Common Tax Concerns

Common Tax Concerns



Let's face it,​ taxes are complicated,​ especially if​ you​ own a​ small business. Read below about tax concerns to​ avoid some of​ the​ most common pitfalls experienced by small business owners today.

As your business grows,​ you​ will probably need to​ hire employees. Some of​ the​ most common tax concerns involve employee tax issues. When you​ hire employees,​ you​ have to​ file timely payroll tax returns and make the​ required tax deposits.

Payroll taxes include three types of​ taxes:

- Income Tax-You must withhold the​ proper amount of​ income tax from each employee's paycheck throughout the​ year.

-Social Security and Medicare Tax or​ FICA-You must withhold the​ employee's share of​ FICA taxes from each paycheck and you​ must match that amount.

-Federal Unemployment Tax or​ FUTA-This tax goes to​ the​ unemployment insurance system and is​ paid by the​ employer. the​ employee pays no part of​ FUTA.

Always pay your payroll taxes in​ full and on​ time. if​ you​ don't,​ the​ IRS adds interest and large penalties. the​ interest and penalties can quickly grow if​ you​ don't pay them immediately. These fees can be enormous and can cause businesses to​ fail if​ they cannot afford to​ pay the​ fees.

Another common tax issue is​ misclassifying workers. Workers are usually classified as​ either regular employees or​ independent contractors. Business owners have payroll tax withholding and reporting obligations for all of​ their employees; however,​ business owners don't have to​ withhold or​ make contributions for payroll taxes for true independent contractors.

Calling someone an​ independent contractor saves a​ lot of​ time complying with IRS reporting requirements. it​ also saves money-you don't have to​ make the​ employer's share of​ the​ FICA contributions and you​ won't have to​ pay unemployment compensation. it​ costs a​ business 20 percent to​ 40 percent more per worker to​ treat them as​ employees. While it​ may be tempting to​ use independent contractors rather than employees,​ the​ IRS is​ very aware of​ the​ benefits of​ misclassifying an​ employee as​ an​ independent contractor and will impose stiff penalties for those who break the​ rule.

If you​ plan to​ use independent contractors rather than employees,​ take the​ IRS test (http://www.irs.gov/pub/irs-pdf/p1779.pdf),​ which lists 20 factors to​ determine whether a​ worker is​ an​ employee or​ contractor.




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