One of the most significant and challenging corporate expenses is payroll taxes. They are a legal requirement and can be costly if not managed correctly. Collecting employee information to withhold the correct amount of federal, state and local taxes is essential. Keep abreast of tax law changes and get advice from a payroll service provider or tax expert to guarantee compliance.
Don’t Borrow from Your Tax Funds
Payroll taxes are a business’s legal obligation to withhold and remit government-imposed taxes from employee compensation. Federal income tax is one of these taxes, along with state and local income taxes and Social Security and Medicare contributions (each employee’s portion of these taxes can total up to 13.3 percent of their gross wages). It’s no secret that the IRS targets businesses that fail to remit payroll taxes on time, and those who do so can face harsh penalties. The best way to avoid falling into this trap is never to touch the money yourself and to separate personal expenses from business ones by getting a bank account for your company and keeping it separate from your reserves. You should also hire a professional bookkeeper or accountant. They offer tax services that can help you manage the process correctly and ensure your taxes are deposited on time.
Stay on Top of Deadlines
Any business owner may need help due to the complicated and constantly evolving payroll tax rules and regulations. It’s important to keep up-to-date on all labor laws at the federal and state levels and consult with legal experts regularly. Payroll taxes are the monetary deductions that must be withheld from employee’s paychecks and remitted to the government bi-weekly or monthly. State and municipal taxes, Social Security and Medicare contributions, and withholding from federal income taxes are common examples. Knowing when these payments are due is crucial so you can budget accordingly and avoid costly penalties. To help you stay on track, many full-service payroll software providers offer perks like quarterly tax payment reminders. Additionally, accounting software usually includes payroll tax payment deadlines in their calendars and pre-filled paperwork.
Know Your Limits
Payroll taxes are the federal and state taxes you withhold from your employees’ taxable wages. They cover various items, including Social Security and Medicare taxes, federal income taxes and state unemployment insurance. You can avoid costly mistakes by thoroughly reconciling your payroll before you file quarterly and annual taxes. This process checks to make sure the expected payroll totals match the actual amounts, and it helps you catch errors in withholdings and deductions, calculated hours and wage rate calculations. It’s also essential to carefully track deadlines for filing employment taxes. It’s crucial to stay current with the IRS schedule and make regular electronic deposits because failing to submit on time might result in significant fines.
Invest in a Payroll Software
There are several ways to manage payroll, including manually in-house, outsourcing to a payroll company and using payroll software. Using a payroll system reduces errors in calculations, paychecks and tax payments. It saves your business time and money and makes meeting wage and labor laws easier. Invest in an easy-to-use payroll solution that integrates with your accounting and HR systems. For midsize and larger businesses, consider a more comprehensive human resources management solution that handles onboarding, time tracking and more. These solutions help to ensure compliance with complex payroll and tax rules while reducing the need for specialized credentials or training. It frees up staff to spend time on more important tasks that can help your business grow and thrive.
Set Up a Separate Bank Account
There is controversy over whether small business owners should have a separate bank account. It is recommended, however, for a variety of reasons:
- Separating your business and personal finances makes it harder for thieves to steal funds.
- It can protect you if a government agency puts a levy or lien on your company for unpaid taxes. Separate business bank accounts also make it easier to track business expenses for tax write-offs.
- For business owners who must pay quarterly estimated taxes, having a fund designated specifically for this purpose can simplify the process of producing them come audit time.
- If your business is collecting sales tax on its products or services, you should set up a dedicated account for this revenue so that it does not mix in with other operating revenues.