The only way the IRS makes money is when you make money. In the case of small businesses this statement cant be truer. Every year IRS collects close to 50% of their taxes from them. Some of this money results from penalties and fees that many small businesses have to make to the IRS after they get audited. The reason for getting audited has very little to do with the fact that many of them were trying to cheat the IRS. Most of it has to do with the lack of understanding of different laws and changes that the IRS introduces every year.
One thing true about most small businesses is that they all usually have one owner. This is the same guy who has to worry about payroll and employees health care. On top of that he has to calculate his taxes four times a year. The IRS asks all small businesses to file form 941 quarterly to report wages you have paid, any tips your workers made, federal income tax withheld, social security and Medicare taxes withheld, your share of social security and Medicare taxes, and advance earned income credit (AEIC) payments. Somewhere along the way, he/she is bound to make a mistake. One solution for him/her is to hire some help. Someone who will work the payroll and has to figure out how much FICA (social security and Medicare) taxes to withhold. For this year the tax to withhold is 6.2% for social security and 1.45% for Medicare taxes. The same percentage needs to be paid to the IRS by you. Medicare taxes are usually constant but social security taxes change every year accordingly with the inflation. This year its $76,200; in 1999 it was $72,200. So this year youll be paying more in taxes to the government. Self-employed individuals who make up to the above stated limit must pay 15.3% FICA taxes all by themselves, although they can claim a deduction for half of it.
The IRS has set two schedules for depositing social security taxes, Medicare taxes, and income taxes that you have withheld. One is the monthly deposit and the other is the biweekly deposit. Whichever one you choose, you have to be careful to make the deposits on time. The penalties for late deposits range from 2% to 15%.
Some of the ways to save money on taxes for small business owners: