takeaways
S-Corp Compliance Issues
S-Corps must maintain ongoing compliance with IRS requirements, including timely filing of Form 1120-S, reasonable compensation for shareholder-employees, and payroll tax obligations.
Failure to file Form 1120-S on time results in a per-shareholder, per-month penalty. Failure to pay reasonable compensation can trigger IRS reclassification of distributions as wages — resulting in back payroll taxes and penalties.
S-Corps that cease to meet S-Corp eligibility requirements may have their election terminated involuntarily.
Key Takeaways
Late Form 2553 Elections
Form 2553 is the election form for S-Corp status. It must be filed by March 15 of the tax year for which the election is to take effect (for calendar-year corporations).
The IRS allows late S-Corp elections in certain circumstances through a relief procedure. If eligible, you can request relief for a late 2553 by filing with a statement of reasonable cause for the late election.
Not all late elections are approved. The IRS evaluates whether the corporation intended to be an S-Corp from the beginning and whether all shareholders consented.
Key Takeaways
1099 Compliance Mistakes
Businesses are required to issue Form 1099-NEC to contractors paid $600 or more during the year. Missing or incorrect 1099s can result in IRS penalties ranging from $60 to $630 per form.
Penalties apply for: failure to file, failure to furnish the recipient copy, filing late, or filing with incorrect information. Small businesses can face significant penalties for multiple 1099 errors.
The IRS matches 1099 information against recipient returns. Discrepancies can generate notices to both the payer and recipient.
Key Takeaways
Hive Tax Book
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Frequently Asked Questions
Can I set up a payment plan for back payroll taxes?
Yes. The IRS accepts installment agreements for back payroll taxes, but requires that you remain current on all future deposits and filings while repaying the delinquent balance.
What is the Trust Fund Recovery Penalty?
The TFRP is a personal liability penalty assessed against individuals who were responsible for collecting and paying payroll taxes and willfully failed to do so. It equals 100% of the unpaid trust fund taxes (employee portion).
Related Resources
Educational content only. Not tax or legal advice.