When it comes to filing taxes as a small business with employees, dealing with payroll and payroll taxes can end up on the back burner. You’re busy preparing your other records for tax season, after all. You may already outsource your payroll to a payroll service that is supposed to deal with all your payroll taxes.
If this describes your business, read on and uncover some common misconceptions that business owners have about payroll taxes.
Common Misconceptions
There are myths about tax reports that many business owners still believe, even in 2021. Below are three major misconceptions that can get your business in hot water if you happen to think they’re true.
1: Quickly Switching Your Payroll Employees to Independent Contractors Is Easy and Will Save you Money on Taxes!
This is false. While it is true that you will pay fewer taxes on workers that are independent contracts, the IRS, and other government agencies, are on the lookout for this kind of tax evasion. If this is suspected, it may get you audited. Check to see what category your employees officially fall under at the IRS website.
2: Outsourcing Payroll to a Payroll Service Provider Relieves You of Liability if Tax Issues Occur
By outsourcing your payroll, you can take a lot of stress off your business by ensuring your employees get paid without having to do the tedious work of paying yourself. However, if the payroll service you use fails to file your employment tax returns, your business will still be held responsible for the failed obligations. However, you may have a good case against the payroll service and may file a lawsuit against them for breach of contract.
3: I Have Tax-Free Benefits in My State, So I’m Exempt from Payroll Taxes
In reality, in places where there are tax-free benefits on income, it means that your employees will not have to pay any income tax on what you pay them. However, you are not exempt from paying payroll taxes. If your employees pay into a 401(k) through your business through salary reduction, you still must deal with the FICA.
Before you decide you’re exempt from any taxes regarding payroll, do some research on the IRS website concerning your situation. Or get in contact with a skilled local accountant who can explain what taxes you are and are not exempt from as a small business owner.
Getting Those Papers in Order
Whether it’s W-2 payroll or 1099 forms for independent contractors, you need to make sure that your taxes are in order, to avoid paying excess fees or unintentionally breaking regulations. Hiring a bookkeeper and/or an accountant can seem expensive, but in the long run, they can save you thousands of dollars.
While busting these tax myths and making sure you hire the right bookkeeper in accountant, you can be sure your small business stays in the black and within IRS regulatory standards.
