by Sarah | Aug 15, 2024 | Payroll
Do you dread making quarterly tax payments and filing your reports when tax o’clock strikes? Although having employees is necessary, quarterly reports can be tedious. Making timely payroll tax payments and report filing will keep you compliant with the IRS and allow you to avoid penalties. This is a habit worth building for your peace of mind.
Who pays quarterly tax payments?
Employers pay quarterly taxes on their employees’ payroll.
Quarterly payroll taxes include:
- State Income Tax (if applicable)
- Workers’ Compensation Tax
- Federal Unemployment Tax
- State Unemployment Tax
Self-employed business owners are required to pay quarterly estimated tax payments.
Self-employment covers:
- An independent contractor
- A sole proprietor
- A member of a partnership
- A person who runs a business as your own (even if only part-time)
Self-employed individuals must pay these two taxes:
- Self-employment tax (Social Security and Medicare)
- Income tax on the profits of your business and any other income.
Quarterly payments are not the same as W-2 and 1099 filings. W-2 and 1099 forms report wages and other income paid to employees and contractors, while quarterly tax payments are the tax payments you make to the IRS and state tax authorities.
Why do I need to make quarterly tax payments?
Timely quarterly payments allow you to be:
- Compliant with the IRS: Ensuring you pay your payroll and federal estimated taxes every quarter keeps you in good standing with the IRS and avoids legal complications.
- Prevent Penalties and Interest: Late payments can result in significant fines that quickly add up and strain your business’s finances.
- Improve Cash Flow Management: Regularly paying taxes ensures you have enough money for your tax obligations, improving your cash flow management.
- Maintain Financial Stability: Timely tax payments are about compliance and contributing to your business’s financial stability.
Filing Deadlines:
- Payroll Taxes: Payroll tax payments and reports are due by the end of the month following the end of each quarter (April 30th, July 31st, October 31st, and January 31st). The Federal Unemployment Tax should be paid online at EFTPS. On this site, you pay your Federal Withholding Taxes, Social Security Taxes, and Medicare Taxes after each payroll is run. If your Federal Unemployment Tax is less than $500 a year, it will only be due annually. You will need to file your quarterly 941 along with a Schedule B if you pay semi-weekly, and this will cover your Federal Withholding Tax, Social Security Tax, and Medicare Tax. Because you have been paying these taxes with each payroll, this report will tie the wages to the taxes paid for the quarter.
- Federal Estimated Taxes: Estimated taxes are due by the 15th of April, June, September, and January of the following year.
What are the penalties if a filing is late?
Penalties for late payment or underpayment:
- Payroll Taxes: Penalties vary but can be as high as 15% of the unpaid tax plus interest.
- Federal Estimated Taxes: Penalties vary for underpayment of estimated tax. The penalty starts at 0.5% of the unpaid tax amount per month, with a maximum penalty of up to 25%.
Benefits of Timely Payments:
- Prevent Legal Issues: Meeting your tax obligations on time helps avoid legal issues with the IRS.
- Eliminate Chaos: Regular tax payments prevent the chaos and stress of last-minute filings.
- Reliable Budgeting: Tracking your tax deadlines and amounts helps you budget better and manage your finances throughout the year.
- Reputation Management: Maintaining good standing with the IRS enhances your business’s credibility with clients, customers, and employees.
How can you stay compliant?
Practical tips for consistent Quarterly Tax payments and reports:
- Automate Reminders: Use a calendar or automated reminders to ensure you never miss a deadline.
- Tax Savings Account: Save a portion of your monthly income in a dedicated account to cover your tax payments.
- Professional Guidance: Consult a tax professional for expert guidance to ensure you maximize deductions and credits. They can also help you determine what should be paid in your quarterly estimated taxes.
- Educate Yourself: Keep up-to-date with tax regulations and changes to avoid surprises and ensure compliance, giving you peace of mind.
Consistency in filing quarterly payroll and federal estimated taxes allows you to stay legally compliant and maintain your business’s financial health. With some organization and planning, you will quickly finish this task and get back to growing your business.
Does Tax O’Clock steal your peace of mind? I can help you get your books in order. Schedule a call to learn more.
by Sarah | Jul 12, 2024 | Payroll
Whether you hire employees or freelancers for your business, you must file W-2s and 1099s regularly. It may not be an exciting topic, but it is crucial to your bottom line. Missing deadlines or filing incorrect forms can lead to hefty penalties.
Doing payroll is the adult equivalent of a high school math class – you know it’s important but tedious. You start enthusiastically, thinking it’s a quick job, but distractions arise and fires need to be put out. only to be distracted by putting out fires in your business. In the end, organizing the supply closet sounds like an exciting adventure compared to deciphering payroll forms!
The clients I work with file W-2s, 1099-NECs, or 1099-MISCs. Each form has a different purpose and covers various types of payments.
