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What the heck is “reasonable” compensation? And when discussing S-Corps, why does this term always come up? Let’s start with the basics… Owners of S-Corporations can pay themselves a combination of two different ways: 1. Payroll 2. Distributions Payroll means you get a paycheck from your company just like any other employee. This paycheck is subject to payroll taxes (Social Security, Medicare, state unemployment, disability, etc etc). And between the employee portion and employer portion, this amounts to ~15-18% depending on where you’re located. Distributions on the other hand are just the S-Corp owner taking money out of the business bank account. They can do a transfer from the business account to their personal, write themselves a check, take money out of an ATM, etc. ***Key Point: Distributions are not subject to payroll taxes. So let’s review so far. S-Corp owners can pay themselves in two ways. One of those ways has payroll taxes amounting to ~15-18%, and the other way has no payroll taxes. Soooo why not just take all your compensation as distribution and none as payroll? This leads to another key point in the conversation… ***Key Point: S-Corp owners are *required* by the IRS to take at least a “reasonable” amount of payroll. Now, much to our chagrin, the IRS doesn’t give a specific formula or definition of the word reasonable. So we find ourselves playing this balancing game.  • We have to make sure the payroll is high enough to meet the vague definition of reasonable. • But the lower the payroll amount the better for tax savings. --------------------------------------------------- At the end of the day, determining reasonable compensation is a task best left to the pros - trust your CPA’s expertise to determine an appropriate amount.  ↳ have a conversation ↳ agree on a figure ↳ and let them manage the details. In the world of S-Corp ownership, mastering the concept of "reasonable" compensation is key to unlocking significant tax savings. Striking the right balance between payroll and distributions takes some finesse, but when done well, you’ll save a significant amount in taxes while staying in the good graces of the IRS.

How to change payroll providers You want to change your payroll provider. The end of the quarter sounds like a good idea. You can complete the quarter with one provider, and then switch. The old provider will pay/file the quarterly taxes and you can start new at the beginning of the quarter with your new provider. Please, do not do that. Changing your provider at the end of the quarter can cause so many headaches and cost extra money. Here’s what can happen. 💲 You have to provide the new company with all the current year’s data before the quarter ends. They need time to get everything up and running so you start the service before the end of the quarter. Both the old company and the new company file the quarterly tax forms since you’re paying for both services.  💲 You provide the new company with the yearly info. You forget to cancel the old company amidst the end of the quarter activity. The new company and the old company file competing tax returns.  💲 You decide to start fresh with the beginning of the year at a new company. No information from the old company is needed since it’s a new year. You run the last paycheck of the year with the old company, then cancel. Who’s filing the W2s and the end of the year tax returns? I’ve found the best way to move companies is to do it early in the quarter. This gives you plenty of time to cancel the payroll before you have competing tax forms or no tax forms filed.  Here are the steps to make it as easy as pie. 🥧 Talk to your bookkeeper so they’re in the loop.  🥧 Run your final payroll at the old company. 🥧 Download all copies of tax filings, W2/W3s, 1099s and payroll reports you’ll want for your records. 🥧 Send the new company any reports they’ll need and confirm that everything is set up. 🥧 Cancel your old company.  🥧 Double check that you’ve canceled the old company. You should then expect a return of the taxes withheld by the old company from your employee’s paychecks for that time period. Your new company will withdraw this same amount from your bank account before the taxes have to be paid.  Questions? Send me a DM or drop it in the comments below. 

