NFIB

Chunk of Change
05/ 28/ 2004

by Paige Orr

When Mike McGahey became chief financial officer of Bethesda, Md.-based Bigdough, he immediately shifted the company’s payroll responsibility from a frazzled bookkeeper to an outsourced payroll services company.

Even though McGahey has been a certified public accountant for almost 30 years, he says employment taxes are challenging, and it’s worth paying someone else to handle the payroll and tax withholding for his company (www.bigdough.com), a capital markets contact database and software platform.

But if hiring someone else isn’t in your budget, CPA Steve Duben of Encino, Calif., offers this advice:

Pay as you go. While the IRS may not require payments as frequently as you pay employees, it’s best to pay the taxes withheld from your employees’ wages every time you write a paycheck, Duben says.

Avoid loans. Some cash-strapped small-business owners may “borrow” funds from the IRS. Not a good idea, Duben says. People think they can catch up later, but it never happens.

Stay in control. If you encounter problems paying the IRS, don’t ignore the situation. A former auditor for the IRS, Duben says the organization is willing to work with business owners, as long as you make the first move.

4 Ways to Handle Employment Taxes

1. Do it yourself. Pros: The IRS provides resources and forms for those who want to tackle the job themselves. This is the most inexpensive method of calculation. Cons: The risk of error is higher, which could lead to penalties from the IRS.

2. Use off-the-shelf software. Pros: Most small-business accounting software programs will calculate to the dollar the amount of employment taxes owed per pay period. The risk is less than calculating yourself and cost is minimal. Cons: You still must find the time to input all the details in order for the software to calculate the figures.

3. Hire a professional tax preparer. Pros: Free at last! Someone else handles the details. The burden of error is shifted from you to the professional. Cons: More costly than handling yourself.

4. Hire an outsource payroll firm. Pros: A minute saved is a minute earned to work on your business. Cons: Services aren’t free. But depending on the size of your company, outsourcing could end up saving you money in internal salaries.

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