Although we aren’t yet halfway through 2020, it’s not too early to prepare for filing your business tax return in 2021. The earlier you prepare and file, the less likely you are to make a costly mistake or even miss the tax filing deadline altogether. Below are several payroll tips we have offered to other small business owner clients that they have found helpful.
Ensure Payroll Processing is Compliant with Internal Revenue Service (IRS) Regulations
To avoid fines and other potential sanctions from the IRS, be certain that employees in your payroll department complete every task with compliance in mind. For example, your business should classify employees depending on whether they work full-time, part-time, or complete work for your business as an independent contractor. Payroll employees also need to understand labor laws and the various payroll taxes they need to remit. Don’t forget that your business needs an employer identification number (EIN) to submit both payroll taxes and your company’s annual return.
Work on Year End Payroll Before Submitting a Tax Return
The IRS requires all businesses to provide W-2 statements to employees and 1099 miscellaneous income statements to independent contractors by January 31 each year. Your payroll representative must submit a copy of each W-2 and 1099 to the Social Security Administration (SSA) as well as to each employee or freelancer.
A payroll employee will also need to file Form 940 with the IRS and Form 941. Form 940, called Employer’s Annual Federal Unemployment Return, shows how much the business paid towards the federal unemployment fund. Form 941, called Employer’s Quarterly Federal Tax Return, shows how much the business paid towards Medicare and Social Security. It also indicates the amount your company withheld for Medicare and Social Security from each employee’s paycheck.
Organize Your Documents Before Filing a Business Tax Return
Attempting to file your business tax return with unorganized documents thrown together in a shoebox is a sure recipe for anxiety and frustration. Save yourself and your payroll department the aggravation by organizing documents into deductible expenses, charitable donations, and any other applicable category. One of the best payroll tips we can provide is to scan all documents and organize them electronically. That makes it simple to find exactly what you need when preparing your return. It’s also easy enough to print out a hard copy of any document if necessary. Just be sure to backup the files to avoid a disastrous loss of data.
Know What You Can Write Off as a Business Owner
Although write-offs lower your tax obligations, taking one or more you’re not entitled to could result in an audit or the IRS adjusting your return. Here are several legitimate tax write-offs you can claim as a business owner:
- Employee wages
- First-year business owners can include employee wages as a start-up cost
- Any amount over $600 paid to independent contractors
- Employee benefit programs
- Travel expenses
- Contributions to unemployment, Social Security, and Medicare
Outsource Your Payroll and Tax Returns to Ensure Accuracy
Payroll processing and tax return preparation are just two of the services we offer at Palmetto Payroll. We invite you to schedule a consultation with us today to learn more about how we can help you.