With SMBs, tax time tends to be a weary season in the year. While some may be maintaining their books, and keeping their accounting in check, there are a few common mistakes to watch out for. Just remember, forms for states will depend on the state where your business is located.
- Report new employees
When you hire a new employee, don’t forget to report it. First, you need to ensure form I-9 has been filled out. It is an identity and employment validation cum eligibility form, and must be filled by both employer and employee. Additionally, this form is to be filled by both citizens and non-citizens working in your company. It should be available for inspection by authorised government officials. Additionally, some states require some type of reporting for new hires.
You may or may not be eligible for tax breaks and incentives, or you may need to plan to legally get a tax break. Or you may just need to pay that tax. When you aren’t aware of the exemptions, you either mark yourself and your employee exempt from tax and incur penalties, or miss out on exemptions. Furthermore, you could get yourself into trouble not accounting for these payroll taxes and thereby not setting aside the money for it or paying attention to the deadline. Federal and state departments are pretty clear on where you can get your tax breaks and exemptions. It is a smart step to contact them for this information beforehand to avoid a mess later. Being aware of what avenues are eligible for tax breaks or refunds will help you to keep your revenue within your business.
- Deadlines & Late taxes
There are a zillion tax returns and forms to be filed. They could be quarterly or annual. Form 941 is an employee’s quarterly federal tax return to report wages, tips reported, employment tax (sans income tax, social security and Medicare tax). The annual version is Form 944 for employers with smaller payrolls. But permission from the IRS must be requested to file this form. Then there is the federal and state unemployment tax (FUTA). And finally you have the DE9 and the DE9C to reconcile payroll tax payments.
Filings and tax payments are actually two different things. Filing frequencies and tax deposit frequencies are often confused. Your State Department of Revenue will be able to tell you the tax deposit frequency applicable to your business. Depending on whether your tax report is over or under $50,000, federal tax deposit frequencies will either be fortnightly or monthly.
Be sure to stay on your toes where deadlines are concerned. Tax extenders may be passed at the last minute, but there is no assurance and you have no safety net to fall into should it be retracted.
One way to stay up to date without getting tax-mired would be to enlist the help of a professional who has a deeper understanding of the complex nitty-gritties of payroll tax laws and tax law in general, and who can help you spot tax breaks and deductions you may miss on your own.
So there you have it, three important ways to avoid some common payroll tax mistakes that entail serious consequences.