Just about every Arizona small business will, at some point, have to think about payroll. Even if you are a solo practitioner today, odds are good that you have plans to grow and add staff in the future. And, dealing with payroll means complying with a multitude of federal, state and sometimes local tax and reporting requirements. Because of the complexity involved, it is no surprise that local businesses sometimes make mistakes when it comes to payroll.
Here are four of the most common (and potentially costly) payroll errors we see small businesses make:
1. Not paying payroll taxes. The IRS uses the term "payroll tax" to refer to both the taxes that employers have to withhold from their employees' paychecks, and the amount of taxes an employer owes when paying employees' wages. Both are mandatory, and failing to withhold and remit the proper amount can lead to hefty penalties from the IRS.
2. Failing to properly classify employees. The people who work for you should be classified either as employees, who earn W-2 wages, or independent contractors for whom you need to issue 1099 forms at the end of the year. Treating an employee as a contractor for payroll purposes can be a costly error for the business owner.
3. Not making payroll tax payments on time. Businesses that fail to make their payroll tax payments on time risk late deposit penalties from 2% - 15% plus interest.
4. Paperwork errors. Business owners are responsible for ensuring payroll records are calculated appropriately, that forms are completed correctly and submitted in a timely manner, and that required records are maintained.
While these are the most common errors, there are many other potential traps for small business owners when it comes to business bookkeeping and accounting. Consulting with a Phoenix area small business accountantcan save businesses time, money and can help ease the frustration that can come with handling payroll.
To learn more about the business tax, accounting and bookkeeping services we offer, contact the CPA firm Arizona business owners have come to know and trust, Sean Core CPA PLLC, today at (480) 626-5043, or contact us online.
