| Let's face it, taxes are complicated, | | | | and large penalties. The interest and |
| especially if you own a small business. Read | | | | penalties can quickly grow if you don't pay |
| below about tax concerns to avoid some of the | | | | them immediately. These fees can be enormous |
| most common pitfalls experienced by small | | | | and can cause businesses to fail if they |
| business owners today. | | | | cannot afford to pay the fees. |
| | | | |
| As your business grows, you will probably | | | | Another common tax issue is misclassifying |
| need to hire employees. Some of the most | | | | workers. Workers are usually classified as |
| common tax concerns involve employee tax | | | | either regular employees or independent |
| issues. When you hire employees, you have to | | | | contractors. Business owners have payroll |
| file timely payroll tax returns and make the | | | | tax withholding and reporting obligations for |
| required tax deposits. | | | | all of their employees; however, business |
| | | | owners don't have to withhold or make |
| Payroll taxes include three types of taxes: | | | | contributions for payroll taxes for true |
| | | | independent contractors. |
| - Income Tax-You must withhold the proper | | | | |
| amount of income tax from each employee's | | | | Calling someone an independent contractor |
| paycheck throughout the year. | | | | saves a lot of time complying with IRS |
| | | | reporting requirements. It also saves |
| -Social Security and Medicare Tax or FICA-You | | | | money-you don't have to make the employer's |
| must withhold the employee's share of FICA | | | | share of the FICA contributions and you won't |
| taxes from each paycheck and you must match | | | | have to pay unemployment compensation. It |
| that amount. | | | | costs a business 20 percent to 40 percent |
| | | | more per worker to treat them as employees. |
| -Federal Unemployment Tax or FUTA-This tax | | | | While it may be tempting to use independent |
| goes to the unemployment insurance system and | | | | contractors rather than employees, the IRS is |
| is paid by the employer. The employee pays | | | | very aware of the benefits of misclassifying |
| no part of FUTA. | | | | an employee as an independent contractor and |
| | | | will impose stiff penalties for those who |
| Always pay your payroll taxes in full and on | | | | break the rule. |
| time. If you don't, the IRS adds interest | | | | |