W-2 (Wage and Tax Statement)
This form reports wages paid to employees and the taxes withheld from those wages during the calendar year.
Must be issued for all employees who have been paid a salary, wage, or other form of compensation.
Used to report:
- Gross wages, salaries, and tips.
- Federal income tax withheld.
- Social Security tax withheld.
- Medicare tax withheld.
- State and local income tax withheld.
- Employee contributions to retirement plans.
This form must be provided to the employee by January 31st.
It must be filed with the Social Security Administration by January 31st, either electronically or on paper.
1099-NEC (Nonemployee Compensation)
The IRS re-implemented this form in 2020, which hadn’t been used since the 1980s. I discussed this form in more depth in a previous blog post.
This form reports payments made to non-employees, such as independent contractors, freelancers, and self-employed individuals, for services performed.
Must be filed for a nonemployee who received payments of $600 or more in a calendar year.
They are used for payments for services performed and commissions, fees, prizes, awards, or other compensation for services.
Must be filed with the IRS and provided to the recipient by January 31st.
1099-MISC (Miscellaneous Income)
On this form, you report income other than wages, salaries, and tips that you report on your W-2 form.
Must be filed to report payments of $600 or more in a calendar year for most types of payments. However, different thresholds apply for certain payments. (Example: Report royalties of $10 or more.)
Common uses:
- Rent payments
- Royalties
- Prizes and awards that are not for services performed
- Payments to Attorneys
- Other income payments
- Medical and healthcare payments
- Crop insurance proceeds
- Payments for fishing boat proceeds
- Section 409A deferrals
This form must be provided to the recipient by January 31st. If filed electronically, the filing deadline to the IRS is March 31st, and the filing deadline for paper filing is February 28th.
Penalties: Yikes!
Missing deadlines for W-2s and 1099s can be costly. The penalties range from $50 to $270 per form, depending on how late you file.
In order to avoid penalties, start with accuracy. Double-check critical details like Social Security numbers, addresses, and income amounts. Cross-reference your payroll records with the forms before filing to ensure everything matches up.
Online Filing: Get Tech-Savvy
If you’re filing more than ten forms, it’s time to embrace technology. Register with the IRS’s Information Returns Intake System (IRIS) for streamlined electronic filing. Remember, you can’t just print forms from the IRS website as they require special ink and paper.
Common Mistakes to Avoid
- Incorrect Information: Ensure all data, especially Social Security numbers and income amounts, are correct.
- Missing Deadlines: Mark your calendar and set reminders to meet all filing deadlines.
- Inadequate Records: Keep thorough payroll records to back up the information on your forms.
- Failure to Register for E-Filing: Register with the IRS for electronic filing if required.
Helpful Resources
- IRS Website: For the latest updates and detailed filing instructions, visit irs.gov.
- Social Security Administration: For W-2 filing guidelines, check out the SSA’s employer page.
Knowing the deadlines, understanding penalties, and embracing electronic filing rules can make handling W-2s and 1099s easier. Stay organized, focused, and proactive to keep your business tax-compliant and stress-free.
Let’s be honest – you didn’t start your business to get buried in bookkeeping and payroll paperwork, right? Let’s chat if managing your bookkeeping feels like trying to herd cats! Schedule a consultation call with me, and we’ll explore how to work together.
by Sarah | Jun 11, 2024 | Bookkeeping Basics, QuickBooks
If I have my bank accounts linked in QuickBooks, do I need to reconcile them?
Yes, you should be reconciling at least your bank accounts monthly. The biggest reasons are:
- Detect Fraud: To catch fraudulent charges as quickly as possible and report them to your bank, you need to be able to notice those charges. If you are not reviewing and reconciling your accounts with the bills you’ve entered into QuickBooks (or whatever accounting software you use), you can miss them. This is especially true if you run a lot of smaller or similar-priced transactions through your business.
- Catch Bank Feed Errors: Your bank feed can contain errors. I’ve seen accounts become unlinked and transactions not load. Recently, a client’s credit card charges were uploaded twice—once for the day the credit card was run, and again for the day it cleared the account. Your accounts and financial reports will tell you the wrong information without reconciling the account to catch these issues.
- Correct Human Errors: You can add human error if you write out your checks instead of printing them from your software and then typing the amounts into your accounting system. Reconciliation can help you find that $154 check that was keyed in as $145. The rule of thumb is if you’re off by something divisible by nine, it’s probably two numbers switched around. Sometimes, the error could also be on the bank’s side where something is misentered. You need to contact your bank to correct the information promptly.
- Ensure Tax Compliance: Incorrect numbers in your records can affect your tax reporting. Incorrect transactions could cause you to overpay or underpay your estimated or sales taxes.
- Avoid Overdrafts: Missing expenses in your bank feed can lead to spending money you don’t have, resulting in fees and penalties. This can especially happen if your cash flow is tight.
