According to the Internal Revenue Service (IRS), just under one million businesses paid a penalty for problems related to the company’s annual tax return and approximately six million paid fines related to payroll taxes. Although the issue hasn’t improved much in the past three years, that doesn’t mean your company needs to waste money on IRS fines. By following the tips below, you can avoid payroll tax liabilities and keep more of your company’s hard-earned money.
Form an S Corporation to Limit Payroll Tax Obligations
When it comes to payroll taxes, no business owner wants to pay more than the absolute minimum. One strategy that might work for you to reduce how much you remit to the IRS in payroll taxes is to form an S corporation. This enables you to only pay taxes on your own salary and not any unearned income that your business receives. When you work as a sole proprietor, the IRS requires you to remit payroll taxes on all income you receive as well as maintain liability for all business taxes.
Hire Independent Contractors Whenever Possible
When you hire a full-time or part-time employee, the IRS requires you to pay the employer portion of social security taxes while your workers pay the employee portion. You also need to withhold other taxes and submit state and federal tax payments on time to avoid penalties.
One of the benefits of working with independent contractors is that they pay social security taxes as both employer and employee, letting you off the hook for your half. This alone can reduce your payroll tax liabilities by 6.2 percent. Additionally, you don’t need to deal with tax issues at all since independent contractors pay their own taxes by submitting payments to the IRS and their state government in January, April, June, and September each year.
A worker meets the qualifications of an independent contractor under these circumstances:
- You don’t control his or her time
- The person may work with several clients at once
- You don’t provide employee benefits
- Greater payment negotiations upfront rather than offering a set wage
Monitor Compliance and Create a Budget for Payroll Taxes
Unless your company has a significant change in the number of employees from one reporting period to the next, the amount it owes for payroll taxes won’t change that much. We encourage you to use these figures to create a budget for the payment of payroll taxes. This ensures the money is always available when the time comes to remit them. It’s also important to know the due dates of payments and to monitor your accounting department’s compliance with remitting them on time.
Work With a Payroll Provider to Ease Your Administrative Burden
The IRS imposes thousands of payroll tax laws that can change dramatically from one year to the next. If your state collects income tax, you need to add that obligation to your to-do list as well. Palmetto Payroll offers complete payroll processing services, including remittance of payroll taxes. If you owe the IRS a penalty, we can assist you with making arrangements to pay that also. Please contact us today to learn more.