The IRS’s Role in Business Taxes: Explained

Tax

March 15, 2022

Written by Sheila San Miguel

The IRS’s role in business taxes is not entirely clear to many businesses. Whether you are an established and running business, or an entrepreneur trying to start a business, the role of the IRS will differ. They have different roles for different entities in the tax system, so we’re here to help you navigate through it. 

The IRS is one of the most important aspects of business taxation. As a business owner, it is crucial to understand the IRS’s role in your taxes and how to work with them, and fully grasping their structure and its role in business taxation may seem like a lot to understand at once. So we’re here to give you a rundown on everything you need to know about the IRS. 


What Is The IRS? 

Internal Revenue Service (IRS) is a bureau of the Department of the Treasury that collects taxes by enforcing laws established by Congress. The IRS was created in 1862 (just after the civil war) by then-President Lincoln to collect individual and employment taxes.

The IRS is a necessary part of America’s financial infrastructure. It keeps our nation’s cash flow in check by collecting taxes from businesses. All the rules and regulations are put in place to protect everyday citizens from those trying to circumvent the system. Charles P. Rettig is the 49th commissioner and current head of the IRS. Commissioner Rettig oversees the nation’s taxes, enforcement, and compliance system.

The IRS has a few main roles in the business world. They are involved in both consulting and reporting. The IRS consults with businesses to help them understand the tax code and how it applies to their specific situation. The IRS also provides guidance on what records need to be kept, how income should be reported, and other compliance matters.

Many times businesses will need to seek clarification from the IRS before they can file their taxes correctly. This is where the reporting comes in. The IRS publishes detailed information about what businesses need to report and when they need to report it

What Does The IRS Do?

The IRS plays a pivotal role in taxation by enforcing the laws established by Congress and transforming them into precise regulations, rules, and procedures. The responsibilities of the IRS can be broken down into:

Tax Collection: Collecting income taxes from individuals and businesses

Taxpayer Services: Assisting taxpayers regarding all taxes, fees, and permits

Tax Law Enforcement: Enforcing tax laws through audits, collections, and criminal investigations

The IRS is also responsible for the administration of a few specific taxes, including:

– Corporate Income Tax: Levied on the profits of corporations

– Estate and Gift Tax: Imposed on the transfer of assets upon death or gift

– Excise Taxes: Charged on specific products and activities, like gasoline and cigarettes

Understanding How The IRS Is Structured 

Now that we’ve covered what exactly the Internal Revenue Service is and its duties, it’s important to understand how it works within our government system.

There are many different departments within the IRS: Legal Counsel, Appeals Office, Criminal Investigation Division, Large and Mid-Size Business Division, Small Business/Self-Employed Division, Wage and Investment Division. Each department has a specific role in the tax collection process:

The Criminal Investigation Division investigates potential criminal violations of the tax code. They work with other law enforcement agencies to pursue investigations into crimes such as identity theft, money laundering, and refund fraud.

The Wage and Investment Division is responsible for administering the payroll taxes that fund Social Security and Medicare. This division also oversees the Earned Income Tax Credit (EITC), which benefits low-income working families.

The Appeals Office hears taxpayer disputes and represents taxpayers before the IRS Examination function.

Understanding how these different departments work together will help you better understand how the IRS operates as a whole. It’s also important to know who to contact when you have questions or need help with your taxes. 


Interacting with the IRS

Interacting with the IRS is inevitable. As a taxpayer in the United States, regardless of how you file your taxes (electronically or with external professional help), it all ends up at the IRS. So, while you may never have to speak with an IRS team member directly, contact will be made at one point or another.

The best way to interact with the IRS is by being proactive and understanding your tax obligations. Stay informed about changes to the tax code and how they may impact you. If you’re not sure about something, ask questions— There are qualified tax services that may help guide you in the process. 


