Obviously, I shouldn’t even have to say this. However, you would be surprised at how many people either forget to pay their taxes or have used the money for something else by the time payment is due.
The penalties the government assesses on late taxes are draconian. Wise business owners set up alerts either in an accounting system and/or in a personal calendar to make certain it’s not forgotten. The best way to guarantee to have the cash to pay the taxes when due is to escrow the funds in another account at the time the liability occurs. That way, the cash is out of sight and there is no risk of coming up short on the day payment is to be made.
I had an experience with an acquisition several years ago that was sad and educational. The owner of a company we had been targeting for several years finally gave us the opportunity to at least start a dialogue. After several unanswered requests for his company information, I asked if I could come to his office one day and look at the data while on-sight. His office manager/bookkeeper had been giving him resistance, so he waited for a day that she would not be in the office. When I arrived, I was taken to her office and given access to financial information. The accounting system’s incomplete data shocked me. When searching the office for printed financials, I discovered a notification from the IRS stating that this business owner, who was unaware of his situation, owed hundreds of thousands of dollars for years of unpaid employment taxes. The IRS was weeks away from placing liens on practically everything he owned. The assessed penalties accounted for almost half the total. When we bought this gentleman’s company, everything we paid to him went to the government with a substantial amount still owed. I figure that years later, he continued to pay that bill.
