There seems to be a million details for entrepreneurs to attend to when starting up a new small business. One of those deserving attention before opening the doors of your commercial venture is payroll. Many a business that has come before yours has gotten themselves into trouble with the IRS over payroll tax issues. You certainly want to be sure to get a handle on any potential risks before opening day.
Before you hire any employees, it makes sense to set up a payroll system that will help you to take care of your obligations to your business, your workers and the Internal Revenue Service. Failure to withhold payroll taxes or to remit withheld taxes can quickly turn the American dream of business ownership into a nightmare.
An online small business publication urges entrepreneurs to take steps to “protect you from incurring expensive IRS penalties."
The first bit of advice from Small Business Trends is to get an EIN. The employment identification number (or employer tax ID) is an absolute must-have, enabling you to report taxes and more to the IRS. Simply contact the agency to obtain an EIN.
Also crucial: figure out whether your workers will be employees or independent contractors. While it might make financial sense to have contractors doing needed tasks, you don't want to arrive at a spot later where the IRS determines that those contractors were actually employees misclassified.
Of course, once you have a payroll system up and running, begin filing required tax reports to the IRS and other authorities. Again, failure to collect the taxes and pass them along to the IRS can result in significant penalties, and in some cases, criminal charges.
Taking care of these matters before problems develop can spare you the expense and headaches of employment tax problems requiring the assistance of a tax attorney. We have tax attorneys in Chicago and Cleveland ready to help you.