The Internal Revenue Service scrutinizes expenses that can and often are benefits to owners. The most common benefit is the use of a company owned car for personal travel including using the car to get to and from work. Owners would love to have this cost of travel paid by the company and deductible for tax purposes.
Payroll taxes include all the tax items withheld from the paycheck of the employee and those matching taxes from the employer. In addition, FUTA and SUTA is included (Unemployment Taxes). The articles associated with payroll taxes explain compliance requirements and deadlines.
Similar to the bookkeeping cycles, payroll cycles have many frequent activities, fewer incremental requirements and one important end of the year report. This lesson explains these respective cycles and how they tie together for the final year-end report. Other lessons in this section of the website go into some details about various functions of payroll and are linked when appropriate.
The bookkeeping cycle is like a huge giant clock with several dozen gears from a multiple cog gear rotating the most frequently turning cog cascading into the one large gear that once turned changes the timer one year forward. The bookkeeper’s job is to make all the gears click and keep the system lubricated. At the end of the year, hopefully the final gear moves one click on time and the process starts all over.
One of the tax attributes of an S-Corporation over other forms of tax entities is the ability to reduce the overall tax obligation. Naturally the lower the overall tax requirement the more profit generated for the owner(s). The S-Corporation allows an owner to reduce their tax responsibility via the compensation package assigned to the owner.
A long standing custom in the hair salon industry is owners of salons leasing out booths to hair stylists. If not properly documented and exercised appropriately, the owner opens the door for many legal issues. Booth rental has both legal and IRS compliance issues that need to be addressed. Booth rental is legal in many states but you must adhere to several contractual compliance requirements to completely separate your salon from the renter.
Payroll is envisioned as the simple employer employee agreement related to compensation for services. I often think of this as the simple handshake whereby the employer agrees to pay the employee a set rate per hour of work. This was true a hundred or more years ago, but over time; history and governmental regulations complicated this simple relationship.