Small Business: Choosing a Payroll Service Provider

When choosing a payroll service provider to handle payroll and payroll tax, employers should choose a trusted payroll service to help them avoid missed deposits for employment taxes and other unpaid bills. Typically, these clients remain legally responsible for paying the taxes due, even if the employer sent funds to the payroll service provider for required deposits or payments.

Employers are encouraged to enroll in the Electronic Federal Tax Payment System (EFTPS) and make sure the payroll service provider uses EFTPS to make tax deposits. EFTPS is free and gives employers safe and easy online access to their payment history, provided they make deposits under their Employer Identification Number (EIN). Using the EFTPS enables them to monitor whether their payroll service provider meets its tax deposit responsibilities.

Employers have two options when finding a trusted payroll service provider:

  • A certified professional employer organization (CPEO). Typically, CPEOs are solely liable for paying the customer’s employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages and other compensation. An employer enters into a service contract with a CPEO, and then Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement, is submitted to IRS. Employers can find a CPEO on the Public Listings page of IRS.gov.
  • Reporting agent. A reporting agent is a payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, that the client signs. Reporting agents must deposit a client’s taxes using the Electronic Federal Tax Payment System (EFTPS) and can exchange information with the IRS on behalf of a client if issues arise. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes.

Employers should contact a tax professional about any bills or notices received, especially payments managed by a third party. They can also call the phone number on the bill, write to the IRS office that sent the bill, or contact the IRS business tax hotline at 800-829-4933.

Most payroll service providers provide quality service, but some don’t. Each year, a few payroll service providers don’t submit their client’s payroll taxes, close down abruptly, and leave employers on the hook.

Don’t get caught short. Choose a payroll service provider you can count on – and don’t hesitate to call the office with any questions about payroll and other business-related taxes.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Tax Implications When Employed in the Family Business

When a family member employs someone, the tax implications depend on the relationship and the type of business. Taxpayers and employers need to understand their tax situation. Here is what to know:

Married People in Business Together

  • Generally, a qualified joint venture whose only members are a married couple filing a joint return isn’t treated as a partnership for federal tax purposes.
  • Someone who works for their spouse is considered an employee if the first spouse makes the business’s management decisions and the second spouse is under the direction of the first spouse.
  • The wages for someone who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.

Children Employed by Their Parents

If the business is a parent’s sole proprietorship or a partnership in which both partners are parents of the child:

  • Wages paid to a child of any age are subject to income tax withholding.
  • Wages paid to a child age 18+ are subject to social security and Medicare taxes.
  • Wages paid to a child age 21+ are subject to Federal Unemployment Tax Act

If the business is a corporation, estate, or a partnership in which one or no partners are parents of the child:

  • Payments for services of a child are subject to income tax withholding, social security taxes, Medicare taxes, and FUTA taxes, regardless of age.

Parents Employed by Their Child

If the business is a child’s sole proprietorship:

  • Payments for services of a parent are subject to income tax withholding, social security taxes, and Medicare taxes.
  • Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided.

If the business is a corporation, a partnership, or an estate:

  • The payments for the services of a parent are subject to income tax withholding, social security taxes, Medicare taxes, and FUTA taxes.

If the parent is performing services for the child but not for the child’s trade or business:

  • Payments for services of a parent are not subject to social security and Medicare taxes unless the services are for domestic services and several other criteria apply.
  • Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided.

Questions?

Many people work for a family member, whether a child is helping at their parent’s shop or spouses running a business together. If you are one of them, your tax situation may be more complicated than you think. Please call the office for assistance if you need help understanding how your work situation affects your taxes.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Mileage Tracking Tips for Small Businesses

With 2021 coming to a close, now is the time to make sure you are maximizing every tax advantage available. One tax advantage many small business owners tend to overlook is the miles they put on their vehicles. 

The IRS requires that you substantiate your mileage expenses with adequate records. While there is no specific way you must track your miles, your mileage log should include:

  • Dates of your business trips
  • Locations you drove for work
  • Business purpose of your trips
  • Trip Mileage

If you drive your vehicle for personal use, you will need to prove the portion of use that is for business compared to personal.

The IRS currently does not require you to record your odometer at the beginning and end of your trips. However, we recommend taking a quick picture of your odometer at year end to make sure total miles are tracked. With so many other things small business owners need to worry about, mileage tracking is probably at the bottom of the to-do list and is quickly forgotten. Lucky for us, there are various apps out there that make it easier to record your business mileage accurately. Here are a few apps worth looking into:

  • Everlance (iOS and Android friendly)
    • Intuitive, user-friendly app that allows quick and easy tracking of miles
    • Frequent places & trips are detected and automatically classified
    • Customize trips with notes, photos, and vehicles
    • While there is a free version that allows 30 trips per month, most users benefit from the Premium version, which also includes automatic expense tracking with bank and credit card sync.
  • MileQ (iOS and Android friendly)
    • Automatic tracking: App runs in the background tracking your miles and creating a comprehensive record
    • One-swipe classification: Swipe right for business drives; swipe left for personal drives
    • Accurate and customizable reports generated
    • As low as $59.99/year for personal mileage tracking or $50/driver/year for team mileage tracking
  • Stride (iOS friendly)
    • In-app guidance on what expenses you can deduct and how to best track
    • Provides an IRS-ready tax summary to make filing a breeze
    • Offers an automatic system that detects when you’re driving so you can be sure to log every mile.
    • It’s free!
  • TripLog Mileage Tracker (iOS and Android friendly)
    • Provides administrators with the ability to set custom policies, such as commute mileage exemptions, frequent trip rules, and shortest distance calculations.
    • Streamlines reimbursement approval process
    • Allows you to see routes and unsafe driving behaviors so you can review each trip to spot any potential issues.
    • Choose from Lite, Premium, or Enterprise pricing

Good mileage tracking apps will ensure you keep accurate, detailed records for you to take advantage of the business mileage tax deduction. No matter which app works best for you, remember to always track your mileage, and not leave money on the road!

As always, don’t hesitate to call if you have any questions regarding tax deductions that benefit your small business.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500