- Maintain Accurate Financial Statements: Having incorrect financial statements can cause you to make inaccurate assumptions about your current business finances and could lead to choices that cause issues in your business.
By regularly reconciling your accounts, you can rest assured that your financial records are accurate and up-to-date. This provides a solid foundation for managing and growing your business, giving you peace of mind.
by Sarah | Mar 19, 2024 | Uncategorized
As an LLC owner, you have several options for paying yourself, including draws and guaranteed payments. It’s crucial to understand how these methods work to ensure you’re compliant with tax laws and making the most of your hard-earned cash. In this blog post, we’ll break down the ins and outs of paying yourself as an LLC owner.
Draws
A draw is a payout of profits to LLC owners, typically taken throughout the year. Unlike a salary, draws aren’t subject to payroll taxes, but they are subject to income tax and self-employment tax.
Draws don’t count as a business expense, so they don’t lower your LLC’s taxable income. It’s also important to avoid taking excessive draws, as this can drain your business’s cash reserves and put it in a tough spot financially.
Guaranteed Payments for Partner LLC Owners
Guaranteed payments are especially relevant for LLCs with multiple owners, as they provide a way to compensate partners for their services to the company. These payments are considered a business expense, so they can be deducted from the LLC’s taxable income. Guaranteed payments are also subject to self-employment tax.
Partner LLC owners should consider the value of their services and compare it to industry standards when determining fair guaranteed payments. These payments should be reasonable and reflect the services provided by each partner to the LLC. Additionally, it’s essential to have a clear agreement in place that outlines the payment structure and how profits and losses will be shared among partners.
By understanding the role of guaranteed payments in a partner LLC, owners can ensure that everyone is compensated fairly and that the business is in compliance with tax laws.
S-Corporation Election
LLC owners can choose to be taxed as an S-corporation, which allows them to receive a salary through payroll. As an S-corporation owner, you’re considered an employee of your company, so your salary is subject to payroll taxes but not self-employment tax.
To elect S-corporation status, LLC owners must file Form 2553 with the IRS and meet specific criteria. While S-corporation election can offer tax benefits for some LLC owners, it also involves additional administrative and compliance responsibilities. It’s essential to consult with a tax professional before making this decision.
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Takeaway
Getting paid as an LLC owner requires careful consideration of tax laws and financial implications. Draws and guaranteed payments are common methods for LLC owners to receive compensation, and S-corporation election is another option for those who qualify. By understanding the pros and cons of each method and consulting with a tax professional, LLC owners can make informed decisions that support their financial goals and ensure compliance with tax laws.
by Sarah | Mar 19, 2024 | Uncategorized
Avoiding Costly Scams When Starting Your Business: Tips for Protecting Your Wallet
Starting a new business is an exciting and challenging journey, but it’s essential to be aware of potential scams that can drain your wallet and derail your progress. Some unscrupulous individuals and companies prey on new business owners, offering “helpful” services that are unnecessary or overpriced. In this blog post, we’ll explore some common scams to avoid and provide tips for protecting your hard-earned money.
Don’t Pay for an EIN
One of the first things you’ll need to do when setting up a business is to obtain an Employer Identification Number (EIN) from the IRS. While some websites may offer to obtain an EIN for you for a fee, this is a scam. The IRS provides EINs for free, and the application process is straightforward and can be completed online in just a few minutes. Don’t pay for something you can get for free!
Beware of Phantom Corporate Setup Fees
Another common scam involves companies charging exorbitant fees to set up a corporation or LLC for you. While there are legitimate companies that offer these services, some will charge hundreds or even thousands of dollars for something you can do yourself for a fraction of the cost. Before paying for these services, research your state’s requirements for forming a business entity and consider doing it yourself or hiring a reputable attorney to help.
Avoid Fake Business Licenses and Permits
Some scammers may try to sell you fake business licenses or permits that you don’t actually need. Before paying for any licenses or permits, check with your state and local governments to determine which ones are required for your business. In most cases, you can obtain these directly from the government agency at a much lower cost than what scammers are charging.
Tips for Protecting Yourself
To avoid falling victim to business setup scams, keep these tips in mind:
- Research your state’s requirements for setting up a business entity and obtaining necessary licenses and permits.
- Be skeptical of companies that promise to expedite the process or offer services that seem too good to be true.
- Don’t pay for something you can get for free, such as an EIN.
- Read reviews and check the Better Business Bureau before hiring a company to help with business setup.
- Consider working with a reputable attorney or accountant who specializes in small business services.
Starting a business is a big undertaking, and it’s natural to feel overwhelmed or unsure at times. However, by staying informed and cautious, you can avoid falling prey to scams and focus on building a successful and thriving business. Remember, if something seems too good to be true, it probably is. Trust your instincts and do your research before handing over your hard-earned money.
