Menu

Starting a Small Business

5 Tips to Avoid Running into Common Payroll Tax Problems

by
Bret Willoughby
on
9/20/2016
5 Tips to Avoid Running into Common Payroll Tax Problems

If you're a small business owner or a officer of a non-profit, then you already know that payroll can be a frustrating, complicated nightmare. It touches nearly every aspect of your organization's personnel, and the legal requirements that have been established by the federal government mean that if you don't follow the rules exactly, you can end up in serious trouble. Knowing the rules is the first step to protecting yourself. 

The Five Things You Need to Do to Avoid Payroll Mistakes

  1. Understand who is working for you and what their job classification is. There is a big difference between an employee and an independent contractor, and you can't mix the two up. Even if a person who is doing work for you requests a payment process that makes them look as if they are a contractor, if the way in which they provide services and your level of control is typical of an employer/employee relationship, then you have to categorize them as such. For more information on the specifics and exceptions to this rule, refer to IRS Publication 15.
  2. The best way to make sure that you have the cash on hand that you need to pay both payroll and payroll taxes is to keep it in a separate bank account. Having an account that is dedicated to your payroll needs is something you should always do.
  3. Speaking of that dedicated account, get into the habit of making a deposit for your federal payroll taxes whenever you are paying your employees. It may seem like a lot of unnecessary deposits, but there's no penalty for doing that and it's a good way to be sure that your payroll tax calculations are accurate. It also eliminates any temptation to tap into payroll tax reserves that are accumulating, as well as any penalties for not paying those taxes on time.
  4. Keep a good handle on your business' monthly profits by keeping your profit and loss statement up-to-date. Not only does doing this ensure that you are aware of upcoming taxes that need to be paid, but it keeps you fresh and aware of unnecessary expenditures that you can eliminate.
  5. Unless you've had specialized training in payroll, you would be wise to hand off your payroll responsibilities to a professional service, or at least check what you're doing with an accounting agency. There are a lot of things that the IRS and your state tax agency can be flexible on but payroll tax is not one of them. If you're not paying payroll taxes on time or you've fallen short in what you owe, there's a good chance you're going to face some very unpleasant consequences and significant penalties.

The information provided above is a good starting point for managing your small business' payroll needs. Remember that communication and organization are the key to success, but also remember to ask for help when you need it.

share this post
Search for matches...
Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

PROVIDENCE PAYROLL SERVICE
★ ★ ★ ★ ★
2 reviews

Kansas

Firm Profile

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts