This word can bring up all kinds of emotions. Either you know you are out of compliance and you are hoping you won’t get caught before you have a chance to clean it up, or you are wondering if you are in compliance or not because you really don’t know what you don’t know.
Then there is the ultimate question of, “If I am not in compliance, what are the consequences?”
The place I find a lot of people struggle with compliance is in payroll. Payroll has a lot of rules. What you have to pay for, when you have to pay for it, and the required reporting that goes with it. Failure to follow any of the rules will result in penalties and interest; there is not a lot of room for forgiveness here.
When you have employees, payroll is a requirement. Paying employees on time and for the right amounts is all regulated by your state Department of Labor. Make sure you know your state’s guidelines.
What if you are the only employee?
If you are a sole proprietor or a single-member LLC then you may be taking draws from your company, not actually doing a formal payroll. So how do you know if you owe taxes or not and how do you pay them? The net income number of your Profit & Loss report is the amount of income you will potentially pay taxes on. Typically if you paid tax in the prior tax year you will be paying “quarterly tax installments” during the current year in anticipation of owing at least the same amount of tax as last year.
If you are an S Corporation then true payroll, not just draws, is a requirement, even if it is just you! This means that even if you want to only take one paycheck in the year or the quarter you still must file quarterly reporting and you must pay the taxes according to guidelines! In an S Corp, you must pay yourself a “reasonable salary” in order to be in compliance. What is reasonable can vary depending on your industry and your company’s financial situation. At minimum, if you are making a profit, your salary must be at least $7,000 for the year.
Wondering if you should begin payroll or when is the right time to begin? Let’s talk!
Wondering if you are in compliance or not, let’s talk!