11 Payroll and Tax Tips for Small Businesses

Updated Dec. 26, 2015 –

To stay competitive in this difficult marketplace, it’s vital to be proactive on your taxes. Of course, you should be very familiar with your responsibilities – along with your financial advisor’s input and research with the Internal Revenue Service.

At the very least, you’ll want to avoid tax penalties or unnecessarily attracting a nerve-wracking IRS audit. (If you face an audit, see  Tips on Understanding the Mindset of IRS Auditors).

ID-100105797 Stuart MilesYou might wish to consider these 11 tips:

1. Section 179.

Whether you buy new or used equipment or off-the-shelf software, your deduction limit is $500,000.

(See Section 179 Deduction – Internal Revenue Service) 

2. The Work Opportunity Tax Credit (WOTC).

The WOTC is for hiring qualified individuals in certain groups. They include families receiving certain government benefits, veterans with service-related disabilities and those receiving supplemental income from Social Security.

The amount of the credit is 40 percent of the qualified worker’s first year wages up to $6,000.

For veterans, it’s $12,000-$24,000.

Note: There are conditions, such as the wage amount, number of hours to be worked, how long the veteran has been unemployed, and whether the person is disabled.

3. Evaluate your benefit offerings.

Instead of salary increases, you might be better off if you provide your employees with fringe benefits for maximum tax benefits.

IRS publication 15 can give you ideas on the pre-tax fringe benefits that are available, such as child-care assistance or health vision. Of course, a lot depends on your workforce situation.

4. Bonuses have to be handled carefully.

Be mindful that bonuses have to be processed in your regular payroll – including payroll tax withholding, employer matching of FICA and Medicare taxes, and FUTA taxes. For employee-morale reasons, many employers like to give a high, flat amount. So, it’s important to take into account withholding amounts, and gross up from the net amount.

Note: Bear in mind that FUTA, the Federal Unemployment Tax Act, is bad news for employers in 18 states. Those states borrowed money from the federal government to keep their unemployment insurance (UI) trust funds solvent. However, they didn’t pay off the loans by Nov. 10, 2012, which meant a higher UI rate.

5. Check with your employees.

Is their declared number of exemptions accurate for Form W2 reporting? This should be done by the last payroll report this year. A helpful document on withholding and exemptions is IRS Publication 505.

This will save you time. Because once you issue Form W2 to workers, and if any amounts are incorrect, you’ll have to provide a W-2c form for each with the IRS.

6. Verify Tax all IDs.

Confirm all tax ID numbers are correct. Correct any discrepancies before your last payroll this year.

7. Make sure gross wages are recorded accurately in your system.

Your accounting software will help you on the following: On your profit-and-loss statement, your paid payroll taxes need to be segregated as a different line item. Your balance sheet should reflect all withholdings on a current liability account.

Note: Make sure you’re balanced on these figures. That means the payroll expenses on your tax return should be equal to what you report on Form W3.

8. Be careful with any payroll adjustments. 

It’s not uncommon to have any voided or manually issued paychecks. They should be correctly handled before your final payroll.

9. Report any missing wages or miscellaneous income/tax credits.

Again, before your final payroll report, document such items as COBRA payments, fringe benefits, employee moving expenses or other employee expense reimbursements.

10.  Make sure you’re aware of any rate changes with your state’s UI regulator.

Statements will be issued in January. Be certain you’re up-to-date.

11. Remember your health-insurance expenses. Your health-insurance expenses should be inserted on your employees’ Form W2.

Again, be sure to discuss any of these issues with your tax advisor. And, oh, yes. Have fun!

From the Coach’s Corner, here are related financial tips:

For the Best Cash Flow, Manage Your Inventory Costs with 8 Tips— t selling, obviously, it hurts. Products just lurking and collecting dust in your warehouse are costing you money.

Accounting / Finance – Why and How to Determine Your Break-Even Point Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP). A BEP analysis should be an integral part of your financial planning.

Do You Know What Drives Your Profit? (There Are 4 Drivers) — For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are. Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes.

Step-by-Step Solutions for a Company Turnaround  Difficult economic conditions have exacerbated the woes facing many businesses. But business success is possible for companies suffering through red ink. Here are financial solutions that will help facilitate a company turnaround.

All tax reports are in. Life is now officially unfair.


Author Terry Corbell has written innumerable online business-enhancement articles, and is also a business-performance consultant and profit professional.Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of  File Stuart Miles at www.freedigitalphotos.net

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Seattle business consultant Terry Corbell provides high-performance management services and strategies.