A 2013 study and report conducted by the National Taxpayer Advocate Service uncovered that the IRS specifically targets certain metropolitan areas for suspected underpayment of taxes, non-filing of taxes, and other serious tax problems. These metro areas includes Houston, Atlanta, San Francisco, Washington D.C., and Los Angeles. More specifically, the IRS often makes a thorough inquiry into the activities of individuals and businesses in the wealthy communities in and around these major metropolitan areas. In L.A., for example, the wealthy communities of Beverly Hills and Newport Beach receive a disproportionate amount of attention and enforcement actions including tax audits.
Industry watchers state that this is simply the product of the IRS looking where the money is. At least one level this makes sense because as incomes increase, the likelihood of a tax audit also increases. Furthermore, these communities are also likely scrutinized because of the concentration of small businesses in their borders. The IRS targets small businesses because businesses in certain industries such as real estate and construction firms are known to have relatively low rates of tax compliance. Small businesses also often lack the resources or follow-through to ensure that tax compliance is achieved. However, from the perspective of an individual taxpayer such actions seem to be unfair and unwarranted. However, the experienced tax lawyers of the Hoffman Law Office can assist small business owners in L.A. achieve and maintain tax compliance.
Understand All Taxing Authorities to Whom Your Business Must Make Payments
Most people are familiar with the IRS and the taxes collected by the IRS that includes income tax and payroll taxes. However taxpayers in California must also work with several state tax agencies to fully satisfy their tax debt. The State of California Franchise Tax Board is charged with collecting California personal income taxes and corporation taxes. Additionally sales and use tax is administered by California’s Board of Equalization. Some small business owners may comply with their federal tax obligations, but overlook their state-based tax duties. Problems with the California taxing authorities can result in the state agencies discreetly reporting your non-compliance to the IRS. A federal tax audit can follow.
Failure to Account for, Hold, & Pay Over Payroll Tax By the Small Business
Failure to collect, hold, and pay over payroll taxes is one of the most common mistakes by small business owners. Unfortunately such an error can have devastating consequences for both the business, its owners and managers, and individuals in charge of handling the company’s books. In fact, conviction under payroll tax fraud charges are one of the areas where even incorporation or another business entity that typically protects personal assets is rendered ineffective. If a business owner is convicted on payroll tax fraud charges, it is likely that he or she will be held personally liable. Part of the reason for such a harsh penalty is that the business owner is merely holding the collected payroll tax in trust for the government. Failure to turn over the collected funds is viewed as defrauding the U.S. government.
Do Not Write off Personal Luxuries as Business Expenses
Taxpayers who use their business as a personal piggy bank or checkbook are taking a huge gamble. Not only are such actions relatively easy for the IRS to detect, the penalties for such behavior is harsh. Consider the recent tax fraud conviction of prominent Hawaiian telecommunications mogul Albert Hee. Mr. Hee was convicted due to federal prosecutors charges that Mr. Hee paid for family vacations, credit card debt, his children’s college expenses, and more on the company dime. Furthermore, he ordered accounts to pay a full salary with benefits to his wife and children despite them having little or nothing to do with the company and its operations. Throughout the ordeal Mr. Hee represented to company accountants and the IRS that the expenses were business-related and legitimate. However Mr. Hee was convicted on all counts for the charges he faced. Hee’s sentencing is scheduled for October 26, 2015. He faces up to three years in prison for each of the counts he was convicted under.
Los Angeles Small Business Owners Must Take Special Care in Tax Compliance
Since small business owners and taxpayers living in and around L.A. are subject to additional and intense scrutiny in their tax filings, the prudent thing to do is to ensure that your business is compliant with all of its local, state, and federal tax obligations. To schedule a free and private tax consultation at the Hoffman Tax Law Offices, call us at 800-897-3915 or contact us online.