Consulting 

Consulting services provide help to businesses trying to understand their tax obligations. Their area of expertise can include determining your business’s taxable income, figuring out which deductions and credits you qualify for, as well as ensuring your business is following applicable rules and regulations. These consultants also guide how to file your taxes correctly.

When you file your taxes, you are essentially also consulting with the IRS. They will help ensure that all of the information on your return is correct and up to date. If they find any errors or discrepancies, they may request additional documentation from you to ensure that everything is accurate before processing your tax refund check or issuing a penalty for failing to report certain items properly.


Reporting

Reporting is another important role of the IRS regarding business taxes. Each year, every business must file taxes with the Internal Revenue Service to contribute their portion of federal income tax. Each business is expected to report its gross income from every transaction that occurs throughout the year, which includes payments received for goods sold or services performed during normal operations and other types of revenue such as interest, dividends, and capital gains on investments made by the business entity.

Not all profits may be subject to taxation,  it depends on how much profit was made after expenses were deducted. Regardless if taxed or not, it’s still required that businesses submit everything so it can be reviewed by an auditor to ensure accuracy and compliance.

The role of reporting is also important when it comes to business taxes because it allows businesses to keep track of their financial records to be prepared for audits by the IRS if necessary. This is important for business owners who have employees working at home.

Business Taxes

Your type of business determines the kind of taxes you have to pay and the manner in which you must file them. 

There are 5 common business taxes:

-Income Tax: a corporation, partnership, or proprietorship must pay income tax on their profits.

Self Employment Tax: an individual who runs a sole proprietorship pays this tax. It includes social security and Medicare taxes (with some limits).

Employment Taxes: employers have to withhold Federal Income Tax from employees’ wages and also include Social Security and Medicare taxes. Employers are responsible for paying the employer portion of these two taxes in addition to withholding them from team member earnings.

Estimated Tax: If you don’t have taxes withheld from your income, you may need to make estimated tax payments. This is usually the case for self-employed individuals and those with investment income.

Excise Tax: an excise tax is imposed on certain goods such as gasoline, tires, alcohol, or tobacco products manufactured within the US or imported into it. 


State and Local Representation

It’s of utmost importance to find state and local representation to help you comply with Connecticut state and local tax requirements. Two factors determine the state tax system; one of them is the federal government’s collection of income taxes and reliance of the local government on property taxes.

The proper Tax Services will ensure your business is registered for sales tax in the jurisdictions where it should be, file all necessary returns required by each jurisdiction, and remit those taxes to the appropriate locations.  

Compensation and Benefits Consulting

Compensation and Benefits programs for company members are ruled by various laws regarding Business Taxes. It is essential to obtain the correct assistance to handle income taxes, compensations, and liabilities inside the taxation system of benefit programs. 

Ensuring you’re successfully managing the compensation and benefits program is a daunting task. If not managed correctly, there can be penalties and fines from the IRS and Department of Labor. 

The IRS offers a few different types of voluntary compliance programs: the Voluntary Classification Settlement Program (VCSP), the Streamlined Procedures for Employee Misclassification, and the Delinquent Return Submission Procedure. 

If you’re not sure if your company is following all the necessary guidelines for compensation and benefits consulting, it’s best to consult with an experienced professional who can help you stay compliant and avoid any costly fines or penalties.

Get In Touch With The Consulting Experts

In order to tackle the complexities of business taxes, it’s important to approach the task with care and expertise. Nesso Tax creates a trustful environment to aid you in achieving your financial goals. Counting with highly trained professionals, we specialize in tax management and coordination. 

At Nesso Group, we maintain full transparency and open communication to walk you through every step of the process with us. Our priority is to ensure there won’t be any surprises along the way and that our clients will fully understand our approach for success. We understand there is not one plan that fits all, so we thoroughly develop a plan fitted for individual needs and goals. 

Our integrated services approach ensures that every area needed will be covered. We count with tax, accounting, wealth, insurance, medicare, benefits, legal, and wellness experts that will guide you to achieve your goals.

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