While entrepreneurial ventures inherently carry risk, one of the most effective ways to reduce that risk is to cultivate a reality check. It’s always a challenge to create accurate financial forecasts. It’s essential to have correct numbers and also know how to interpret the data. That’s never been more important than when setting aside sufficient funds to keep the Internal Revenue Service happy. You definitely want to do that, because it ensures you will get a sound night’s sleep!
This appears simple on the surface, but many a start-up entrepreneur who is desperate to maintain the lifeblood of a new business — cash flow — faces the temptation to rob the tax remittance account. This is not a good idea! Even for an established business, historical data may give a business owner a false sense of security that ‘just this once’ it’s OK to tap tax payment set asides to cover a shortfall in business revenues. Consider this: What happens when sales subsequently fall off a cliff or a small-business owner becomes critically ill?
It’s all too easy to get in over your head with the IRS as a result of mounting penalties levied by a government that has become more aggressive in collecting tax revenues. According to the agency, the only excuse that will fly is ‘reasonable cause.’ Sorry, but a finding of ‘willful’ neglect will just add to your misery, as penalties certainly will be levied in that case.
Avoid this money trap by ensuring you are accurately calculating and remitting your required federal taxes. And don’t forget your state taxation requirements, too. Many states are desperately strapped for revenue, and you may find the tax collector will come knocking on your door sooner rather than later. Whatever you do, don’t ‘borrow’ from the IRS.