Payroll is one of those tasks that every company must consider when hiring employees. Using an outside payroll service is usually cost-effective for any company, even for companies with only one or two employees.
By doing payroll in house, you must first have someone that is skilled in doing payroll since it includes setting up payroll taxes for individuals. You must also decide when your payroll is to be run (ie. biweekly, montly, etc) and follow that schedule. In addition, taxes must be set up accurately or your records will not match up with the IRS at year end, causing you to get the records straightened up at year end. What can happen from errors occurring is unplanned extra taxes due from the IRS. Also, if tax deposits (filings) are not made on monthly or quarterly deadlines, your company will be required to pay penalties and interest to the IRS. These penalties can be hefty, even if you make only a minor mistake.
By allowing a payroll servcies to do your payroll, you eliminate all of the uncertainties of deadlines and/or inaccurate tax set-up problems.
A payroll service will ensure that the payroll tax filings are done timely and accurately. In addition, a good payroll service will provide good reports for you to enter data easily, which will be a time saver when it comes to entering the information accurately. Some payroll servcies reports are confusing and hard to understand, causing errors in reporting.
A good payroll service to consider isADP found here: http://www.adp.com/solutions/employer-services/payroll.aspx. They provide timely, accurate filings, and easy to read reports. They also will file your state L&I (for WA state) for you, something that many payroll services don't do. They also prepare your federal unemployment report at year end, giving you a clean start to your next year payroll.
Copyright Jeanine Pfeiffer
If you are looking to change or restructure your business entity or are in the process of closing your business, you must take the steps to formally close your current business which will meet the IRS regulations. Any time you are no longer operating under a specific EIN (Employer Identification Number), that EIN number must no longer be open. Otherwise, the IRS will think that you are still in business, and you can unfortunately get penalties for not filing the proper tax forms that are due. Here is a checklist that the IRS requires for proper closing of a business:
1. Make your final federal tax deposits (through EFTPS).
2. File your quarterly or annual employment tax form. (Can be Form 940, 941, 943 or 943-A).
3. Issue final wage and withholding information to your employees (Form W-2).
4. Report the information to the IRS from the W-2s issued (Form W-3).
5. File final tip income and allocated tips information return, if required (Form 8027).
6. Report any capital gains or losses (reported on either Form 1040, Form 1065, or form 1120 (schedule D).
7. Report partner's/shareholders shares (reported on either Form 1065 or Form 1120S).
8. File final employee pension/benefit plans. (form 5500).
9. Issue payment information to sub-contractors (Form 1099-MISC).
10. Report infromation from 1099s issued (Form 1096 sent to IRS).
11. Report corporate dissolution or liquidation (Form 966).
12. Consider allowing S corporation election to terminate (Form 1120s).
13. Report business asset sales (Form 8594).
14. Reprot the sale or exchange of property used in your trade or business. (Form 4797).
This list is the list the IRS uses for a checklist for your business, and depending upon which type of business you operate, certain forms are relevant or not. This checklist is also to be used when you are restructuring or changing your business type, since you are actually closing that EIN and will be getting another another EIN for the new type of business.
Other requrirements you may need to check are with your state and local agencies. States may require you to fill out forms to close your old business, especially if you are required to pay any state or local taxes. Check with your state in regards to this.
Copyright Jeanine Pfeiffer
Over the years an LLC Company has become a popular type of entity to form. There are significant tax savings, for example for incorporating from a sole proprietorship. As a sole proprietorship, you are considered self-employed. What this means to the IRS is that you pay a self employment tax. As an employee of a company, you pay 7.65% employment taxes. However, as a sole proprietorship, you pay double that, or 15.3% (IRS 2013 and 2014 new rate). Many people who decide to own their own business don't want to hassle with the process of incorporating, especially when they are small and are single owned businesses. It makes much better financial sense to start or restructure your company into an LLC just with the tax reductions and is much easier than one may actually think. In restructuring your company into an LLC company, your net income from the S-Corporation is not subject to self employment tax since the IRS regards it as a separate entity. Instead, the income is "passed through" to your personal tax return, (i.e. no double taxation) resulting in significantly lower taxes to you, the owner. Most LLCs are organized with something called an operating agreement, and as a single member the IRS allows you to elect to be either a corporation or a disregarded entity. You may also be a multi member LLC and choose if you want to operate as a partnership or corporation. By electing a status with the IRS, you become classified as such. The advantages are listed below:
1. No requirements of an annual general meeting of shareholders.
2. No loss of power to a board of directors.
3. Much less administrative paperwork and recordkeeping than a corporation.
4. Pass through taxation (no double taxation).
5. Limited liability, meaning the owners of the LLC.
6. Can be elected to be taxed as a sole proprietor, partnership, S-Corporation, or C-Corporation which provides much more flexibility.
7. Great for getting loans and small business investors who can sell "shares" or interest in the company to help fund the startup of the company. Friends and family can be investors, as well.
Disadvantages of the LLC are as follows:
1. Many states levy a franchise tax, or capital values tax on LLC's. The franchise tax can be an amount based upon revenue, profits, or the number of owners, or some combination of these or simply a flat fee. In most states, however, the fee is small.
2. When you operate as an LLC company, any loans a lender allows you to borrow will be personally guaranteed and/or your personal assets will be pledged to guarantee repayment. When you guarantee or personally co-sign causes all of your separate property and either half or all of your personal property you jointly own with a spouse can be eventually taken by the lender if you default on theloan.
3. Although there is no statuatory requirement for an operating agreement in most states, members who operate without one can run into problems.
4. Some people aren't familiar with the fact that unlike corporations, LLC's aren't required to have a board of directors or officers.
There are so many advantages to incorporating into an LLC company, especially the tax savings that make it to one's benefit to restructure. However, the choice is yours and situations determine what a company decides to do. If you would like to restructure into an LLC corporation, once you get all necessary steps done to set it up with your own state, we would be happy to help you with that process. Just purchase our LLC restructuring kit and we will give you all of the necessary information in an easy step by step way, along with all the forms and how tos to get your company transferred or started as an LLC company.
Copyright Jeanine Pfeiffer
Payroll is another one of those administrative costs that seem to take a lot of your income to pay for. You may think that you are stuck paying payroll taxes and giving your employees health benefits. However, if you are set up as an LLC, partnership or Corporation, you may hire independent contractors for your business. You will then not be required to pay payroll taxes or benefits for them since they are not employees. When you use independent contractors in your business, you must folllow guidelines according to the IRS as to characterizing them properly. According to the IRS these characteristics are as follows:
1. Behavioral control: Covers facts that show whether the business has the right to direct or control how the work is done through instructions, training or other means.
*If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
2. Financial control: Covers facts that show whether the business has the right to direct or control the financial and business aspects of the worker's job.
*If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result-then your workers are probably independent contractors.
3. Type of relationship: Factor relates to how the workers and the busines owner perceive their relationship.
*Workers can avoid higher tax bills and lost benefits if they know their proper status. You can read more about it at http://www.irs.gov/pub/irs-pdf/p1779.pdf
As long as you can follow the characteristics for the independent contractor, your worker will be following IRS guidelines properly. Also, you must file a 1099 for your independent contractor for all earnings they make over $600.00 and must file a 1096 for your business annually.
Copyright Jeanine Pfeiffer