As an entrepreneur, there are likely possibilities that you have people working for you. Your employees are responsible for the smooth daily operation of your business. They are your brand’s face to your clients. Having employees makes paying taxes mandatory for you.
Employees are either paid hourly or monthly salary as compensation for their work for your company or business. However, it may be possible for you to be making mistakes while documenting or filling the payroll taxes of your business. The making mistakes while filling your payroll taxes are significantly more prominent. The following are four payroll tax mistakes that must be avoided.
- Misclassifying Employees
One of the most prevalent audit issue these days is misclassifying employees. There are certain incentives that enables the treatment of employees as independent contractors instead of treating them as workers. This may be due to the high employee benefit cost and high payroll taxes. The only tax responsibility of a company for an independent contractor is to issue a Form 1099-MISC for total annual payments of above $600.
You don’t have the opportunity to choose the employee’s label. Classification relies upon if you have adequate control over the employee. This implies having the privilege to state when, where, and how the job is carried out. Having an agreement as an independent contractor is useful in demonstrating that no employer-employee relationships will exist between you and the employee. However, this does not apply to the IRS, since they are not part of the agreement.
- Not making use of a reliable plan for Employee Reimbursement
In case you regularly pay for entertainment, travel, equipment, and various other business expenses for workers, employment tax dollars is being squandered in case you are not making use of an accountable and reliable plan. Using this arrangement, employers can deduct various expenses, while all payroll taxes on reimbursements are avoided.
To be an accountable and reliable plan, the employer ought to formalize the plan and set realistic action times. These include
- The reimbursable cost must be related to business activities.
- Advances can only be made after 30 days of the expense.
- Workers must account for the costs within 60 days of the making the expense.
- Excess reimbursements must be returned by the employee to the employer within 120 days of making the expense.
- Not Keeping Record
As an entrepreneur, you are required to keep up finance records and have them available, when needed, for IRS review. Several entrepreneurs are ignorant of the fact that their finance records are more than only a balanced checkbook. Payroll records consist of:
- Time Sheets
- Copies of W-2 Records
- Expenses Accounts
- Job Evaluations, and more
All these data and information should be kept for an average of four years.
Try as much as possible always to retain duplicates of Forms I-9, which demonstrates an employer is eligible to operate in the US. States may likewise have specific hiring forms that must be properly documented and kept.
- Paying Creditors before IRS
In situations of poor flow of cash in business, several entrepreneurs can decide to pay off their creditors before the IRS. This is totally wrong. Even though you may not be able to do much to pacify the IRS and your creditor, however, there is still an alternative. An incredible way for entrepreneurs to get capital for both their creditors and the IRS is through payroll factoring.
With payroll factoring, your outstanding invoices will be purchased by an invoice factoring company. Advances will be offered to your business, about 95% of the overall amount at a low rate. This removes the thirty, sixty, or even ninety days wait period in which you have to provide the demand of your client. Payroll factoring enables you to obtain money for your invoices as soon as possible, with no reason to incur any extra debt.
All these are payroll tax mistakes that employees must try as much as possible to avoid so as not to experience the consequences of making such errors. Need help with your payroll processing? Let our certified payroll professionals help! With over 50 years of combined expertise, we have the tools your business is missing so you can get back to what matters most – growing your business. Learn more about our payroll services.