Five End-of-Year Payroll Tips for Small Business Entrepreneurs

The holiday season is here and to small business owners, it is time to make some extra sales; some that might have remained elusive all through the year. It is also the time to put final touches on one?s end-year tax planning to reduce the tax risks that usually set in at this time of the year, some involving payroll issues. To guide you, here are a few tips that might help.

1. It is Time to Hire a Vet: To be entitled to the Expanded Tax Credit, you have up to Dec 31st to hire a veteran. You can claim up to $9,600 per worker for employers running for-profit businesses or $6,240 for tax-exempt organizations. The amount you can claim for the credit is determined by the period the vet has been employed, number of hours worked and the wage amount paid. You will qualify for maximum credit if the vet is disabled.

2. Year-end Bonuses: You must bear in mind that the bonuses you give your employees are subject to payroll tax withholding, payment of FUTA taxes, employer matching of FICA, and Medicare taxes. You can choose to give a flat year-end bonus like $1000 as opposed to $923 after withholding, but remember to ask the payroll provider to gross up from the net amount. If you pay bonuses but fail to process payroll, the IRS and the state tax agency will simply classify the bonus as wages, and you will be punished for a mistake you could have avoided.

3. Analyze Fringe Benefit Packages: Find out from the IRS publication 15 if there are any pre-tax fringe benefits available. If there are, consider offering employees fringe benefits in place of standard raises to help lower your tax liability. You can save money in payroll taxes by offering benefits like health vision and child-care help. Your employees will also like these tax free benefits.

4. Employee Preparation for 2013: Ask your employees to assess the number of exemptions they claim and complete new W4 Forms. Those who claim exempt must submit a new Form W4 by February 18th. The IRS Publication 505 should be used to set the withholding amount to be taken and exemptions to claim.

5. Payroll Preparation: As you post payroll to the accounting program, patch up to have the gross wages matched with the year to date wages on the payroll report. Keep the employer-paid payroll taxes as a separate line item on the profit and loss statement and assign the withholding from paychecks to a current liability account on the balance sheet. Remember that payroll expense on Schedule C or other business income tax return must match the totals reflected on Form W3.

The secret to timely tax filing is proper preparation, the earlier you work on your tax returns, the better it is for you.

Source: http://www.limonwhitaker.com/2012/12/five-end-of-year-payroll-tips-for-small-business-entrepreneurs/

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