941? 940? SUTA? What are these? Should I care?
If you are a small business and pay a payroll, then you need to care. You are required to file payroll reports quarterly and remit to the federal government the amount of Social Security, Medicare and income taxes that were withheld from your employees' wages.
If you are using a payroll program, and most employers are, then the reports will be prepared by your program and all you need to do is generate these reports and send them in by the deadline, which is October 31. If you are still preparing payroll by hand, which you may be doing if you have always done it that way or you only have one or two employees and can't justify the cash outlay for a payroll program, you have a bit of math in front of you, but your deadline is still the same, October 31.
How do you determine if the people you work with and pay are employees? Basically, if you tell them when to show up, where to show up, how long to stay and what tools to use, these people are employees. If you discuss with them the job to be done and when it is to be completed and they come and go as they please, use their own tools and send you invoices for services rendered, then they are sub-contractors and you don't owe any payroll taxes for them.
Some employers want to avoid payroll and payroll taxes and try to pay everyone as a sub-contractor. That only works until the state or IRS auditor comes knocking asking to see proof that your subs are really subs. How do you prove that? Sub-contractors are in business. You are not their only client so they have business cards that they hand out to make it easy for you to remember them. Keep those cards. They bid on jobs. Keep the bids. Employees don't usually have professional business cards and never bid on jobs, they fill out applications.
A word to the wise: Keep up with the payroll tax payments. Pay attention to when you need to pay and how you need to pay. If the IRS says pay weekly and pay on line, then do it that way. Paying any other way will get you a fine. If the IRS says pay monthly, you can still pay weekly. The IRS will always accept money more quickly but never more slowly. The penalties and interest on payroll taxes can mount up quickly.
If you do have sub-contractors, make sure you get their Social Security number and address so you can send them a 1099-MISC at year end. If they have a business ID number, get that as well. If anyone refuses to give you this information, consider carefully the advisability of continuing to work with them.
Some forms you need to have, which you can download from the IRS web site: W-9 Request for Tax Payer Identification number for sub-contractors, W-4 Employee's Withholding Allowance Certificate for employees and don't forget the I-9 which employees fill out to prove they can legally work in the United States. This is the form that would stop all illegal workers if employers required that it be filled out. The employee would either have to lie and provide false documents or not work. In fact all employers are required, by law, to have this form filled out and on file for every employee.
You might also want to check out Pub 15 or Circular E- Employer's Tax Guide, which gives much more detail on all the topics I've touched on here.
So what's SUTA? This is the State Unemployment Tax. This is a tax on employers only and is not withheld from the employee and not paid at all for sub-contractors. This tax is a percent of the payroll paid to each employee that is over $9,000 (used to be $7,000 but the recent high unemployment required the state of Tennessee to raise the base) per year. The rate is based on several factors and is determined by the state each quarter and sent to the employer. Generally, employers with low turn over, that is few people who draw unemployment, have a lower rate than those with high turn over, or a lot of employees who draw unemployment.
People who are self-employed, that is sole-proprietors, don't pay payroll taxes on themselves. They pay self-employment tax on their personal tax returns. If you're self-employed and making money, you'd better be making quarterly income tax deposits which include amounts for federal income tax, Social Security and Medicare. If you don't, and you don't have a large amount of money when it comes time to pay your taxes, you may be in trouble. Sole-proprietors do not get to draw unemployment if they go out of business, so they don't pay into the Unemployment Tax fund.
There you have a run down of the payroll taxes. Probably more than you wanted to know, but if it's less, let me know and I'll write some more. Don't forget to leave me a comment on this topic or any other topic you'd like to see me address.
Tuesday, October 16, 2012
Tuesday, October 2, 2012
Tax Deadlines in October
More on these later, but first a heads up.
Monday, October 15, is the final deadline to file the 1040. FINAL!!! There are no more extensions. If you, for some reason, can not file a final return, file something. You can amend it later. But you run the risk of a late filing penalty if you don't file something that is postmarked October 15.
Wednesday, October 31, is Halloween and the deadline to file the 941 - the quarterly payroll tax report. In Tennessee, and maybe other states as well, this is also the deadline to file and pay your State Unemployment Tax or SUTA.
And if your company has a large enough liability you may need to make a quarterly deposit toward the 940 or Federal Unemployment Tax or FUTA.
October 20 is a Saturday which means you have until Monday, October 22, to pay your monthly or quarterly sales tax report in the state of Tennessee.