Payroll Taxes Vs. Income Taxes 🤔 Payroll Taxes Whether you’re a Sole Proprietor with only a handful of workers or a corporation with hundreds of employees, you are responsible for collecting and paying employment taxes to federal and state tax agencies. However, while federal payroll taxes are the same no matter where your business is located, state and local payroll taxes differ according to the jurisdiction’s laws and tax codes. Payroll taxes can be confusing and overwhelming to new business owners. In today’s article, I’ll break down the types of payroll taxes to help you understand what they are and what you need to consider. While this will get you started, I encourage you to talk with a trusted accountant or tax advisor and an attorney for guidance about your business’s specific obligations. Payroll Taxes Vs. Income Taxes Payroll taxes are taxes that help fund Social Security, Medicare, and federal and state unemployment programs. Employers and employees share the burden of some payroll taxes (e.g., Social Security and Medicare), and employers withhold the employee’s portion from the worker’s pay. Other payroll taxes, such as federal unemployment (FUTA), are paid solely by the employer. Income taxes are levied by federal, state, and local tax agencies on individuals’ and businesses’ income to help cover governments’ operations and program costs. Employees’ wages, salaries, tips, and other compensation are subject to income tax. Employees are fully responsible for paying all of their income tax, and their employers withhold those taxes from their workers’ paychecks and deposit those monies with the appropriate tax agencies. You might hear payroll taxes and income taxes collectively referred to as payroll taxes or employment taxes.

➡ Understanding Payroll Returns Procedures in the USA Managing payroll is a critical function for businesses in the United States. Ensuring accurate and timely payroll returns is essential to comply with federal, state, and local tax laws. This article outlines the procedures for payroll returns, including filing requirements, deadlines, and best practices. ➡ What Are Payroll Returns? Payroll returns are reports filed by employers to tax authorities that detail wages paid to employees and taxes withheld from those wages. These returns ensure that the employer has accurately withheld income, Social Security, Medicare, and unemployment taxes and has paid their portion of these taxes. ➡ Key Federal Payroll Tax Forms Several forms must be filed with the IRS to report payroll taxes: ▪ Form 941: Filed quarterly to report income taxes, Social Security tax, and Medicare tax withheld from employee paychecks. ▪ Form 944: Filed annually by smaller employers whose annual liability for Social Security, Medicare, and withheld federal income tax is $1,000 or less. ▪ Form 940: Filed annually to report unemployment taxes. ▪ Form W-2: Issued annually to each employee and the Social Security Administration (SSA) to report wages paid and taxes withheld. ▪ Form W-3: Filed annually with the SSA along with Form W-2 to summarize all employee earnings and taxes withheld. ➡ Filing Deadlines ▪ Form 941: Due the last day of the month following the end of each quarter (April 30, July 31, October 31, January 31). ▪ Form 944: Due by January 31 of the following year. ▪ Form 940: Due by January 31 of the following year. ▪ Forms W-2 and W-3: Due to employees and the SSA by January 31. ➡ State and Local Payroll Tax Returns In addition to federal requirements, employers must also file state and local payroll tax returns. These vary by jurisdiction but typically include: ▪ State income tax withholding returns: Frequency and due dates vary by state. ▪ State unemployment tax returns: Generally filed quarterly. ▪ Local tax returns: Requirements vary significantly by locality. ➡ Steps for Filing Payroll Returns ▪ Gather Information: Collect all necessary payroll data. ▪ Complete Forms: Accurately fill out the required tax forms. ▪ File Electronically or by Mail: Submit forms to the appropriate tax authorities. ▪ Pay Taxes: Ensure all payroll taxes are paid on time. ▪ Keep Records: Maintain detailed records of all filed returns and tax payments for at least four years. ➡ Conclusion Managing payroll returns is vital for running a business in the USA. Understanding the procedures, adhering to deadlines, and implementing best practices can help businesses maintain compliance and avoid costly penalties. By staying organized and proactive, employers can ensure smooth and efficient payroll processes. #CPA #USA #Payroll

