Tight on Cash? Pay Your Taxes First

The accounts receivable factoring specialists at PRN Funding, LLC came across an interesting article on TaftLaw.com last week discussing how the economic downturn has left some business owners picking and choosing when and how much to pay their creditors.

The article, Cash Sqeezed? Best to Pay Taxes,  zoned in specifically on a company’s, and in most cases, an individual’s ever-present obligation to pay federal payroll taxes and state and local taxes.

The article specifically said, “The federal tax laws impose personal liability…upon those officers and employees…who have responsibility for filing payroll tax returns (primarily Form 941) and seeing to it that these taxes are paid.” These individuals are called “responsible persons.” In other words, if the IRS determines that payroll taxes have fallen behind, it will place liens on the property of “responsible persons,” garnish their wages and levy on their bank accounts. This same principle holds true in most states when companies fail to remit sales and use taxes to the state government.

Long story short, business owners don’t usually think of themselves as having personal liability for the debts of their business, but federal payroll taxes and sales and use taxes are the exceptions to the rule.