There are many resources available on “how to start a small business” but there is not a lot of follow up on what to do after it has started. Many small businesses get caught up in revenues, cash flow and the bottom line and forget about things that could potentially detract from the growth of the business. One thing that is constantly done incorrectly is the filing of payroll taxes.
Many employers in the District, Maryland and Virginia fail to appreciate the unique tax situation of their employees. Many employees live in one state and work in another. As a result, the employer should withhold state taxes for the state the employee lives in, not the state that the business is based. When businesses fail to do this, they cause unnecessary expenses and tax implications for their employees. The employee will have to pay a tax professional to file a resident tax return for the state they live in, and a non-resident state return for the state they work in, if the employer does not withhold the tax correctly. More often than not, the employee will owe money to their home state, and may or may not get a full refund from the employer state. This can lead to incorrect tax filings to the state for employees and eventually get the business into a tax jam.
Self-employed persons generally have to file estimated tax payments to the IRS and the state. If payroll and taxes is not a strong point for the business; then outsource it to a company that specializes in payroll. The expense should be less than hiring an employee to do it, and it will free up time for the business owner to focus on other things…. Like revenue, cash flow and the bottom line.
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