Every small business owner has strengths and weaknesses. Typically accounting is not a small business owner’s specialty and s/he usually does not want to deal with the accounting. So small business owners choose to hire an outside service to perform tasks such as tax preparation, bookkeeping, and payroll. Even if this area is not your specialty, it is wise to understand what your service provider is doing so that you can determine if mistakes have been made. I was at a client this week and found about $ 2,000 in payroll tax overpayments. Here are some tips to avoid this situation:
Ask a LOT of Questions – if you do not understand a payroll report or the purpose of a deduction on an employee, ask your service provider. Do not assume that the information is accurate. Sometimes errors occur, but you are ultimately responsible for payroll taxes, not your payroll service provider.
Read Your Reports Before Signing Them – do not blindly assume that your payroll tax forms are accurate before signing them. Again, if you do not understand the report, ask your service provider to walk you through the lines step-by-step so you understand the form you are about to sign and certify is accurate.
Create Check Figure Reports – if you use QuickBooks, you can easily modify reports and create check figure reports to back check your payroll company to verify the information is accurate. You should confirm that the quarterly wages in QuickBooks matches the payroll tax forms. Also create a payroll tax liability check figure report to make sure the balance zeros out after you pay your taxes. Sometimes the wages recorded in QuickBooks will not match the payroll tax forms and it is not an error. Again, talk to your payroll company to understand what it reports as wages versus what you record in QuickBooks as wages to determine if the difference is explainable or an error.
Communicate With Your Service Provider – some payroll companies offer different service levels. One option is to have the payroll company do all your payroll for you: generate payroll checks/direct deposit, file payroll taxes on your behalf, and file payroll tax forms on your behalf. A more common option because it costs less, which I do not recommend unless you fully understand your payroll reports and tax liability calculations, is to have the payroll company process the payroll, give you reports so you see how much tax you owe, and sends forms for you to sign. In this scenario, the payroll company assumes you made the payroll tax payments on time, for the full amount, and made no mistakes.
If you make a mistake and pay a different amount for payroll taxes or forget to make a payment, immediately contact your payroll company. This will affect amounts reported on the payroll tax forms. And if you receive a letter from the IRS or other tax agency, fax or scan & email it to your payroll company right away even if you do not understand the letter. Get the letter to the payroll company first and then call to ask what it means.
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