Business owners have to minimize their tax liability during tax season in order to save money. Payroll issues are likely to arise when submitting tax returns. This is why it is crucial that you prepare yourself thoroughly for this process. All businesses have to calculate and pay taxes at regular intervals and stay current with all tax requirements. 

Generally, you will need to make payments every quarter. In addition to this, you also have to follow the payroll tax schedule. As you have a responsibility to make a tax payment, everything is interconnected. To help you prepare your payroll for tax season, here is everything that you need to know. 

The Importance of Preparing for Tax Season

When tax filing season comes around, it is natural to worry. No one likes paying taxes and we like being scrutinized even less. This is why it’s important that you get prepared, especially when it comes to payroll. 

Since preparing your accounts for taxes can be complex, the earlier you go through your business transactions, your balance sheet, and other statements and reports the better. It can be difficult to navigate US taxation when it comes to payroll. The following reasons highlight the importance of good preparation.

1. Saves You Money

One of the main reasons why you must review your payroll for tax season is that it can help you save money. It would give you enough time to identify deductions and credits that you might have not even thought of.

2. Minimizes Time Involved

Another reason to prepare for tax season is that it helps minimize the amount of time involved. This allows you to manage your available time wisely. By going through all the forms, documents, payments, receipts, and business expenses, you’re able to determine your taxable income regardless of your business type or business structure.

3. Eliminates Errors

No matter how many workers you might have who report to you, it is important that you prepare for tax season to eliminate errors. Errors in payroll taxes can result in audits or penalties. They can also keep you on the IRS’s radar, so to speak, and decrease the confidence of your staff. 

Top Ways to Prepare For and Navigate Tax Season

If you are preparing your payroll and other tax documents, you should consider the following tips to breeze through this tax season.

1. Ensure That You Are IRS-Compliant

The first thing that you must do before you file any documents is to find out if you are currently IRS-compliant. Make sure that you have properly classified your employees and that you have an EIN (Employer Identification Number). Be sure that all payments and filings are up to date and that you have no outstanding taxes owed for past filings.

2. Review Documents and Data

The next thing that you need to do is go through your documents and the information you’ve entered in reports or tax filings to ensure accuracy.

Even though you have certain things automated, there is still the possibility that mistakes such as misspelling names, transposing numbers, and checking wrong boxes can happen. What seem like simple mistakes can lead to unforeseen consequences down the road. 

3. Determine Year-End Payroll Before Proceeding with Business Taxes

Once January comes to an end each year, you have to do a few things as mentioned below.

• Submit a copy of W-2 for each employee.
• Submit a Form 940 that contains a summary of the tax payment made for the year and a Form 941 which indicates that quarterly federal tax payments had been made.
• Submit a Form 1099 if you have hired any contractor and paid over $600 in the previous year.

4. Know All Payroll Tax Deadlines

When the new tax year begins, you have to meet multiple deadlines. Most of these will require you to close your financial records for the previous year. You will also need to work out strategic plans. It makes sense to focus on meeting the W-2 deadlines first as you can’t use an extension and would immediately incur penalties. It’s a good idea to have a schedule or calendar posted somewhere that displays all the tax days for the entire year.

6. Evaluate Payroll Write-Offs

After you have calculated total wages along with their respective taxes, you should be able to determine if you qualify for a small business deduction or not. Here are some payroll expenses that you should be able to write off.  

• Cash awards.
• Paid vacation and sick days.
• Reimbursements made for covering travel expenses.
• Bonuses and commissions in case they would be considered additional wages.
• Benefit programs like an accident, life, and health insurance as well as education reimbursement.
• Contributions made to certain state payroll taxes, unemployment benefits, social security, and Medicare.
• Wages paid that qualify as a necessary and ordinary business expense. These are typically considered an expense during the first year of startups.

7. Have the Right Records on Hand

Lastly, your tax process will require certain records. You never know if the IRS or the state might conduct an audit and thorough records help you manage your payroll, finances and employee relations with greater ease and confidence. 

Keeping all necessary documents in order and quickly accessible allows you to access them right when you or the IRS needs them. It also helps you stay organized and on-time. IRS guidelines advise businesses to maintain tax records for up to three years. However, employee records have to be kept for four years. It is best that you keep both electronic and paper copies to stay on the safe side.

Reasons You Should Consider a Professional Bookkeeping Service

Since handling your payroll and tax issues on your own can be extremely difficult, it might be worth considering seeking a professional bookkeeping service. Here are a few reasons. 

1. Allows You to Focus on Core Business Activities

A major reason you could use the help of accountants or a professional bookkeeping service is that it enables you to focus on your core business requirements. To run your business successfully, you need time, attention, good resource and personnel management, a clear plan, and consistent leadership. Hence, the last thing you want is to spend a lot of time working on payroll and taxes and losing track of what matters most to you. 

2. Helps You Navigate Taxes

Since most owners don’t have a background in finance or accounting and don’t know how to manage accounts, it is best to leave the job to an expert who is certified and has the experience needed to handle every aspect of the bookkeeping and tax process. They can help you limit mistakes which would otherwise prove detrimental to your business.

3. Provide a Different Perspective

Tax experts work with just about every type of business, and because of this, they’ve acquired a great deal of knowledge. When you hire one to help you out, you get to benefit from their storehouse of experience. 

Even though you might think that you are managing your startup well, it is always best to seek all the help you can get. Having another pair of eyes allows you to see things that you otherwise might not have noticed.

4. Eliminate Tedious Work

Tax submissions can be grueling to take on completely on your own. It makes sense to escape it by seeking a bookkeeping service provider. Preparing your payroll and managing your accounts is often not something you tend to feel passionate about. Bookkeepers are geared for it and will ensure that everything gets managed in the best way possible. 

5. Ensure Correct Tax Filings

A great bookkeeping service provider is highly meticulous with details and focused on making sure every piece of information is perect. They go through every corner of your payroll and finances to ensure complete accuracy and compliance. As there are various requirements that you have to meet, it often helps to get a financial expert involved.

6. Reduce Financial Obligations

Now, you might think that you can handle all your taxes on your own in the hope of reducing costs. However, you may be missing a few things. A professional bookkeeper would help you save big. The fact is that missing out on tax obligations and payments is easy to do when you’re focused on everything else.

A lack of knowledge, and the possibility of human error could prove costly. Trying to backtrack and fix errors and pay fines can be overwhelming. 

Conclusion

Taking time to walk through the process of preparing your payroll for tax season will pay off several fold. Don’t miss any of the steps and tips above and start early, that way you can avoid the stress of last-minute action. And never hesitate to reach out to a qualified bookkeeper to help you navigate tax season. Their invaluable advice and professional focus will keep your business humming right along. 

Sound Accounts helps businesses of all kinds stay on top of their payroll and prepare for tax season with confidence. Contact us today to learn more about partnering with Sound Accounts for your bookkeeping needs. 

To learn more about preparing your payroll for tax season, check out our frequently asked questions and answers below. 

FAQ

How do small businesses keep track of taxes?

Small businesses keep track of their taxes by maintaining accounts, going through their bank statements, understanding your assets, reading through and analyzing all financial reports, staying organized, keeping current with all IRS codes and requirements, and preparing in advance.

If I need help with payroll or taxes, where should I turn?

Hiring either an in-house bookkeeper or contracting with an excellent bookkeeping service can help you make sense of your payroll, fix mistakes, find money-saving opportunities, and prepare thoroughly for tax time. 

Can I write-off small business expenses?

There are several expenses that business owners can deduct. It is important to familiarize yourself with current options here and reach out to a qualified professional with any questions or needed assistance. Common deductible expenses include:

Payroll

Office furniture

Office equipment

Rent or lease payments

Company vehicles

Company travel and lodging

…and much more.