With the IRS sticking their hands anywhere they can reach, it can be hard to keep up with all of their rules, and getting in trouble with them is at the very bottom of everyone’s list. The professionals at Maggi Tax will be giving you a crash course on what the TFRP is, how it happens, and what you can do to handle your income and trust funds more responsibly to avoid any audits.
The Trust Fund Recovery Penalty Explained
A Trust Fund Recovery Penalty (TFRP) is one of the many penalties enforced by the IRS. When an employer is faced with a TFRP, it’s usually because they’re withholding the amount of income tax that is subtracted from their employee’s paychecks without remittance to the government.
There are two ways that an individual may be assessed for accountability. One, they must be responsible for the withholding. Two, they must be willfully withholding. Oftentimes, the one at fault is a higher-up at a company such as an employer, director, owner, or CEO. However, the extent of the TFRP isn’t limited to these occupations.
How Long Does It Take For The IRS To Step In?
Once the IRS begins an audit in response to a TFRP, they are able to go back three years from the start of the audit. Depending on the situation, exceptions can be made to extend this timeframe.
Read more > 3 Red Flags That Could Cause An IRS Tax Audit
What “Trust Fund” Means In The Context of TFRP
Ordinarily, a trust fund is similar to that of the process of creating a will. Setting up a trust fund in the traditional sense ensures that your approved beneficiaries receive the assets that you choose to allocate through a trustee at the time of your passing. This could include monetary assets, properties, or other tangible valuables. But what do trust funds have to do with withholding an employee’s taxes?
When an employer hangs onto an employee’s income tax (or other deductions like healthcare costs or social security), that money is considered to be held as a “trust” until taxes are paid. Thus, when the taxes aren’t paid, this penalty is referred to as the Trust Fund Recovery Penalty.
Are There Taxes I Should Know About For My Personal Trust Fund?
When setting up a trust fund, you typically only pay the fees for the services involved. This includes hiring a trustee, any legal fees, and so on. Your beneficiary, on the other hand, may have to pay an income tax when receiving your assets.
Handle Income Taxes And Trust Funds The Right Way. Call Maggi Tax!
To avoid any possible complications with the IRS, it’s best to get tax advice from a trained and educated professional. Call Maggi Tax today at (727) 799-1701 to schedule a consultation appointment for some insight on how taxes work and how you can navigate your way through them as a responsible taxpayer! Ask us about our tax advisory services today.