There are many aspects of running a business that can give business owners more than their fair share of stress headaches – not the least of which is figuring out employment taxes. As complex as filing taxes can be at times, it’s important to get it right if you want to avoid the possibility of potentially costly fines. Here are some common tax pitfalls that employers sometimes run into.
Filing now and paying later
When you have employees, you stand in as the fiduciary to the US government. This means that the IRS is expecting you, the person who is responsible for withholding the taxes, to pay them over. When you do not, not only does the IRS hold your company responsible—if it goes on too long, they will hold you personally responsible as well.
Reinvesting money that should be used for taxes
The IRS is kind of like a bank you are not able to borrow from. This governmental entity is not happy when you take it upon yourself to use the money for other “priority” items on your list instead of taxes owed. If that priority item is personal, such as a new car or much-needed vacation, you will be meeting not only a revenue officer but their counterpart at criminal investigation too.
Withholding the wrong amount of employee pay
There are certain taxes that an employer must withhold from an employee’s pay – such as Medicare tax, social security tax and federal income tax. Other taxes, however, are the sole responsibility of the employer – such as the federal unemployment tax. An employer must ensure that they make the proper withholdings on employee paychecks in order to comply with the IRS’s requirements.
Forgetting about occupational privilege taxes
Depending upon where your business is located, you may need to pay an occupational privilege tax for each of your employees. This is a tax that some cities or counties levy on workers – and their employers – within their jurisdiction. Check to see whether your jurisdiction has one, and if so, how much your business is required to match out of each employee’s payment.
Claiming more credits than they are entitled to
The IRS has specific rules as to what makes employers eligible to claim certain credits on their employment tax returns. These rules can be quite complex, and sometimes employers inadvertently claim credits that they are not entitled to under the tax code. Make sure that you claim the correct credits so that you don’t have to waste time and money going back and amending your return later on.
Even though filing employment taxes is one of the least pleasant parts of running a business, it is critical to pay close attention and do it right the first time. By avoiding these common mistakes, you can save yourself and your company the stress, time and money that comes with an IRS audit.