Preliminary bulk billing data released this week shows a 2.1% rise in bulk billing as much as March. This comes after the federal government tripled the motivation payment for GPs to bulk bill concession-card holders and kids under 16 for many consultations. The latest data confirms the December-quarter data, which shows the increased bulk billing incentive, announced within the 2023 budget, arrested the decline in bulk billing brought on by the just about decade-long freeze in rebates under the previous government. The decline in bulk billing rates was affecting access to care. About 1.2 million people missed out on or delayed seeing a GP in 2022–23about double the speed in 2021–22. This negates the promise of Medicare: that Australians shouldn’t face financial barriers to accessing care. But progress on bulk billing rates is being undermined by changes to state government tax rules. About one-quarter of state government tax revenue comes from payroll tax. States have been looking around to extend tax revenue from any source and have tightened their payroll tax rules. An increase in a practice’s payroll tax reduces its profits. Clinics will seek to make up the shortfall in revenue by other means – and this might include reducing the variety of patients they bulk bill. Read more: Medicare turns 40: since 1984 our health needs have modified however the system hasn’t. 3 reforms to update it What’s the change to state payroll taxes? Payroll tax law is complex but essentially it says anything that appears or smells like an worker payment is subject to payroll tax. But what if the connection between the practice and the GP is a contractual one? What if the GP is a “contractor” and pays the clinic a share of fees but is just not really an worker? It was thought such cases were exempt from payroll tax. But in March 2023, this perception was shown to be a misunderstanding of the law. The New South Wales Court of Appeal ruled that where a practice has a “fee-sharing arrangement”, payments to those GPs are chargeable for payroll tax. In the NSW case, this meant the practice billed the patient on a GP’s behalf. The practice paid 70% of the fee to the GP and retained 30%. Tax was payable on the 70%. GPs in the identical practice who billed patients directly and paid 30% to the practice weren’t throughout the scope of the case. To date, general practices had assumed contractual payments weren’t liable to payroll tax and so at the moment are facing latest ongoing costs and, in lots of cases, large back payments as well. Bulk billing rates have been declining until recently. Stephen Barnes/Shutterstock Some states have indicated they may make clear the law in the final practices’ favour, specifying what contractual arrangements may escape any payroll tax obligation. Some state revenue officesakin to Queensland, have issued public rulings to

Setting up multiple companies to avoid payroll tax in Victoria or any other jurisdiction is a complex and legally sensitive issue. This practice, often referred to as "payroll tax avoidance," can have significant legal and financial consequences if not done in compliance with the law. Legal Considerations: Anti-Avoidance Provisions: Victoria, like many other jurisdictions, has strict anti-avoidance laws in place to prevent businesses from artificially splitting operations across multiple entities to avoid payroll tax. These laws allow the State Revenue Office (SRO) to group related businesses for payroll tax purposes. If companies are found to be part of a group, their combined payroll is subject to payroll tax. Grouping Provisions: The SRO can group companies together if they are related by ownership, control, or other criteria outlined in the Payroll Tax Act. This means that even if you establish six different companies, they could still be grouped together and assessed as a single entity for payroll tax purposes if they meet the grouping criteria. Penalties and Compliance: Attempting to evade payroll tax through the artificial creation of multiple entities can result in significant penalties, including fines, interest on unpaid taxes, and even criminal charges in severe cases. Strategies for Payroll Tax Management: Instead of attempting to avoid payroll tax through potentially unlawful means, companies should focus on legitimate strategies for managing their payroll tax liability, such as: Restructuring Employment Arrangements: Consider reviewing and optimizing employee roles and compensation structures to ensure efficiency and compliance. Payroll Tax Concessions: Investigate if your business qualifies for any payroll tax concessions or exemptions, such as those available for small businesses or in certain industries. Outsourcing and Contracting: Properly structured outsourcing arrangements can sometimes reduce payroll tax liability, provided they comply with relevant laws and do not constitute avoidance. Consulting a Professional: It's essential to consult with a legal or tax professional who specializes in payroll tax and compliance. They can provide advice tailored to your specific circumstances and help ensure that your business structures are both efficient and compliant with the law. In conclusion, while it might be tempting to look for ways to reduce payroll tax through multiple companies, it's crucial to do so within the bounds of the law to avoid severe penalties and legal consequences.

