167: Year End Payroll Compliance Whether You Are Starting A Business Or Side Hustle, A Solopreneur
167: Year End Payroll Compliance Whether You Are Starting A Business Or Side Hustle, A Solopreneur, Entrepreneur, Mompreneur, Freelancer, Bookkeeper, Virtual Assistant, Business Owner, Or Self-Employed
With the end of the year coming to a close, you want to make sure that you have everything done correctly in your business, right? One of the many important year-end tasks is to make sure that you are correctly paying and classifying wages. There are many different entity types that businesses can be set up as, and depending on how you’re your business is set up will determine how you pay yourself as a business owner, shareholder, or officer, especially if you are considered an S Corporation. In today’s podcast episode, I am covering the essentials of what you need to do when it comes to compensation, especially for the S Corporations who need to pay a reasonable compensation to officers and shareholder-employees. It doesn’t matter if you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances or if you are doing your bookkeeping manually with an Excel spreadsheet or even a Google Document, you need to make sure you are recording your payroll correctly. Whether you are starting a business or side hustle, you’re a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper or accountant, a virtual assistant or VA, or other professional; listen in so that you are aware of how to classify and pay your wages as a business owner and avoid one of the major red flags out there…
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Show Notes:
With the end of the year coming to a close, you want to make sure that you have everything done correctly in your business, right? One of the many important year-end tasks is to make sure that you are correctly paying and classifying wages. There are many different entity types that businesses can be set up as, and depending on how you’re your business is set up will determine how you pay yourself as a business owner, shareholder, or officer, especially if you are considered an S Corporation. In today’s podcast episode, I am covering the essentials of what you need to do when it comes to compensation, especially for the S Corporations who need to pay a reasonable compensation to officers and shareholder-employees. It doesn’t matter if you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances or if you are doing your bookkeeping manually with an Excel spreadsheet or even a Google Document, you need to make sure you are recording your payroll correctly. Whether you are starting a business or side hustle, you’re a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper or accountant, a virtual assistant or VA, or other professional; listen in so that you are aware of how to classify and pay your wages as a business owner and avoid one of the major red flags out there…
Welcome Back… Understanding payroll and compensation is extremely important when you own your own business. Avoiding issues with the IRS is normally something that all business owners work towards achieving, which is why today I want to make sure you understand how important compensation is.
Today, we are diving into the importance of wage compensation for S Corporation officers and shareholder-employees. With an S Corporation, corporate taxes are passed through to their shareholders. The shareholders then report this income on their personal return and pay the appropriate taxes. Corporate officers are considered employees under the Internal Revenue Code. When these officers perform more than minor services for the corporation and receive or are entitled to receive payments, their compensation is generally considered wages. When you are an S Corporation, these payments should be treated as wages and not distributions of cash and property or loans to shareholders. Since these officers or shareholders are considered employees, they should not attempt to avoid paying employment taxes by having their compensation as something other than wages.
The IRS states that distributions and other payments by an S Corporation to a Corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation. The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly, however, any cash or property or the right to receive cash and property that goes to the shareholder must have a salary amount determined, and that level of salary must be reasonable and appropriate and are subject to FICA taxes and other employment taxes.
Unfortunately, there are no specific guidelines as to what reasonable and appropriate compensation is. Some factors to consider when determining reasonable compensation are training & experience, duties & responsibilities, time and effort devoted to the business, payments to non-shareholder employees, and what other comparable businesses pay for similar services.
Making sure you set your compensation as reasonable and appropriate is important. The Internal Revenue Service can reclassify payments made to shareholders from other payments, such as distributions as wages. These wages are also then subject to FICA tax and other employment taxes. Depending on when this reclassification takes place, you could also be liable for penalties and interest for unpaid payroll taxes.
If you are wondering what the difference between a distribution and a salary is, well, it’s pretty simple. Distributions are money that is distributed to you as an owner or shareholder. These distributions are not considered wages and are not considered income. Salaries, on the other hand, are the amounts of money you pay yourself or your employees. This amount is considered compensation or wages and is subject to employment taxes.
If you are an S Corporation, and you have not paid yourself or your officers or shareholder-employees, you want to make sure that you get this set up and paid by the end of the year so that you can file all the necessary payroll reports and pay your employment taxes on time. There are many small S Corporations that pay themselves on a one-time or annual basis. If you are paying yourself on an annual basis, you may want to think about changing your payments to a quarterly basis to distribute your taxes evenly over the year.
Processing payroll can be complicated. If you don’t feel like you have the knowledge to process your payroll on your own, make sure you contact someone who can help you with this. On the other hand, if you use a payroll processing software that is easy to use, you can certainly process your payroll on your own. If you have any questions about payroll for your business, you know you can always reach out to me by going to www.FinancialAdventure.com/Contact-Us, and if you are looking for a payroll solution to process your payroll, I highly recommend taking a look at ADP. I am working closely with ADP so that you can get a 15% discount and take advantage of other specials. You can go to www.FinancialAdventure.com/ADP and sign up to receive this special pricing.
