First, discover the importance of paying payroll taxes on time – and the tax news that you need to know about the 1099 independent contractor trap! Then, here are two more important tips:
1. Late payments are killers of your net profit margin.
Imagine that you were just awarded a huge new contract and, because it was a highly competitive bidding process, you were forced to really cut your margins dramatically and, when it is all done, you can expect to make 5% after all your expenses. Perhaps this is not a typical net profit margin on a smaller deal – but it makes a lot of sense because it keeps your people fully utilized.
Now imagine having to give up 2% or 40% of your net profit because you missed your payroll tax payments! That is the power of the IRS; whether it is 2% for being 1 to 5 days late or 10% for being 16 days late, the IRS and payroll taxes should be at the top of your list to be paid on time.
Find more tax news on late payments here – and remember to pay your payroll taxes on time!
2. Always file your 941 forms on time.
A common mistake made by businesses that are behind on employment tax deposits is to avoid filing their 941 forms on time. This is a big mistake; the IRS relies upon the taxpayers to essentially self-police their own tax payments and part of that system is the timely filing of 941 forms. If you don’t file on time, you are looking at a 5% a month penalty on top of the Failure to Deposit Penalties and interest.
So do not make the mistake of thinking, “Hey I am a little short, so I will file when I get the cash I need to catch up.” You are only compounding the problem.