As a small business owner, it has become CRYSTAL CLEAR, that the IRS, and all local, State, and Federal agencies have absolutely NO interest in making things easy, or streamlined, for the average Joe. In most instances, things are so complicated and convoluted, that the entire system is set up to inherently F*^K YOU, without you even knowing it.
What time? I've had so many issues, I can't count them all on both hands. Should it be this way? No. Why is it this way? Because even though most people who work at the IRS are not complete experts on every facet of the tax code, THEY EXPECT EVERY SINGLE AMERICAN TAXPAYER TO BE ONE!
Here are a few things that happened to me.
1.) YEARS AGO, I started my business and for the first year, I paid the sales tax that I collected from Floridians to the State of Florida, every month. I didn't know what a "Lawful Deduction" was, or that I could simply NOT PAY the sales tax I was collecting, if the sales tax I was paying out for good I was selling, exceeded that of the sales tax I was taking in. Did you get all that?
If I buy $1,000.00 of stock from a company in Florida, that refuses to accept my resale certificate, (They have a right to refuse to accept it - for any or no reason at all) then I have to pay Florida State Sales Tax on that purchase. It varies, but for this example, I will use 7%. So, I would pay $1,070.00 for $1,000.00 in merchandise.
After that, If I sell a $100.00 item to a fellow Floridian, and I collect that same 7% sales tax, I have to pay it to the state at the end of the month (Actually by the 20th of the following month. They give you 20 days to pay) So, I'm paying $70 in tax, and my customer is paying me $7.
Let's say these are my only two transactions for that month. How much do I owe in tax at the end of the month? Legally, I owe ZERO. I paid out $70 when I bought the merch, and I received $7 in tax paid to me, which compensates me a little bit, but I shouldn't have had to pay that $70 in the first place. So at this point, the State of Florida owes me $63.00, right?
So what is one to do? Well, this is what the State of Florida Department of Revenue says; and I do not quote - this is general knowledge. Basically, if I pay sales tax on items I buy for resale, I am owed that sales tax back. I can file for a refund of that sales tax. And so that is what I did.
The first year I paid OVER $110,000 IN SALES TAX to the state of Florida for merchandise I bought, to resell, and had to pay Sales Tax on it. I took in Less than $6,000 in Sales tax all year, but I paid that to the state each month, thinking I would get my money back at the end of the year....
2.) Way back when, in 2018, family members started asking me for a job. As a small family-owned and operated business, we kept most of our inter-family compensation strictly in the family. Farms and other tight-knit family businesses work this way. Many parents working the farm don't pay their kids. But that doesn't mean their kids aren't going to work on the farm! And the same goes for me!
Well, as things happen, one of my relatives asked for a job and wanted me to pay "on the books", take out taxes, etc, etc. Worst thing I could have ever done. What a fricking headache. But, I did it because, well, I was dumb. And because; we do things for the family that we don't think are going to cost us a LOT more than we figure. So... they came to work, and I paid them. And then, at the end of the year, I had no idea that there were TWO entities I had to pay unemployment tax to. OH yeah! Did you know? A lot of people don't know. But here in Florida, you gotta pay STATE Unemployment tax, and then at the end of the year, you gotta pay FEDERAL Unemployment tax. I didn't know that. Oh, and State (SUTA) is paid every quarter, while Federal (FUTA) is paid annually.
3.) I got the old Hucklebuck behind the local Seven-Eleben in 2020 when the IRS decided to take a whiffle bat to my hacky-sack if you get the meaning. Out of the blue, the IRS Sent me a check for $174.80 and said "Due to our calculations, you OVERPAID in the second quarter of your federal withholding taxes for payroll. Even though, when you file your quarterly 941, you instruct us to apply any overpayment to the next return, since this was for 2020 (And it was then 2021) we have issued you a refund check. I sat down, checked my records, and sat dumbfounded for a few days, wondering how on earth I could have paid them DOUBLE in a single payroll payment. I keep meticulous records. Not really, but I'm good with numbers and so I catch my mistakes more often than not. LOL.
4.) In the best interests of not having this article be a six-hour read, I'm capping this at four prominent issues. I won't go into the Million dollar back taxes the IRS tried to hold me accountable for at the age of twelve, or my having to pay back taxes for almost 6 years accrued during my military service because the NMCRS royally screwed me to get repaid on a tiny loan they shoved down my throat. Instead, I will cap this with this year's self-employment tax burden. I was informed in a roundabout way, that my 2022 tax return resulted NOT in me getting a tax refund because I overpaid my estimated taxes, but instead, I got a notice saying I had paid NOTHING, and all my efforts to pre-pay my taxes were in vain, and I was still being penalized. Oh yeah, and, I owed them every penny I had already paid...
