Are you new to payroll? Have you received tax notifications for the IRS or other taxing authorities? Has your tax due date ever creeped up quicker than you anticipated?
You may face tax mistakes and their consequential penalties. Listed below are some of the most common errors, what they can mean for you, and how to avoid them.
1. Failure to Withhold
Generally, every US business not listed as tax-exempt is required to withhold Federal income, Social Security, and Medicare taxes from employee wages. Additionally, state tax requirements may vary.
How to avoid: Research and determine which deductions are necessary based on your business' location and status specifically.
2. Late Payments
You may suffer a penalty if you fail to make tax payments on time. The IRS may charge penalty fees based on the number of days a payment is late, meaning the penalty fee increases considerably the later a payment gets.
How to avoid: Determine the deposit schedule for your business (semi-weekly or monthly) and stay on top of due dates to avoid unnecessary charges.
3. Failure to Issue IRS Form W-2's
Employers must prepare and issue W-2 forms to each employee by January 31st following the tax year, and can suffer a $50 penalty for late or unprovided form.
How to avoid: Keep an organized and updated record of employees and their wages, and stay on top of the due date each year.
4. Failure to Issue IRS Form 1099-MISC's
These miscellaneous income forms are required for anyone (not including employees) who's paid more than $600 in a calendar year. These forms must also be prepared and sent by January 31st every year following the tax year. Penalties can be up to $75 for each missed form.
How to avoid: Record all payments made to individuals by the business and stay on top of the due date each year.
5. Math Errors
The IRS does not usually provide penalty or interest abatements for unpaid taxes based on math errors or calculation mistakes. Additionally, refunds for overpayments may take excessive paperwork and time.
How to avoid: Calculate and re-check tax payments or use a professional service.
Tax payments and penalties are complex, and this is just a general list.
Your best course of action is to use a payroll service. We will be happy to recommend one that fits your needs.
Give us a call at (805) 491-4419.