Grow Smart BusinessUMDNetwork Solutions


Small Business Success Index 4

Index Score*   Grade
73 marginal
Capital Access 67
Marketing & Innovation 65
Workforce 76
Customer Service 88
Computer Technology 73
Compliance 92
*Index score is calculated on a 1-100 scale.
homepreneur

Search Articles

Posts Tagged ‘Payroll taxes’


Can Hiring Family Members Mean a Tax Break for Your Small Business?

November 23rd, 2010 :: Karen Axelton

By Karen Axelton

Keeping track of tax breaks available to small businesses—especially in the current political climate—can be a complex task. The good news is, there is one kind of tax break that just about every small business can take advantage of: the advantages gained by hiring family members to work in your business. Here’s a closer look at some of the options:

Hiring your spouse: In general, the IRS considers a spouse an employee as long as an employer/employee relationship exists. In other words, one spouse must truly control the business in terms of making key management decisions, and must direct the other spouse’s work duties and activities. Specific rules related to hiring your spouse depend on the business structure you’ve chosen for your company. Visit the IRS website for more detailed information about tax issues related to husband and wife businesses.

Hiring a parent: Hiring a parent is becoming more of an option these days with many seniors and retirees more interested in continuing to work—or needing to work to supplement retirement income. If you are hiring a parent, know your business will be subject to income tax withholding, Social Security tax, and Medicare tax; however, you are not subject to Federal Unemployment Tax Act (FUTA) tax.

Hiring your children: Having your children work for you in the business is a great way to transfer income from your higher tax bracket to your children’s lower one. This is also a way you can transfer wealth to your children without worrying about gift and estate taxes.

If your company is a sole proprietorship or partnership, wages paid to your children under age 18 are not subject to Medicare or Social Security taxes; wages paid to children under 21 are not subject to FUTA tax. At any age, their wages are subject to income tax withholding. If your business is a corporation, get more details about the tax issues of having your kids work in your business at the IRS website.

Before hiring any family member, discuss the issue with your accountant to make sure you follow all the rules. It’s especially important to maintain detailed records of the person’s duties and the hours he or she works to protect you from any questions of fraud. And, of course, be sure the person’s salary or wages is in line with what he or she actually does, or you risk raising red flags.

Tax savings aren’t the only benefit of hiring family members. Working with your spouse can build bonds as you feel that you’re working together for a goal. Children at any age can gain responsibility and learn from seeing their parents working hard to build a business. Children approaching adulthood can be groomed to take full-time roles in the business and be part of your succession plan. Start your children in the business at a young age, and you’re less likely to face resistance from other employees as your kids take on more important roles.

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

The IRS Is Not A Bank

April 9th, 2010 :: Gary Honig

The Internal Revenue Service is not a lender of last resort. By not paying taxes, you are ultimately borrowing from the Government, at extremely costly rates. The addition of compounding interest and penalties will make a bad situation much worse. Any unpaid taxes due will garner a daily interest rate, plus a monthly 5% penalty each month up to 5 months for a maximum of 25%.

For businesses, the most common tax payment problems come from not paying the payroll tax. Failure to pay 941 payroll taxes can easily put the entire business in jeopardy and have a drastic affect on the business owners’ assets. If the company is dissolved, the IRS will still require the owner to pay outstanding balances of payroll taxes.

The best advice for tax problems is to be pro-active at all times. Like most bad situations, ignoring it will not make it go away. If there are not enough funds to pay taxes on a timely basis, there is a strong indication the business is improperly capitalized. This can cascade into difficulties that may be hard to get out of, which could create lasting negative obligations.

As far as the IRS is concerned, first they will send a letter for a balance due. Upon not hearing anything from the taxpayer they might send a few more. When the bureaucracy figures out no one  is heeding the message, they will assign a case worker. This means your account has moved down a notch.  At this point either a payment plan is negotiated or a Notice of Federal Tax Lien is filed. Avoiding a tax lien is highly recommended. Once a payment plan is in place, it is imperative that payments are made on a timely basis. With good cooperation a payment plan can be in place without having a formal tax lien.

The latest news is that the IRS is now checking that Federal contractors are in compliance. Meaning, they conduct a review of certifications of non-delinquency in taxes for any companies bidding for Federal contracts. This could potentially kill an active solicitation bid if there are outstanding taxes due.

In some cases a factoring company can actually assist in situations where there is a delinquency. But once a lien has been levied against a company it will require written subordination from the IRS in order for any commercial finance company to even consider funding. . When a payment schedule is in place, the factor may send advances from invoices directly to the IRS. This insures that payments are being made in a timely fashion per the IRS agreement.

Fortunately tax problems can be remedied, but they can’t be ignored.

Contractor vs Employee – Getting Scrutiny

March 5th, 2010 :: Gary Honig

You may not have noticed in the news, but the issue of “independent contractors” is becoming a hot item. This is where a company will forego making payroll tax payments and just hope the individual will pay their own way.

Make no mistake, one way or the other, tax on hourly wages must get paid. Either the company deducts them from a paycheck and makes monthly 941 payroll tax payments or the individual needs to make self employment tax payments. The IRS has determined there are three criteria for consideration when deciding whether an individual is an employee or independent contractor.

  1. Behavioral – Does the individual decide where to be, when to be there and what to do when performing their duties?
  2. Financial – Is the individual completely responsible for tracking their finances, negotiating their rate, paying for their own expenses?
  3. Type of Relationship – Does the individual conduct all aspects of their part of the business relationship with regards to contracts, starting, leaving, paying taxes?

If the answers to all of the above is Yes, without any reservations, the individual may be considered an independent contractor. But any shades of gray will pull toward requiring the company to pay the payroll taxes. One rule of thumb would be, when looking at the operating financial statement for the business, the cost of payroll should be one of the bigger, if not the largest cost of doing business.

The reason this is timely has to do with the loss of revenues to both Federal and State budgets. In an effort to recoup shortfalls, agencies are taking a hard look at companies that try to avoid making their necessary tax payments. And here is the kicker, if a company is found to have avoided paying payroll taxes and is levied with past due amounts plus penalties and interest – that liability follows the company owner until it’s paid. Liquidating the company will not resolve unpaid payroll taxes.