LET'S GET INTO IT.
So, for starters, the golden rule is this: Ye who has the gold, makes the rules. A very close second is: Possession is nine-tenths of the law. A better way to think of it, is this: If you let it leave your hands, don't ever expect to get it back.
1.) In response to my filing for a refund of the Florida Sales Tax I paid on items I purchased for the sole intent and purpose of reselling, I was told that the State of Florida was more than willing to refund me the tax I paid. All I had to do, was send them a letter, signed by the company from which I purchase the stock, which originally REFUSED to accept my resale certificate. This letter is called something like a "relinquishment of rights to tax paid" letter, and basically what it says is this: Joe Schmoe bought stuff from us, and we refused to accept his resale certificate. We made Joe pay Florida State Sales Tax, but we're signing away our rights to the tax he paid us, which we paid to the state, and instead, Joe can have that tax, and we will find a way to settle up with the state at a later date.... Oh, and they need a separate letter for every receipt, thousands of them, each one of them signed, by hand, by an authority with the company.
If the company isn't willing to just accept a resale certificate, then why on earth does the State of Florida think a company is going to sign away their rights to the tax I paid??? Well, it's simple. They don't. But to everyone else who this doesn't affect, it seems like they have a very simple and legal plan in place and are willing to reimburse small business owners this sales tax they have to pay. The reality is that the State of Florida LOVES receiving this constant tax flow into their coffers, for which the small businesses will NEVER get a penny back.
From the day I received that notice, I have NEVER paid a penny of Florida State Sales Tax I have received because the amount I receive in tax, is a pittance compared to what I pay out. And now, for those who say, well, that's the way things work, you can be assured that my customers, ALL OF THEM, pay that extra 7% because I have no choice but to add it to the purchase price of the item when I sell it. And if a person from Florida buys from me, I refuse to accept their resale certificate as well, because I need every penny back, that I can get. This is one of the reasons why only gigantic businesses operate out of Florida, and most other small businesses, trying to do business legally, move out of state.
Issue two. In 2021, I received a notice from the IRS saying that way back in 2018, I failed to file a quarterly payroll tax filing. When I looked, I didn't see anything out of the ordinary. I went through my records, couldn't find a payment. Couldn't find much of anything. While I knew my new family employee started getting paid in 2018, I couldn't find out what DAY they started. Apparently, a single day can put you in the wrong quarter, and failure to pay a simple, less than $10 amount, can incur a late fee, a penalty, a failure to file penalty, additional late fees, interest, compound interest, and more. In the end, I paid what the IRS said I owed because I couldn't find the canceled check showing I had paid it, from 3 years prior, because when I finish my taxes, I put them in a box and send them to my storage unit. Luckily, by the time they caught it, or me (tongue in cheek), the total was only $300+ dollars!!!! Yes, a $10 fee, turned into $300+ in less than 3 years. No notice, no late notice, no warning, nothing. Just "Hey! Guess what? Did you forget something three years ago? Yeah. Well, why don't you just send us over, uhhh, 3000% more now! Thanks!"
Issue three. UGH. While I was sitting around contemplating whether to deposit said $174.80 check into my bank account, I got this funny feeling. What if... like the other times, what if this turns out to be something bad? Like, really, really bad? Will they fix it? Or will they rake me over the coals? I figured they would use a razor rake, the kind for removing stubborn grass and weeds, and leave me barren like a newly scoured landscape. SO, I waited.
Sure enough, a week later, I got my late notice. It read something like this: "According to our calculations, you underpaid in the third quarter of blah blah blah, and that amount was $174.80. Therefore, we've applied a late fee, a failure to pay penalty, and a fine. We've also assessed interest on the total, compounded each billing cycle, and you now owe the IRS $380+, Due immediately. Thank you."
I was on the phone the next day but, this was Pandemic time, and I couldn't get through. Every day I would get on the phone and call. By 9 a.m. I was getting a message that said that, due to significant call volume and people who were waiting ahead of me, I would not be able to be connected with an IRS representative that day, and that I should call back the following day. BY NINE a.m.!
Eventually, I got through, by calling at 7 am! I waiting on hold for three hours, and when I got ahold of someone he gave me simple instructions. "Send the check back with a note that says: please apply this check to this quarter, retroactive to that quarter's filing date requirement". And I did. And, for the next SIX MONTHS I received weekly notices from the IRS that they COULD and WOULD confiscate my home, my car, seize my bank accounts and my business, shut me down and ruin my entire life, if I did not pay the $380.00 as owed, DUE IMMEDIATELY. Mind you, the guy had already put a note on my account, explaining what had happened, and that the IRS had mistakenly applied a payment to the wrong quarter. IT WAS THEIR FAULT, but because they had sent a check, that money was unaccounted for...until they could process my request...which took them six months. I even received a letter from the IRS, two months into it, confirming they had received the check, and that they would fix the issue, but that they were backlogged and that it would be a few months before they could get to it.
