Daymond John is the multimillionaire featured on the popular ABC television show Shark Tank. In 1989, he launched the clothing line FUBU and is the founder and CEO of Blueprint + Co. He has a current net worth of more than $300 million.
When discussing his approach to taxes, Daymond talked about how there are several good business ideas, but that for many entrepreneurs it’s a struggle to understand payroll taxes for employers. He said, “They don’t have the financial literacy to scale.”
Payroll taxes represent one of the greatest liabilities for entrepreneurs. There are four reasons why this is true.
1. Payroll taxes can be complicated, and dedicating time to them does not add value to the business. So entrepreneurs mistakenly delegate this tax duty to others who don’t understand the process well, which ends up costing them money. Daymond spent years finding the right tax professionals to help him. Before he did, he lost a lot of money.
2. The government takes its time in collecting back payroll tax. So entrepreneurs fall into the trap of seeing the government's money as their money. However, when the taxman comes, the fines and interest are unbelievable.
3. If an entrepreneur does not pay payroll taxes, they can receive a penalty as the responsible individual that equals 100 percent of the withheld tax that has not been remitted. A corporate shield will not protect an entrepreneur from this penalty.
4. Bankruptcy will not discharge trust fund taxes. Payroll tax is a trust fund tax because this is money that you withhold from your employees and promise to give the government on behalf of them. This makes it clear why Daymond is adamant that entrepreneurs understand payroll taxes and their impact on their business’s growth.