DesPlaines Tax Expert Suggests Five Payroll Filings That Will Keep A Small Business in Tax Compliance

The U.S. Census Bureau recommends that small businesses limit their payroll expenses to between 15 and 30 percent of gross income, but this varies greatly depending in the type of business. For example retail and manufacturing payrolls can come in at around 30 percent, but payroll for many service industries can hit 50 percent or more. The key is understanding how to manage payroll to enhance profitability.

DesPlaines' CFOTOday president, Kevin Busch, suggests five payroll management practices that will ensure that your small business is in compliance with state and federal regulations

1) Don't let 941's be a Nine-One-One for your small business

Every small business must file a Form 941, Employer's Quarterly Federal Tax Return if they withhold income taxes, social security tax, or Medicare tax from employee's paychecks or who pay the employer's portion of social security or Medicare tax. Failing to file 941 or 940 forms will eventually result in a letter from the IRS. So make sure you have made the required deposits for the year.

You must have all new hire reports filed in a timely fashion with all the proper government agencies?

2) Don't sing the payroll blues from your W-2s

Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer). This includes independent contractors.

3) Don't flee from your W-3s

Tax Form W-3 is a transmittal which is forwarded to the Social Security Administration, showing total earnings, Medicare wages, Social Security wages, and withholding for all employees encompassing the entire year. This is often confusing for small business owners and this may require an accountant's oversight.

4) Employees will roar without up-to-date W4s

The W-4 is an Internal Revenue Service (IRS) form that employees complete to let you know how much money to withhold from their paycheck for federal taxes. Payroll compliance can be like a Hydra (from Greek Mythology) a nine headed monster, so make sure you have "current" w4's for all employees current and those who left during the current year.

5) Don't step on a mine without current I-9s

Federal law requires that every employer and agricultural recruiter/referrer-for-a-fee hiring, or recruiting/referring for a fee, an individual for employment in the United States complete a Form I-9, Employment Eligibility Verification. Form I-9 will help you verify your employee's identity and employment authorization.

The last thing you want is for a federal agency to identify a worker that is in the country illegally.

As much as the federal government tries to streamline tax forms, new regulations make it more confusing each year for small business owners to file the right reports in a timely way. It's a good idea to have a tax professional help with these important filings.