Small businesses are facing continued difficulties navigating payroll taxes and processing each month, Bloomberg reported. According to the source, many small business owners struggle to understand the intricacies of the system, and as a result, make managing errors, leading to potential IRS penalties.
During the year beginning in September 2012 and ending in September 2013, the IRS distributed approximately 6.8 million penalties, totaling nearly $4.5 billion over the course of that year alone. While businesses both large and small face compliance difficulties, it appears small businesses are bearing the brunt of these fines as they are often ill-equipped to handle the intensive payroll tax methods needed each month.
Businesses expand hiring to handle payroll troubles
In order to combat the issues stemming from tax noncompliance, many companies are expanding hiring. Although organizations often find this a suitable course of action, the expenses incurred by extending payrolls can result in a financial burden, particularly for smaller businesses. Those that cannot afford or choose not to hire professional accountants often find themselves in unfortunate situations, and despite the fact that hiring in-house accountants seems to be the most effective solution, 46 percent of businesses said they don’t have an accountant on staff at all, a recent GoDaddy survey found. Furthermore, data collected by payroll firm ZenPayroll showed 40 percent of U.S. businesses are still managing payrolls by hand.
Unfortunately, it’s not an expense companies can skip, as penalties can easily add up, costing companies more capital than they can afford. Barbara Weltman, an independent tax attorney, offered her advice.
“Put Uncle Sam first when it comes to paying bills,” Weltman said.
Complicating matters further for small businesses are tax code stipulations that are often different from those composed for larger operations. Additionally, payroll tax codes can change suddenly for businesses.
“There are so many little rules for a small business owner to stay on top of,” said David McKelvey, a partner at Friedman, an accounting firm based in New York.
ZenPayroll CEO Joshua Reeves gave his advice simply and directly. When it comes to handling upcoming payroll processes, “Don’t try to do what you did last year,” Reeves said.
In order to change previous practices, however, many small businesses will have to increase hiring, a task that can be costly. Entrepreneurs contemplating changes to their business plans should consider approaching National Funding, a source that can provide the working capital needed to tackle these challenges.