'Borrowing from a Loan Shark Seems Cheap by Comparison,'
says Rusty Luhring, Founder of Luhring SurvivalWare
ALEXANDRIA, Va., April 7 /PRNewswire/ -- The IRS recently published filing
and penalty statistics for FY2004. A whopping 6.4 million penalties were
doled out on the 30.4 million employer withholding returns filed -- a rate of
over 20%. A total of $2.47 billion in penalties was assessed.
Rusty Luhring, founder of Luhring SurvivalWare, asserts that the penalties
are not due to carelessness or ignorance of the rules. "In my experience,
over 90% of the companies that fall behind in their withholding taxes do so
because of cash flow problems. They may not plan to do it ahead of time, but
sometimes find themselves without the cash to make the payment on the day it
is due. It may take the IRS a few months to realize a payment has been
skipped, so at first it seems like easy money. But the penalties are stiff:
2% of the amount due for being just one day late, 5% for being 6 days late.
Borrowing from a loan shark seems cheap by comparison."
U.S. employers are the primary tax collectors for the IRS. They withhold
federal income tax, social security, and Medicare taxes from their employees'
paychecks, then kick in their share of social security and Medicare. Small
companies (with less than $50,000 in annual withholdings) can wait until the
15th of the month following a payday to remit these withholdings to the IRS.
Larger companies must pay within one to three business days.
Philip Campbell is not surprised at the penalty rate. In his book, Never
Run Out of Cash, on "how to eliminate your cash flow worries and take control
of your business," he cites a survey he conducted on cash flow management: 25%
of survey respondents said they did NOT know what their cash balance was, and
a further 79% were clueless about what it would be 6 months in the future.
"The 20% penalty rate is a sign that companies are really struggling to
understand and manage their cash flow properly."
Luhring SurvivalWare, Inc. was founded in 2002 and specializes in helping
small companies survive and thrive. It offers a free software package,
SurvivalWare Cash Planner, to help companies deal with a cash crisis.
SurvivalWare FM is available for sale, and offers pre-built financial models
to help small companies plan ahead. It is used to do financial analysis and
cash flow projections, and features automatic data loading from popular
accounting packages.
Philip Campbell is a consultant, the author of Never Run Out of Cash, and
a much in demand speaker at gatherings of small business owners.
|
