11 Payroll and Tax Tips for Small Businesses



Updated Jan. 19, 2019 –

To stay competitive in this difficult marketplace, it’s vital to be proactive on your taxes. Of course, you should be very familiar with your responsibilities – along with your financial advisor’s input and research with the Internal Revenue Service.

At the very least, you’ll want to avoid tax penalties or unnecessarily attracting a nerve-wracking IRS audit. (If you face an audit, see  Tips on Understanding the Mindset of IRS Auditors).

You might wish to consider these 11 tips:

1. Section 179.

You can take advantage of Section 179 deductions.

Section 179 of the IRS tax code is an incentive to stimulate economic growth that encourages companies to invest in themselves by purchasing equipment and software.

It allows businesses to write off or deduct such purchases bought or financed in the tax year. The amounts are deductible from the gross business income.

For example:

  • The 2019 deduction limit is $1,000,000.
  • The 2019 spending cap on equipment purchases is $2,500,000.
  • The 2019 bonus depreciation is 100 percent.

See the IRS: https://www.irs.gov.

2. The Work Opportunity Tax Credit (WOTC).

The WOTC is for hiring qualified individuals in certain groups. They include families receiving certain government benefits, veterans with service-related disabilities and those receiving supplemental income from Social Security.

There are conditions, such as the wage amount, number of hours to be worked, how long the veteran has been unemployed, and whether the person is disabled.

See: https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit.

3. Evaluate your benefit offerings.

Instead of salary increases, you might be better off if you provide your employees with fringe benefits for maximum tax benefits.

IRS publication 15 can give you ideas on the pre-tax fringe benefits that are available, such as child-care assistance or health vision. Of course, a lot depends on your workforce situation.

See: https://www.irs.gov/publications/p15.

4. Bonuses have to be handled carefully.

Be mindful that bonuses have to be processed in your regular payroll – including payroll tax withholding, employer matching of FICA and Medicare taxes, and the federal unemployment (FUTA) taxes. For employee-morale reasons, many employers like to give a high, flat amount. So, it’s important to take into account withholding amounts, and gross up from the net amount.

Note: https://www.irs.gov/individuals/international-taxpayers/federal-unemployment-tax.

5. Check with your employees.

Is their declared number of exemptions accurate for Form W2 reporting? This should be done by the last payroll report this year. A helpful document on withholding and exemptions is IRS Publication 505.

This will save you time. Because once you issue Form W2 to workers, and if any amounts are incorrect, you’ll have to provide a W-2c form for each with the IRS.

6. Verify Tax all IDs.

Confirm all tax ID numbers are correct. Correct any discrepancies before your last payroll this year.

7. Make sure gross wages are recorded accurately in your system.

Your accounting software will help you on the following: On your profit-and-loss statement, your paid payroll taxes need to be segregated as a different line item. Your balance sheet should reflect all withholdings on a current liability account.

Note: Make sure you’re balanced on these figures. That means the payroll expenses on your tax return should be equal to what you report on Form W3.

8. Be careful with any payroll adjustments. 

It’s not uncommon to have any voided or manually issued paychecks. They should be correctly handled before your final payroll.

9. Report any missing wages or miscellaneous income/tax credits.

Again, before your final payroll report, document such items as COBRA payments, fringe benefits, employee moving expenses or other employee expense reimbursements.

10.  Make sure you’re aware of any rate changes with your state’s UI regulator.

Be certain you’re up-to-date.

11. Remember your health-insurance expenses. Your health-insurance expenses should be inserted on your employees’ Form W2.

Again, be sure to discuss any of these issues with your tax advisor. And, oh, yes. Have fun!

From the Coach’s Corner, here are related financial tips:

For the Best Cash Flow, Manage Your Inventory Costs with 8 Tips— t selling, obviously, it hurts. Products just lurking and collecting dust in your warehouse are costing you money.

Accounting / Finance – Why and How to Determine Your Break-Even Point Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP). A BEP analysis should be an integral part of your financial planning.

Do You Know What Drives Your Profit? (There Are 4 Drivers) — For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are. Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes.

Step-by-Step Solutions for a Company Turnaround  Difficult economic conditions have exacerbated the woes facing many businesses. But business success is possible for companies suffering through red ink. Here are financial solutions that will help facilitate a company turnaround.

All tax reports are in. Life is now officially unfair.

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is also a business-performance consultant and profit professional.Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.




Photo courtesy of  File Stuart Miles at www.freedigitalphotos.net

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Seattle business consultant Terry Corbell provides high-performance management services and strategies.