These are all the deadlines I'm going to be dealing with this month. This doesn't mean this list is all inclusive. Other tax deadlines may apply to you, but these are a start and I'll talk more about them as the month progresses.
Monday, October 15, is the final deadline to file the 1040. FINAL!!! There are no more extensions. If you, for some reason, can not file a final return, file something. You can amend it later. But you run the risk of a late filing penalty if you don't file something that is postmarked October 15.
Wednesday, October 31, is Halloween and the deadline to file the 941 - the quarterly payroll tax report. In Tennessee, and maybe other states as well, this is also the deadline to file and pay your State Unemployment Tax or SUTA.
And if your company has a large enough liability you may need to make a quarterly deposit toward the 940 or Federal Unemployment Tax or FUTA.
October 20 is a Saturday which means you have until Monday, October 22, to pay your monthly or quarterly sales tax report in the state of Tennessee.
These are all the deadlines I'm going to be dealing with this month. This doesn't mean this list is all inclusive. Other tax deadlines may apply to you, but these are a start and I'll talk more about them as the month progresses.
Thursday, September 27, 2012
Drain the Fat.
I'm no cook. I can boil water and operate a microwave, but cook a meal from scratch? The 20 minute meal takes me several hours and leaves me too tired to eat it. That is if my attempt is edible. The simplest instructions stump me. Take last night for example, one simple line, drain the fat.
All right. How? Into what? The pan is hot. The broken up hamburger is steaming and popping with its own hot oil. The fat itself is rather dangerous to my skin and, I think, maybe to my drain pipes. What am I to do with the stuff? And really, what if I make a mistake? What if I don't do it exactly right or as fast as an experienced cook? It's only cooking.
Many people can throw together a meal, drain the fat, and cook a casserole. They don't give it a second thought and if they mess it up a bit, no one cares. Taxes aren't that way. Do 'em wrong and people care. IRS Agents care a lot and they'll let you know about it, too. Don't worry. You'll have directions on what to do and how to do it. Directions that are obtuse, overly complicated and rarely on point.
But taxes to me are like cooking to an experienced cook. Just as a good cook scans a recipe and automatically begins mentally listing the first steps and size of pan he'll need, I do the same with tax information. Based on the informational forms the taxpayer presents, I begin to plan the tax forms I need. 1099 - better check it to see what income is being reported - rents (Schedule E), interest or dividends (Schedule B), K-1 partnership or S-corp (Schedule E page 2), 1098 (Schedule A). Since the Schedule A is already in play, how about real estate taxes, medical bills, state taxes, contributions? W-2, self-employed, retired? Depreciation, vehicle expenses, employee benefits? Each tax client is different just like a recipe.
I can't cook a meal but I can prepare a tax return with one had tied behind my back.
Well, not too tough with one hand and a computer.
How did I get this way? Was I always strange and slightly crazy? Well, maybe, but it could be years and years of experience. Yep, that and growing up with a CPA. My father ran a small one man shop. Just like a good cook brings the children into the kitchen as babes to begin learning through observation and prep work, so it was in my childhood home with taxes.
My father's cottage industry involved the whole family from January to April. My first job as a child was to read the appointment schedule to see who was coming in next. Then pull the taxpayer's file to find out which forms had been used the year before. After I had my stack of forms I wrote the taxpayer's name and ID on every one. I put these in a folder and placed the folder on my dad's desk.
After my father prepared the tax return, my grandmother proofed his addition. After he corrected any errors, my mother typed the tax return. After my sister proofed her typing, the client was contacted to pick up the tax return.
The process was repeated in our house 100 to 150 times a year, every year.
Then around 1979, my dad bought a personal computer with some basic tax software and life changed forever. Proofing and printing became a lot easier but knowing which forms to use and where to put the numbers required the same high level of knowledge.
Make a few mistakes in a recipe and you might have to eat a meal that's a little less tasty than you'd hoped, but probably not fatal. And while making a mistake preparing a tax return isn't fatal either, it sure feels like it when that letter from the IRS arrives - usually two years after the return was filed - asking for an explanation about an entry the taxpayer doesn't remember making.
Many people begin to prepare their own taxes, just like I try to make my own meals, and get stumped by the instructions. What does that mean? How do I do that? What form do I use? It can be scary and it can be difficult, but it's not impossible. Maybe you'll never prepare your own taxes, but by reading this blog you'll be more educated and organized when you sit down with your CPA and she starts asking questions. Maybe your tax prep fee will drop because you bring the correct documents and information to the interview the first time and the CPA doesn't have to call you repeatedly to get the information she needs to finish the tax. Maybe your anxiety level will drop and you'll gather your tax information without breaking into a sweat or screaming at your spouse and children.
Maybe you'll just read the blog because you can't believe anyone would write about something as boring as taxes.
I plan to write a new blog each week and discuss a topic that I find interesting or timely. If my readers have questions or problems or confusion or fear, they can ask questions or make comments and I may use those for future posts. Don't be shy. I'm a real CPA licensed to practice in Tennessee. Outside the state of Tennessee, my state specific information will be spotty, but if you're in the United States, my federal information will apply to all. Until next time, keep cooking.
All right. How? Into what? The pan is hot. The broken up hamburger is steaming and popping with its own hot oil. The fat itself is rather dangerous to my skin and, I think, maybe to my drain pipes. What am I to do with the stuff? And really, what if I make a mistake? What if I don't do it exactly right or as fast as an experienced cook? It's only cooking.
Many people can throw together a meal, drain the fat, and cook a casserole. They don't give it a second thought and if they mess it up a bit, no one cares. Taxes aren't that way. Do 'em wrong and people care. IRS Agents care a lot and they'll let you know about it, too. Don't worry. You'll have directions on what to do and how to do it. Directions that are obtuse, overly complicated and rarely on point.
But taxes to me are like cooking to an experienced cook. Just as a good cook scans a recipe and automatically begins mentally listing the first steps and size of pan he'll need, I do the same with tax information. Based on the informational forms the taxpayer presents, I begin to plan the tax forms I need. 1099 - better check it to see what income is being reported - rents (Schedule E), interest or dividends (Schedule B), K-1 partnership or S-corp (Schedule E page 2), 1098 (Schedule A). Since the Schedule A is already in play, how about real estate taxes, medical bills, state taxes, contributions? W-2, self-employed, retired? Depreciation, vehicle expenses, employee benefits? Each tax client is different just like a recipe.
I can't cook a meal but I can prepare a tax return with one had tied behind my back.
Well, not too tough with one hand and a computer.
How did I get this way? Was I always strange and slightly crazy? Well, maybe, but it could be years and years of experience. Yep, that and growing up with a CPA. My father ran a small one man shop. Just like a good cook brings the children into the kitchen as babes to begin learning through observation and prep work, so it was in my childhood home with taxes.
My father's cottage industry involved the whole family from January to April. My first job as a child was to read the appointment schedule to see who was coming in next. Then pull the taxpayer's file to find out which forms had been used the year before. After I had my stack of forms I wrote the taxpayer's name and ID on every one. I put these in a folder and placed the folder on my dad's desk.
After my father prepared the tax return, my grandmother proofed his addition. After he corrected any errors, my mother typed the tax return. After my sister proofed her typing, the client was contacted to pick up the tax return.
The process was repeated in our house 100 to 150 times a year, every year.
Then around 1979, my dad bought a personal computer with some basic tax software and life changed forever. Proofing and printing became a lot easier but knowing which forms to use and where to put the numbers required the same high level of knowledge.
Make a few mistakes in a recipe and you might have to eat a meal that's a little less tasty than you'd hoped, but probably not fatal. And while making a mistake preparing a tax return isn't fatal either, it sure feels like it when that letter from the IRS arrives - usually two years after the return was filed - asking for an explanation about an entry the taxpayer doesn't remember making.
Many people begin to prepare their own taxes, just like I try to make my own meals, and get stumped by the instructions. What does that mean? How do I do that? What form do I use? It can be scary and it can be difficult, but it's not impossible. Maybe you'll never prepare your own taxes, but by reading this blog you'll be more educated and organized when you sit down with your CPA and she starts asking questions. Maybe your tax prep fee will drop because you bring the correct documents and information to the interview the first time and the CPA doesn't have to call you repeatedly to get the information she needs to finish the tax. Maybe your anxiety level will drop and you'll gather your tax information without breaking into a sweat or screaming at your spouse and children.
Maybe you'll just read the blog because you can't believe anyone would write about something as boring as taxes.
I plan to write a new blog each week and discuss a topic that I find interesting or timely. If my readers have questions or problems or confusion or fear, they can ask questions or make comments and I may use those for future posts. Don't be shy. I'm a real CPA licensed to practice in Tennessee. Outside the state of Tennessee, my state specific information will be spotty, but if you're in the United States, my federal information will apply to all. Until next time, keep cooking.
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