The 3 Biggest Mistakes You Can Make with Payroll

There’s more to payroll then just writing a check every few weeks to your employees.

Don’t make these three mistakes with payroll!

Payroll Mistake #1: Not paying yourself or your spouse.

Hopefully, you’ve taken the smart business path, and you are operating your business as either an LLC-S or as an S Corporation. Income from your LLC-S is going to all be taxable to you either as salary or a distribution. Your salary is subject to payroll tax, and the distribution is not. Guess which one the IRS is going to want you to take.

A good CPA will be a great resource here to crunch numbers and to help you find the salary amount that’s right for your business.

Payroll Mistake #2: Payroll tax payment and reporting is not in compliance.

Filing payroll reports is a big pain. There is no easy way to do it. And, if you miss a filing date, you could be looking at big penalties and maybe even a closed down business. Considering how cheap it can be to get an outside service to calculate payroll and make necessary filings, this is one area where you might want to immediately outsource.

You will need to follow certain procedures and use certain forms when employees are hired, on pay day, on a quarterly, and on an annual basis.

Payroll Mistake #3: Not reconciling your business tax returns with your payroll reports.

This is such a simple mistake, but it can get you into so much trouble. Make sure you or your tax preparer reconciles what you’ve told the IRS through the Forms W-2, 941, and 940 for wages to what you report on your personal tax return. The IRS instituted a matching program a couple of years back. If what you report on the business return doesn’t equal what you and any other employees report on your personal returns, you’re going to get a letter.

And make sure that you or your tax preparer correctly breaks out the officer salaries from everyone else’s payroll on the front page of your federal income tax return. Miss this step, and you’re just asking for an audit.

Payroll is a tricky area. Don’t forget about it. And, for sure, don’t forget about depositing the withheld payroll taxes and timely filing your payroll reports.

Don’t make stupid mistakes with your business.  In times like this, it can be the difference between having a business…and not.  Learn how to make your business even smart.  Pick up “Smart Business Stupid Business” today!