Imagine having a system in place where you spend less time buried in paperwork and more time doing what you love. That’s where I help my clients. They are able to have proper processes in place, understand why they are following through with these processes, and they have more peace of mind when it comes to their business. Striking a balance between the demands of running a business and maintaining a fulfilling personal life is an art; it’s about creating an environment where you can thrive and support your lifestyle.
If you have any questions about payroll compliance or any other bookkeeping topic, please know that you can reach out to me. By being proactive and setting up efficient processes, you can ensure a smoother, more enjoyable year-end, and you’ll be prepared to file any necessary filings with the IRS. By working with me, you’ll change more than just your bookkeeping processes. Like many of the clients I’ve worked with, you’ll go from not knowing how to get through all the stressful situations or being unprepared to being totally in control of exactly what you are choosing to get done at the time you want to have it accomplished by, all while knowing you are doing enough and you’re able to enjoy your business and your personal life. I help clients just like you with strategy, mentorship, and coaching. When you work with me, you’ll show up much more differently than you do today, and, after all, this is what you ultimately want in your life, right? You can be stress-free in both your professional and personal life. Come join me. I have a special holiday offer available for you to work with me on a one-on-one basis from now through the end of the year for a one-time payment of $197. I know the holidays, running a business, keeping up your professional life, and enjoying your personal life can be hard. There’s a lot to accomplish in a short amount of time. You can email me at Info@FinancialAdventure.com to get this offer or email me from the www.FinancialAdventure.com website. This offer is only for this upcoming holiday season and will be going away soon. If you are listening to this podcast after the holiday season, don’t worry; I’m still here to help. When I work with clients throughout the year, they are able to reduce their stress and overwhelm, understand how to master their small business finances, develop solutions to grow their bottom line, and create a work-life balance they truly enjoy. I encourage you to take the next step by signing up for a free consultation where I’m going to teach you the first step in my process so that you can eliminate stress, overwhelm, or overworking in your professional or personal life while you continue to get done what matters so that you can live your life with joy, purpose and a more fulfilled life. Feel free to reach out to me with any questions you have; I’d love to help you on this journey. You can schedule your free consultation or sign up for a coaching session today at www.FinancialAdventure.com. As a Certified Public Accountant and Certified Life Coach, I can help you set goals and develop a plan that will allow you to lead a happier and more sustainable life in your business, career, or your personal life. I’m here to guide you through the financial aspects of your business as well as help you focus on the strategies you need to follow to reach the success you want to achieve in your professional or personal life and stay committed so that you can continue to keep pushing forward and relieve the stress, anxiety, or overwhelm you are currently feeling. Having an accountant and certified life coach like me can provide you with valuable insights and ideas to help you simplify your life, which enables you to go back to enjoying your professional and personal life. I work with business owners, accountants, and other financial professionals to create the actionable steps they need to take to ultimately achieve their goals while getting relief from the stress and overwhelm they feel from the pressure of owning a business, deadlines, and the workload they face every day. If you are struggling with this as well and would like some help developing a solution, help strengthen and maintain your emotional health, increase your well-being, create a more positive, happy, and joyful life, set and achieve your goals, and manage your relationships, I’d love for you to join me in my Balance Life Coaching program so that you can live a more purposeful life. Each week, we meet privately one-on-one, and you get to bring whatever is on your mind on any given week. I also have a daily coaching program where you can talk to me whenever it works best for you, 24/7, any day of the week. In either program, you get to work on your highest priority, whatever you want more of in your life, or if there is something that is weighing on you heavily that you need coaching on, and we’ll work through it together. Having a certified life coach like me helping you through all of this allows you to feel so seen and cared for, and the results are amazing. Everyone benefits when they work with a certified life coach. After every session, you feel energized, and you know exactly what to do for the day or week to come, and relief knowing we will meet again to go over anything that comes up after your session. You’ll gain self-awareness while you take each step toward your goals. The investment in either of these programs is an easy yes for you. I’ve set these programs up in the most supportive way. If you are ready to join the Balance Life Coaching program, you can go to www.FinancialAdventure.com and click on the work with me button. You’ll see the link to join as well as additional information about the programs. Sign up now. There are limited spots available for these programs due to the one-on-one aspect, and they do sell out. If the payment link is gone, you can get on my waitlist to join the programs when additional spots are available. I help people get results and live a more joyful life. I coach everybody on everything. I know there is something you want in your life, and I can help you get it. I know this is something you’ve been waiting for. I’ve been asked by many of my listeners to create these exact programs. The faster you get access to the program, the quicker you’ll see the possibilities available to you. I also have a risk-free guarantee. I believe so strongly that everyone benefits from coaching that when you sign up for the Balance Life Coaching program today, if for any reason you are not satisfied with your first session, you can send us an email, and we’ll refund you immediately. Are you ready to enjoy your life now? Why would you want to wait? Make this investment for yourself. Take the journey with me…make it happen for yourself. Ask yourself why you need this program in your life right now. Are you ready to make bigger, bolder, stronger life goals? I’m looking forward to meeting with you soon and digging deeper to see where you currently are in your business or career and start creating actionable steps so that you can reach your vision and goals for the future, not only in your business or career but also in your personal life. I’m ready to work with you, see all of your successes, and watch you thrive in your business or career while creating your best work-life balance. I’ll post links to this and other valuable resources for business owners and accountants where you are listening to this podcast.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
