Whether you own a restaurant, an engineering firm, a tech startup or any other type of small business, there is one common element that can trip up any business: payroll. Payroll is a highly regulated area involving everything from employee personal information to federal governmental legal requirements. This is an area of business that, if not done properly, can reap harsh consequences.
Whenever small businesses cross path with the federal and state government, there are going to be subtleties. When it comes to withholding money from employees’ paychecks, tax authorities take the matter very seriously.
Implementing the best payroll accounting software for your type of business, having a set payroll processing sequence and understanding the payroll tax rules and regulations that exist—all combine to assure one’s success in handling this area properly, effectively and efficiently.
- Don’t attempt to handle payroll on your own. “The majority of small business owners aren’t experts in payroll, nor do they have the time needed to properly handle the responsibilities of payroll,” Petri says. The IRS and the majority of states issue large penalties when payroll tax returns aren’t timely filed, as well as when withholding deposits are not made timely or in full, he says.
- Keep a running profit and loss statement. An accurate and up-to-date profit and loss statement will provide a good idea of the business’ monthly profit, Petri says. This can be very important in accounting for any current taxes the business owes. It also can bring the owner’s attention to expenses that may be unnecessary and can be cut or reduced.
- Always keep a second business bank account that is used only for the payroll of the company. This way the money that is appropriated for the payroll and payroll taxes is separated from the general business funds, Petri advises.
- Try to make a federal tax deposit for payroll taxes every time your business issues payroll to its employees. That way the money that must go toward the payroll taxes is applied correctly. “There are no penalties with the IRS for depositing your payroll taxes too frequently, however there are large penalties for depositing late,” Petri says. Also, if payroll taxes are paid when employees are paid then you won’t be tempted to use that money for other business expenses.
The Tax Defense Network’s team of licensed tax professionals, enrolled agents, and CPAs provides financial advice and has resolved more than $120 million in tax debt.