Why Start Payroll Now?
So, the PPP (Payroll Protection Program) has come and gone (almost – ends August 8th) and you didn’t pay anyone payroll in 2019 so you didn’t qualify – oh well, when will something like that come up again? So back to business as usual. But why not start doing payroll correctly now?
Well, maybe there won’t be another pandemic, but payroll also plays a factor in the 2018 tax law where at certain income level business deduction for pass-through entities is limited based on payroll. Payroll plays a factor in many ways for your business/not-for-profit when dealing with the banks, the state government, and the IRS.
So if your business isn’t paying you as an employee or its treating people as contractors that are really employees maybe it’s time to change to make sure you get full deductions under the 2018 law or for several other reasons like:
With tax revenues down due to Covid-19, you can bet the first order of business from Tallahassee will be to start generating tax revenue. One way to do that is to make sure employers are paying their people as employees and paying the related payroll taxes. One way the state (and IRS) do that is by visiting businesses (often unannounced) and just looking around. They’ll often leave a list of payroll forms, etc. they want from the employer to verify everything is legit and all taxes are being paid. Heaven help you if it’s not.
Those “employees” you let go. This is often the way you get on the State’s radar for not properly classifying your people as employees: You’ve let someone go, for whatever reason, and they go to collect unemployment only for the State to tell them they were never an employee but a contractor. State asks some follow up questions and next thing you know you have a payroll audit on your hands, because the people you paid as contractors were really employees and not only do you owe the portion of the payroll tax the company should have paid but also the portion you should have withheld from the employee.
You don’t have an employer-based health insurance plan, but you’d like to get a deduction for the personal health insurance you pay – you can, but you have to be paying yourself payroll. Often the deduction saves more in taxes than the payroll taxes you’ll pay.
These income taxes are killing you so you want to be able to put some of your business income away for retirement and reduce your income taxes at the same time – you can through a personal IRA or business profit-sharing / retirement plans, but these also require you to pay yourself payroll.
You’re planning to get a bank loan personally (mortgage, car loan, etc.) – well banks love to see you getting W2 (employee) income from your business. Your business may be doing well but if you’re not paying yourself as an employee banks look at you differently (or not at all).
It’s also the law.
There’s plenty of other reason’s but if those don’t do it for you…..just keep rolling the dice.