10 Tips to Save Money on Payroll Taxes as a Small Business
Payroll taxes can be a major expense for small businesses, accounting for up to 15% of total expenses. However, there are a number of strategies that small businesses can use to save money on payroll taxes. This post will discuss a variety of strategies that small businesses can use to save money on payroll taxes, including:
Choosing the right business structure
Offering tax-advantaged benefits to employees
Optimizing withholdings
Taking advantage of tax credits and deductions
Working with a payroll service provider
Being a small business owner means that you wear many hats running your business, and it is not possible to be an expert at everything you do. Taxes are a complicated aspect of managing your small business, here are a few tips to help you save money on payroll taxes!
1. Choose the right business structure for your small business.
The type of business structure you choose as a small business can affect your payroll tax liability. For example, sole proprietorships and partnerships are pass-through entities, which means that the business's profits and losses are passed on to the owners. This can result in higher payroll taxes for the owners, as they will be taxed on their share of the profits, even if they don't actually take any money out of the business. C corporations, on the other hand, are taxed separately from their owners, which can help to reduce payroll tax liability.
Each small business is unique, so it is important to choose the right business structure that makes sense for you.
2. Offer tax-exempt fringe benefits.
There are a number of fringe benefits that are exempt from payroll taxes. A few of these fringe benefits are health insurance, retirement plans, and dependent care assistance. Offering these benefits to your employees can help you save money on payroll taxes.
3. Outsource your payroll.
As a small business owner, there is an overwhelming amount of work to manage related to your business. If you don't have the time or expertise to manage your own payroll, you can outsource it to a third-party provider. This can save you time and money, and it can also help you avoid mistakes since an expert will specialize in payroll taxes.
The experts at PayWorks are here to be your resource for all payroll related issues, so you can concentrate on applying your expertise to growing your business. Schedule a consulting call with PayWorks today!
4. Stay up-to-date on tax laws.
Payroll tax laws are constantly changing, so it's important to stay up-to-date on the latest changes. This will help you avoid penalties and ensure that you're paying the correct amount of taxes.
5. Optimize your payroll frequency.
If you pay your employees biweekly, you may be able to save money by switching to monthly payroll. This is a small change to make that can save you money on your payroll taxes.
6. Contribute more money to employee health insurance premiums.
By contributing more money to your employee’s health insurance premium, it will reduce the amount of taxable income your employees have. This will ultimately save you money on payroll taxes.
7. Offer deferred compensation arrangements.
This is a unique way to reduce your payroll taxes. Deferring compensation arrangements allows employees to defer the receipt of bonuses or other designated amounts until retirement. This can save them money on income taxes, and it can also save you money on payroll taxes.
8. Consider hiring independent contractors.
Independent contractors are not considered employees, so you don't have to withhold payroll taxes from their payments, which ultimately saves you money on your payroll taxes. However, if you misclassify an employee as an independent contractor, you could be liable for back taxes and penalties. It is important to make sure you are up to date on your payroll regulations when hiring an independent contractor as a small business.
9. Keep detailed records.
Strong organization and record-keeping are key to managing a small business, and will ultimately save your business money. You need to keep good records of your payroll taxes in order to avoid penalties. This includes records of your employees' wages, hours worked, and deductions.
10. Get help from a tax professional.
If you're not sure how to comply with payroll tax laws, it's a good idea to get help from a tax professional. They can help you ensure that you're paying the correct amount of taxes and avoiding penalties. As stated before, managing a small business can be challenging and overwhelming, it is often smart to hire a professional for the aspects of the business that you are not personally an expert in.
There is so much to manage and learn when running a small business, and payroll tax is a small but essential aspect of your business. By following these tips, you can save money on payroll taxes and avoid mistakes as a small business. It is important to take some time to learn about the different ways you can save and put them into practice. Your bottom line will thank you for it!
Schedule a free consultation today with PayWorks to see how we can help your small business save money on payroll taxes!
PayWorks is not providing legal or tax advice. The information on this website is for informational purposes only and should not be relied upon as legal or tax advice. You should consult with your own legal and tax advisors before making any decisions about your financial situation.