The IRS is very strict when it comes to payroll taxes and deductions. One miscalculation could get a business in a lot of trouble with the government. This is why you need to keep accurate records of your business’s payroll and stay informed about payroll tax rules.

The first thing every business needs to do when they hire a new employee is to make sure the employee fills out a W-4. This form calculates payroll taxes based on the employee’s marital status and how many dependents they have. Most states base their payroll taxes on federal guidelines, which helps businesses correctly calculate withholdings for both federal and state taxes.

It is important for businesses to accurately calculate and report payroll taxes. Every employee should be given their own payroll account so these deductions can be paid to state and federal governments at the end of each year.

If you operate a fairly new business and have just begun to hire hourly or salaried employees and need help figuring your payroll taxes, you can speak to a payroll or tax professional for help.

Daniel Stoica Accounting Professional

If you are one of the many taxpayers who filed an extension and still haven’t filed your taxes, now is the time to get them done and out of the way.  The following are some tips to help. 

Commonly Missed Deductions:

-State-tax refunds for AMT taxpayers

If your refund is less than your disallowed Alternative Minimum Tax (AMT), your state refund won’t be taxed.

-Environment Friendly Home Credit

Did you install energy efficient windows, a solar powered water heater, geothermal heat pumps, or low-energy roofing? If so, you might qualify for a 30% credit on your 2011 taxes, or a maximum of $500. Being environmentally conscious will help you save money.

-Car Insurance

Did you know you can deduct your car insurance on your federal taxes? You can deduct the cost of oil, tires, your license, and your insurance premiums if you use your vehicle for business. If you decide to only deduct your mileage, you cannot deduct the other expenses. You may choose one or the other, but not both.

-Health Insurance

You can also deduct your health insurance premiums on your federal taxes. You can even deduct 100% of your premiums if you’re self-employed, which includes premiums for your spouse and dependents. Your health insurance itself, however, is not deductible.

-The American Opportunity Credit

If you pay college tuition, you can take the American Opportunity Credit. You can take a credit of up to $2500. This credit has been extended through 2012 and is there for taxpayers whose adjusted gross income is less than $80,000.

Common Audit Triggers:

-Large Mortgage Interest Deductions

If your deductions are over $50,000, it generally sends a red flag to the IRS. You are allowed to deduct interest on you mortgage for a loan less than $1 million, which makes the interest around $50,000 or 5% of your mortgage. But by doing so, you may send a red flag for an audit.

-Rental Real Estate Losses

Taxpayers who claim to be real estate professionals due to rental income losses and attempt to deduct the losses on their income will trigger an IRS audit. You can only claim yourself as a real estate professional if you have at least 750 work hours, so if you are claiming this profession, the IRS will turn their heads to look. With the housing market in the situation it’s in, most taxpayers are losing a lot of money on their rental properties, however, they can’t qualify as real estate professionals, so they can’t take the tax deduction that comes with it.

-Home-buyer tax credit

Congress passed three stimulus bills in 2008. Initially, the stimulus bill caused some fraudulent activity. Today, Congress requires more intensive documents in order to qualify for the tax credit.

Common Human Errors:

-Overstating Charitable Work

If you went to a charity dinner where the cost was $500 per plate, you can’t deduct the entire $500. This is also true of charitable activity. The charity must tell you about this rule, so it’s a good idea to read through the correspondence you receive from them.

-Omitting Payments On Interest

Most taxpayers forget about the interest they pay during the year. Banks and other financial institutions aren’t required to give you a 1099 for for anything under $10. Even small amounts of interest are considered taxable income and you must report them on your taxes. If you don’t, the IRS will notice.

-Mortgage Deductions

Many taxpayers calculate their mortgage “points” incorrectly for their deductions. On first mortgages, the fees are deductible. Refinance points have to be amortized, and can then be deducted throughout the loan.

It’s recommended that you hire a tax professional when you are filing your taxes, especially if you have many deductions and credits. Be organized and keep all of your receipts and other financial documents safe and close.

Daniel Stoica Accounting Professional

There are many important factors of tax planning and things you should consider if you want to open your own business or are currently running a business.  Many people don’t consider their taxes and get themselves in big trouble at the end of the year.  Many of the taxes that need to be considered include the 941’s, monthly state, quarterly, and annual taxes.

 Every time you cut a paycheck to an employee, you must pay taxes.  The payroll taxes are known as 941’s.  As an employer, you are responsible for a portion of the employee taxes and the employee is responsible.  When taxes are taken out of a check, those taxes, and your portion to be paid are responsible by you.  You can pay these through online software programs like QuickBooks or on the IRS website.  941 taxes can be paid weekly, biweekly or monthly.  They are also supposed to be paid quarterly.

State taxes come out of payroll also.  Each month your business will receive a red form to fill out regarding the state taxes.  These will be based on how much you paid out and how much you match.  In addition, to a monthly requirement of this payment, you will be required to file quarterly.  The quarterly form you will receive is green.  A check should be mailed to your state department along with this completed form. 

 Annual taxes are also a requirement federally for businesses and people working a normal full time job.  For some people, it seems there are so many taxes, they are difficult to keep track of.  This is true for large and small businesses.  It is always best to hire a professional accountant to handle your taxes.  A professional can find all of the loopholes, deductions, and things you can claim to lower your tax liability and ensure you owe less or you have more coming to you in a return.

 An accounting professional can help you plan your taxes, learn how to prepare your payroll taxes and your monthly state taxes or even do them for you each month.  Hiring a professional is the best option because you can ensure no mistakes are made.  If the IRS owes you money, they aren’t going to tell you or give it to you until you figure it out.  However, if you owe the IRS money, they are going to add interest and come after you for the money.  Trust a professional to ensure your taxes are always paid and on time.