Penalties teach a better lesson – true to the core, isn’t it? Businesses, especially the small & medium ones emerge with a hope to survive for the first few years and expect to scale up & achieve greater profits with time. Unfortunately, many fall prey to the strict IRS rules and regulations and proceed to shutdown or go bankrupt. Non-compliance of payroll rules is observed to be the major concern.
Small business owners are reluctant to outsource payroll and tax administration services so as to cut down costs. However, this might lead them to pay off monstrous figures as penalties. Here are 5 don’ts to save you from paying off excessive payroll tax penalties:
- Misclassifying employees – You need to uprightly withhold payroll taxes from statutory employees. If you end up misclassifying employees as independent contractors, you will be responsible for paying payroll taxes.
- Delaying tax payments – When you extend the date of depositing taxes, it is an invitation to up to 10 percent failure-to-deposit penalty. In case of a late tax return, you may receive a 5 percent failure-to-file penalty.
- Incorrect information – If IRS notices any incorrect information especially with regards to figures, you are sure to receive communications from them. Instead, a correctly filled form can help with reconciling your W-2s to year-end tax returns and avoid under or overpaying payroll taxes.
- Incorrect amounts – An IRS payroll penalty is mandatory in case you show wrong amounts of payroll deposits. However, it may waive the penalty if it is your first penalty and not due to willful neglect.
- Borrowing from payroll taxes – It is a crime. Using the payroll taxes for meeting operating expenses of the businesses is against the law and by doing so, employers participate willingly in the penalty-payers’ list.
To save their businesses ending up bearing a burden of huge penalties, many are hiring professional payroll and tax services. A payroll company has efficient tax administration resources to manage payroll and comply with the law and allow the business owners to concentrate on day-to-day operations. Moreover, you don’t have to loosen your pockets much. Just a few upfront fees and you are saved from the killing penalties.