Don't get me started on the fact that I had to send a copy of all my quarterly tax filings to my local IRS agent through all of 2021, because the federal IRS branch was 6 to 9 months behind on processing returns. That is a whole different story.
Lastly, on to issue number 4. So, in 2021, I owed tax. Because I failed to "pre-pay" my tax owed, I was penalized. I had no idea. When I was growing up, my teachers always told me, people who paid in advance were SUCKERS. They always told me to max out my dependents, put the tax in a bank account, get interest on it, and at the end of the year, file my taxes and send them a check for what I owe. "Make your money work for you!" they said. Well, apparently those days are gone. Now, you pay taxes when you earn your money. If you don't, they'll penalize you, fine you, charge you interest and fees....
So, in 2022, I pre-paid my tax to the tune of a couple thousand dollars. Every payday, when I paid the withholding taxes, I would pay an additional amount, to compensate for my own taxes. I mean, heck. I'm paying the IRS for my employee's withholding, their social security, FICA, etc, and my employer contribution, I might as well throw extra in there for my own taxes! The key, I was told, was to make sure I paid MORE than what I owed the previous year. That was the requirement. Even if I was having a bad year, even if I would owe nothing, PRE-PAY that amount. I'd get it back and I would thank my buddy for the advice.
So, as you can imagine, it was quite a shock to receive a notice from the IRS saying that I hadn't paid a DIME, and that I still owed these thousands of dollars! After four hours on the phone and three people trying to help me, I got the distinct feeling that the IRS has-not-a-clue how their own system works. Furthermore, they have no idea how their forms and website work either.
As a sole proprietor, a person can act as a small business. Without employees, it's called: being self-employed. This means you get "self-employment" tax. Now, when you decide to pay an employee, and you have to start taking taxes out of their paycheck and pay that to the government, you have to get an EIN. Employer ID Number, basically. It's like a social security number, but for your "business entity". Why they don't just use your social security number is beyond me, but they don't.
So, with the EIN, you can pay your withholding taxes, file your returns, do all that fun stuff you never want to do. It's so complex and convoluted and the IRS is still using straight paper forms, and even their stuff online is rudimentary. Shoot, the State of Florida has automated forms that calculate amounts based on what you put in, but the IRS can't seem to get on board. It's SIMPLE HTML for God's sake! Anyway....
So the gist of the issue is, even though I pre-paid all my taxes, I paid them electronically, as I incurred them, and at the end of the year, even though I paid all the tax I would have owed, and more, I paid it under my EIN. According to the IRS, I cannot pre-pay my tax, my own withholding tax, just like I do for my employees. Oh no. For that, for myself, as a business OWNER, I have to send in paper checks, every quarter, with paper deposit slips. I could die. I mean, I quite literally could die.
The IRS was gracious enough to transfer the THOUSANDS of dollars from my EIN account, to my personal Social Security Number account, retroactive to the filing date, which means I will no longer pay the $30 failure to pre-pay penalty, or the fine, or the interest since April 16th, or whatever day it was due. Shoot it was almost an extra hundred dollars already! But, all of that is gone now, and I should expect to receive my tax refund for 2022, sometime in 2026. HAHAHAHA. Honestly, I don't even expect to receive it.
I've already paid an extra couple hundred dollars in the first quarter, and a seperate payment on top of that, through my EIN, because, up until a few days ago, I thought that was the right thing to do! I'm paying my SELF-EMPLOYMENT BUSINESS TAXES!!!! But, even though I am self-employed, and I have business taxes, the taxes I owe, those same Self-employment taxes, are my PERSONAL taxes, according to the IRS. Well, no worries. I got two more months to work the payroll log and put my overpayment towards employee withholding and all that. No biggie. Now all I gotta figure out is, how do I turn back time and make that independent payment via check with the paper deposit slip, with my social security number on it, prior to the first quarter filing date requirement???
Sounds like another failure to pay fee, late fee, failure to pre-pay fee, and I can already feel the interest compounding in my bones!
I hope you all enjoy reading my submissions! Please like and subscribe, and if you're looking for anything specific, let me know! I'm currently writing a number of books and love posting supporting short stories here for everyone to enjoy. If you read about any of my characters and would like to know more, please let me know!
About the Creator
It's been ten days
The longest days. Dry, stinking, greasy days
I've been trying something new
The angels in white linens keep checking in
Is there anything you need?
Thank you sir.
Tyler? Is that you?
I am... Cornelius.