For any business to succeed, it must follow the laws and regulations associated with it. Your business stays compliant when all employees — from the CEO down — are aware of what laws the company needs to adhere by.
It’s essential to build a culture of compliance. Leaving the responsibility to a select few inside a company isn’t enough. When a business does not comply, it exposes itself to potential penalties.
Corporate compliance, however, is more than just following the rules to stay out of trouble. It can also benefit your business: keeping it financially safe, helping to create a positive work environment, and setting up the company for steady, long-term success.
How It Works
Tax compliance for any business is critical. In addition to IRS requirements, businesses in different states will have to adhere to local as well as federal and state laws to stay compliant in their tax filings.
Companies must report earnings and expenditures accurately and on-time and keep thorough records when filing taxes. Staying tax complaint shows integrity and transparency into how a business operates.
Tax compliance itself can be a costly and time consuming process. The IRS estimates that it will take business an average of 23 hours to correctly file its taxes. More than 10 million business tax returns are filed each year. Businesses nationwide spend an upward of $4 billion collectively just to file their taxes. More business owners are taking matters into their own hands, e-filing their taxes versus utilizing a professional tax preparer.
Staying Tax Compliant
For any corporation to keep up with its local and federal tax laws, it needs a corporate tax plan. This is where a certified tax professional can help.
Once any business establishes itself as an LLC, or other form of corporation, it has an obligation to prove it as such to the tax authorities. Tax lawyers will help any business get a plan in place to achieve this. That plan will often include:
- Retain records of all licenses, agreements, bank statements, earnings reports and payroll information, and having that information always current and available.
- Keep meticulous and up-to-date records on all transactions, earnings and financial dealings.
- Obtain an EIN (Employee Identification Number).
- Maintain copies of company bylaws and any operating agreements.
- LLCs must keep records and minutes of meetings.
- Have copies of membership interest transfers and shares.
- If applicable, provide stock to shareholders and keep records of stock transfers.
- For corporations, meetings must be held and annually, including those with the board of directors.
- Make sure executive compensation is properly accounted for. Executive compensation can often come in non-cash forms, for example deferred compensation, stock options, and fringe benefits. There are different tax implications for different forms of executive payment, and companies must be aware of how to stay in line with current laws.
Companies should also consider extensive compliance training for all employees, as well as reinforcing the importance of compliance throughout the company. Here are some tips to help California businesses stay complaint.
Potential Penalties
Although it takes time and money to stay compliant with tax laws, it will cost even more to fall out of compliance. If your company aims to stay in “good standing” with the government, it’s a must. Good standing means you have met all the tax and other corporate requirements necessary.
If corporate taxes are not filed in compliance with state or federal law, businesses run the risk of having their good standing certificate revoked. This can prevent companies from applying for licenses, obtaining loans, doing business in other states, and even selling the business.
Other penalties can include significant fines and late fees. To ensure your business never falls out of compliance, speak with a tax professional today. We can help craft a corporate tax plan that caters precisely to your companies needs.