TriNet’s Expert Tips to Keep Your Business Tax Compliant

Most entrepreneurs don’t start their business in order to worry about maintaining compliance with ever-changing local, state and federal regulations. And they certainly don’t dream of spending their days thinking about taxes—unless, of course, the business they start happens to be an accounting firm.

Tax-related rules and regulations are constantly evolving and can be confusing—especially with all the shifts to the business landscape as a result of the pandemic. Because of this ever-changing tax and regulatory landscape, it is easy for a small or medium-size business (SMB) to make a tax misstep.

The following tips are meant as a general guide as you strategize your business plan this tax season but should not replace the guidance of your certified tax professional.

Remote Workers

Consider this hypothetical but common scenario: You have a company located in the northern part of South Carolina and, pre-COVID, many of your employees used to travel across state lines from North Carolina to commute to your office. However, if your company switched to a remote work or hybrid model during the pandemic, as many companies did, having employees now working in North Carolina—a different state than where your company is located—may open your business to having to register for payroll and business taxes in North Carolina.

It's important when considering remote workers—whether their remote work is temporary, part-time or permanent, that businesses are aware of the potential impact to them and their employees, and they are classifying their workers appropriately based on where each lives and works.

Additionally, requirements around payroll, business taxes and state unemployment taxes differ by state, so it is best to contact a tax advisor or payroll professional for further guidance on requirements for your specific situation.

FUTA Credit Reduction

Are you in a FUTA credit reduction state? You may not even know.

The Federal Unemployment Tax Act (FUTA), along with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Under Title XII of the Social Security Act, a state can obtain a loan from the Federal Unemployment Trust Fund to pay unemployment benefits to residents. If a state has an outstanding loan balance on January 1 for two consecutive years and does not repay the entire balance by November 10 of the second year, the rate employers pay per employee in the state under FUTA increases by 0.3%, and will increase this amount each year the loan is not repaid.

If you are in a FUTA credit reduction state, this is something to be aware of so you can budget accordingly.

For this reason, tax preparation and payroll are areas where it is wise to invest in dedicated professionals early-on.

Fringe Benefits

It is great when employers reward their team for a job well done with bonuses, gifts, trips, memberships to coveted activities, company cars, and the like. But even something as simple as a gift card usually needs to be reported as taxable income.

It’s important to understand the different tax requirements around various gifts and perks, and to make sure you are taxing appropriately for them.

Clerical Errors

Owners of SMBs tend to wear many hats, and so do their employees. Add to this the fact that the early stages of building a business tend to include a fair amount of trial and error. Unfortunately, one area where ignorance, multi-tasking or even simple human error can be disastrous is when it comes to taxes.

Late reporting, data entry issues, forgetting to report something, and a whole host of other common and easily-made blunders can result in severe penalties, high interest payments and even an audit.

When it comes to taxes, it is important to remember that you don’t know what you don’t know. However, you are still as responsible for errors made unknowingly as you are for the ones made egregiously. Therefore, it is critical to speak to a tax advisor before you proceed, especially in these changing times.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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