At WATAX, one of the first questions we ask our 941 tax issue clients is: what kind of business entity have you established? Corporation, Sole Prop, LLC? The reason we ask is that different entities have different assessment rules, should a tax liability go against you personally.
If you owe 941 payroll taxes, here's how they could be assessed to each entity.
Sole Proprietorship. The 941 taxes could go 100% against your Social Security Number. There is no reduction to what's owed. The key, though, is whether the IRS will make the assessment against you. If they do, they will treat these 941 sole proprietor taxes as if they were 1040 taxes that you owed personally.
S or C Corporation or Partnership. If you're an officer of an S-corporation, the IRS can assess the taxes against you personally to the tune of about 45-55%. This assessment is called the assessment of trust fund taxes or the civil penalties. That is quite a discount. And, of course, the IRS has to assess you. A live body IRS person has come to out and interview you before this assessment can be made.
LLC - Sole Proprietor before January 2009. These 941 taxes are treated exactly as Sole Proprietor Taxes (above). If they assess you, it is done as a 100% assessment against you personally.
LLC - Sole Proprietor After January 2009. As per an IRS rule change, 941 taxes assessed after January of 2009 are treated just like a corporation (see above). If the IRS assesses you, they will assess the taxes as "trust fund" with a discount around 45% to 55%.
Knowing that you could get a 45% discount or be assessed the full 100% is an important distinction when evaluating a 941 tax problem. That's why we ask your businesses' entity first!