Let's talk about that not-so-fun topic: payroll taxes. We know they can be a bit of a headache, but here's the deal - you need to handle them correctly to avoid any costly mistakes that could really hurt your business. Trust us, you don't want that! So, in this super helpful blog, we're going to dive into the top three payroll tax mistakes that businesses often make, and more importantly, we'll show you how to steer clear of them. We've got your back! Let's start with mistake number one: not withholding taxes from your employees. Now, we get it. Withholding taxes can feel like a pain in the you-know-what. But guess what? It's super important! If you forget to withhold those taxes, you could be in for some serious trouble. We'll show you how to handle this like a boss. Next up, we have mistake number two: not paying taxes on time. We get it, money can be tight sometimes, and it's tempting to push those tax payments aside. But hey, don't do it! Trust us, it's way better to pay those taxes on time and avoid any unnecessary penalties. We'll give you some helpful tips to make sure you stay on top of it. Last but not least, we have mistake number three: not reporting all disbursements. Whoopsie! It's easy to overlook this one in the hustle and bustle of running a business, but trust us, reporting all those disbursements is crucial. We'll walk you through how to do it right and keep your business in the clear. Remember, payroll taxes are just a part of being a successful business owner. By following these simple steps, you can avoid those pesky payroll tax blunders, stay compliant with the regulations, and save yourself from any penalties or interest charges. Isn't that great news? So grab a coffee, find a comfy spot, and let's dive into the wonderful world of payroll taxes. We promise to make it as painless as possible, and hey, who knows, you might even find it a little fun.

GP Payroll Tax Free: Service Fee Calculators and separate banking payroll tax web app solutions. "Measure twice cut once." Everyone, please read carefully the QLD GP Payroll Tax ruling. According to the article, there appear to be a plethora of amazing, well-intended payroll tax solutions that have recently hit the market. Ask the right questions before investing big money and time on bread knife and not Swiss army knife solutions. Remember their disclaimers and promises will not save you if you or the practitioner get audited. https://lnkd.in/gfK-sc2b It may look easier than it sounds.  Separate banking will have an avoidably huge impact on your future, cashflows, bookkeeping accounting and tax compliance on both you and the practitioner and it is not fraud-proof. You will have to treble your accounting staff (expect higher staff turnover) and disputes. Please make sure you have an independent lawyer and accountant i.e. registered tax agent review your agreements and their audit trails before committing to any software programs. Many assume that their systems are working(a trained lawyer and accountant would find very rarely is this the case). If you do not ask in writing they will not tell you.  Separate banking is one small step out of another 18 holes you need to play to become compliant. The payroll and income tax-tested Doctors Pay Calculator (DPC) program mentioned in the article is approved by an independent lawyer and accountant. This is a tax and accounting-tested industry program used by medically experienced lawyers and accountants for their clients.  It annually ensures each practitioner agreement is signed off by a lawyer and a tax agent. It automates your bookkeeping to Xero with correctly established clearing accounts for a “Administrative business” e.g. a service company or trust that supports a medical practice/practitioner or Medical Centre. There is no need to dramatically change your banking arrangements with the right legal agreements and arrangements. The QLD ruling ratifies existing, long-held precedent law that many advisers appear to be unaware of. Since December 2022, this is the minimum best practice standard required by the ATO so your contractor arrangements are not automatically deemed high risk. DPC has been designed to cost-effectively and efficiently address future complex compliance and operational issues such as the new proposed deemed employee (Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (CL Bill) Regulating independent contracting) parliamentary bill. This is expected to pass in March 2024 - fun times. Many may find themselves swimming naked when the (audit) tide comes in. Disclosure of Interest: In 2001 I created the DPC legal and tax audit compliance tool to address payroll, income tax and GST tax compliance problems (Single Touch Payroll data matching problems).

🚨 Important Update for All Brokers on NSW Payroll Tax Case🚨 As many of you are aware, there's been a significant development in the payroll tax court case involving Loan Market and its implications for our industry, particularly in NSW but also potentially affecting other states. Here's a concise breakdown of the recent court findings and some key actions you can take: COURT FINDINGS📜 Payroll Tax Applicability 🧾 The court has determined that payroll tax applies to broker payments under what is considered a ‘relevant contract’ between brokers and aggregators. This does not classify brokers as employees, but rather for payroll tax purposes, a relationship is deemed. