For many business owners, payroll taxes come with the cost of running a company and are an unavoidable task each year. However, there are ways to make your life easier, and there are mistakes that can make the process that much harder. Let’s examine 5 of the most common mistakes that you can easily avoid:
- Filing payroll taxes late – While it might not seem like missing the deadline for payroll taxes is that big of a deal, it will certainly save you a lot of money if you can prioritize this task. Even missing the deadline by one day will subject businesses to a fine of up to 10% of their tax amount, and each month that these taxes are late brings another penalty of 5% of the liability amount.
- Not keeping records – The IRS requires you to keep the last four years’ worth of payroll records, including timesheets, W-2s, and expense accounts. Since these documents need to be on-hand at all times in case of an audit, it’s in your best interest to keep everything organized and accessible.
- Wrong employee classifications – This mistake is fairly common among businesses, and can be tempting to make for the sake of trying to save money. Companies are responsible for paying payroll taxes and benefits for individuals who are classified as employees rather than as independent contractors. Therefore, a lot of business owners tend towards classifying their workers as independent contractors rather than employees. Ultimately, it is the company’s responsibility to examine how much control they have over each individual’s duties and make the appropriate classification based on that information.
- Failing to monitor your outside payroll company – Smaller businesses tend to find that it’s easier for them if they use an outside payroll company to handle everything related to employee payroll and payroll taxes. However, just like individuals who use a CPA for their personal taxes, the responsibility to file accurate returns cannot be passed off to someone else. Make sure you are checking their calculations from time to time to avoid big errors down the line.
- Not making payroll taxes a priority – When companies experience cash flow issues it might seem to make sense to pay immediate bills first, like rent or your electric bill. However, being a business owner means that you commit to paying your IRS payroll tax liability every year and on time. Many businesses find it helpful to set aside money throughout the year so they aren’t hit with a huge bill every tax season.
If you’re concerned about your payroll taxes and need guidance on how to avoid issues with the IRS, contact The Law Office of Robert Boeshaar today. We help individuals and small businesses resolve their disputes with the IRS to obtain the best possible outcome.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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