Managing payroll is a very important responsibility that all business owners share. For those that own their own business, ensuring that their employees are paid on time and the right amount is a necessity in order to have happy employees. Beyond making payroll on time, you also need to make sure that you are paying payroll taxes to the IRS. There are five key payroll tax mistakes that you need to ensure you are able to avoid.
Not Classifying Employees Correctly
When you are an employer, you could have many different people working for you. Some of these people may be employees while others could be contract workers. One of the main differences between the two types of workers is that you are required to pay payroll taxes based on employee compensation but you do not need to make payroll taxes when you are paying a contractor. Because of this difference, you will need to make sure that you classify each employee correctly.
Borrowing or Spending Payroll Tax Money
Payroll tax is a tax that is shared by both the employee and the employer. In most situations, the employee will pay half the payroll taxes while the employer will pay the second half. Employee contributions towards payroll taxes will be taken out of the employee paychecks. In some difficult situations, an employer may end up trying to use this money for other purposes. This is big mistake that needs to be avoided. Technically, all payroll tax dollars received from employees needs to be kept completely separate from other business bank accounts.
Not Keeping Records
If you are a business owner, you are required to keep a significant amount of information about all of your financial records. This includes retaining all of your payroll records, which later could be used by the IRS to audit your total payroll tax liability. Some of the data that you should keep on hand are historical time sheets, expense account information, W2 records, and payroll reports. This will help to ensure that the reports are accessible at all times.
Paying Creditors Before IRS
If you owe money to bank, vendors, or other parties you could be motivated to pay them as soon as you can. While it is important to stay current on all bills, you should not do so at the expense of the IRS. If you owe money to the IRS for payroll taxes, you should make sure that you pay them before any other creditors that you owe money to.
Not Taking IRS Seriously
The most crucial mistake that many businesses make is that they do not take the IRS seriously. While most businesses know that they need to make their payroll tax payments on time, many do not consider the repercussions that can come with being late on payment. If you are late on payments to the IRS, the agency could levy a range of penalties including financial penalties, seizure of assets, or even shutting down your business.
Payroll taxes are the most difficult types of IRS tax debts to negotiate successfully. Our mission is to help YOU if you will let us. This is your inner circle. Someone you know who will stand up for you and have your back against the IRS. Tax issues is a difficult topic for most people to really discuss, but we are here to listen and guide you on the right path to success. Call now...800-721-7054 to schedule your free appointment with Travis W. Watkins Tax Resolution and Accounting Firm.