Time is definitely a luxury for small business owners. However, no matter the time constraints, it’s important to devote appropriate time to payroll.
In the recent SCORE webinar, “How to Avoid 10 Payroll Mistakes That Cost Businesses Money,” Ken Harrington and Michael Trabold of Paychex, Inc. shared 10 payroll mistakes that cost businesses money and gave tips for how to avoid them. “Businesses pay government agencies millions of dollars each year in compliance penalties. In this economy, agencies are more vigilant than ever about enforcing regulation,” said Ken.
Here are 5 of the 10 mistakes to Ken and Michael caution you to avoid :
One of the biggest and easiest errors to make stems from poor organization. While running your own business can be hectic, it’s important to keep meticulous payroll records. Stay on top of payroll changes and keep records of: receipts, tax records, income statements, and employee tips.
Always pay your taxes on time! Tax payment frequency can change depending on the type, size, and location of your business. Stay up-to-date with your tax payments on both the local and state level and remember to keep a record of your payments.
Take time to review your tax identification number on tax forms and payments. Transposing or inadvertently using the wrong tax ID can easily be avoided. To avoid any delays, be sure to use your assigned ID number for federal, state, and local agencies.
Certain business industries have different rules, laws, tax form, and sometimes tax credits. Restaurants owners for example should be familiar with TEFRA (Tax Equity and Fiscal Responsibility Act of 1982). It insures that tips are reported accurately. The FICA Tip Credit allows owners to possibly recover a portion of payroll taxes paid on tipped employees. Know what legislation is specific to your business industry and familiarize yourself with the application process.
Some fringe benefits may not be taxable while others are taxable under certain/specific circumstances. Refer to guides such as: IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits for more information.
Being a business owner can force you to multitask and challenge you to be involved in every aspect of your business constantly. No matter how seemingly hard the challenge is, it’s important to stay organized and well-versed in the rules and regulations of your business industry in order to conserve time and money.
To learn Ken and Michael’s other 5 tips, listen to the full webinar here.
Interested in learning more tax strategies for your business? Register for this upcoming SCORE webinar!
Tax day is almost here and millions of small business owners are scrambling to get their documents in order. But if you’re not careful, you could be making some common mistakes that not only increase your chances of an IRS audit, but also harm your business in the long term, a Xero survey of accountants reveals.
First of all, if you’ve just started planning for tax season, you’re making a big mistake. The vast majority (55 percent) of accountants say tax planning should occur all year long; 27 percent say, at a minimum, it should take place before the end of the calendar year.
Overall, the single biggest mistake SMBs can make is only talking to their accountants during tax time. Nearly three-fourths (65 percent) of accountants recommend collaboration throughout the year, with 44 percent suggesting business owners should meet with their accountants once a month.
As for what common errors lead to audits, faulty deductions head the list. Excessive deductions (36 percent) and mixing business and personal deductions (35 percent) are the main cause of audits, say accountants; misclassifying workers was cited by 14 percent of accountants.
The most common thing small business owners try to deduct that they shouldn’t? The family pet was number one, with 54 percent of accountants saying a client has tried to deduct a pet, pet care or veterinary expenses. Number two: 42 percent report clients trying to pass off a family vacation as a business trip.
Meanwhile, small business owners shoot themselves in the foot by overlooking deductions they could be taking. Topping that list are depreciation (30 percent) and out-of-pocket expenses (29 percent). However, 16 percent of accountants cite auto expenses and 10 percent cite office improvements as frequently overlooked.
If you’ve waited this long to get ready for tax time, I hope you at least have your financial data in order. Nearly 40 percent of accountants say their clients don’t have up-to-date records, and 20 percent say their clients don’t use tools, such as cloud-based accounting systems and financial dashboards, that give them real-time insight into their finances. Using cloud-based accounting software can save you money at tax time. More than half (54 percent) of accountants estimate they’d save between five and 20 hours preparing clients’ taxes if their clients’ financial records were up-to-date. That’s a lot of hourly billing you don’t have to be paying for.
More important, however, using accounting software that keeps your financial data current and lets you see what’s going on at a glance enables you to identify trends so you can spot opportunities and take care of problems before they get out of hand.
Your SCORE mentor can help you determine the right accounting system for you and get you up to speed on using it. Don’t have a mentor yet? Visit www.score.org to get matched with one.