Published November 16, 2012
The holiday season is upon us and now is the time for small business owners to finalize their year-end tax planning.
There are ways to minimize the tax hit that often comes at this time of the year, and some of them involve Human Resources and payroll issues. Here are some things to consider:
1. Hire a vet. You have until Dec. 31 to hire a veteran and qualify for the Expanded Tax Credit. The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.
The amount of the credit depends upon how long the vet has been unemployed, the number of hours he/she works for your firm and the wage amount. If the veteran is disabled due to his service, the employer may receive the maximum credit. Visit www.irs.gov website and enter ‘WOTC’ in the search field for forms and more details about the expanded tax credit for hiring veterans.
2. Review fringe benefit packages. Check out IRS publication 15 to find what pre-tax fringe benefits are available. Consider offering employees fringe benefits instead of standard raises to help reduce your tax burden. Offering things like health vision and child-care assistance will save money in payroll taxes and your employees will be happy to receive tax-free benefits.
3. Bonuses . Keep in mind that bonuses are subject to payroll tax withholding and employer matching of FICA and Medicare taxes and payment of FUTA taxes. If you want to give a yearend bonus that is a flat amount, for example $1,000 rather than $923.84 after withholdings, then ask your payroll provider to gross up from the net figure. But do not make the mistake of paying out a bonus without processing it through payroll. The IRS and your state taxing agency will reclassify the bonus as wages and punish you severely for failing to treat the payment properly.
4. Prepare for 2013. Ask your employees to review the number of exemptions claimed and complete new W4 Forms. Employees who claim exempt are required to submit a new Form W4 by Feb. 18, 2013. Use IRS Publication 505 to determine how much withholding should be taken and how many exemptions to claim.
5. When posting payroll to your accounting program reconcile so that gross wages match the year to date wages on the payroll report. Employer paid payroll taxes should be kept as a separate line item on the profit and loss statement, and withholdings from paychecks should be assigned to a current liability account on the balance sheet. M any businesses neglect to balance payroll figures from the payroll report to the profit and loss statement and the balance sheet. It’s important that the figures you include for payroll expense on your Schedule C or other business income tax return match the totals reflected on Form W3.
6. If you pay into the state unemployment fund, you should receive a statement by January 2013 which reflects any rate changes. Be sure to provide this information to your payroll provider in order to ward off any penalties for paying the wrong amount.
7. Don’t forget to include the cost of health insurance provided to your employees on Form W2 at year end. Your payroll provider may neglect to ask you for the figures, so be sure that you are proactive in providing these figures to them.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.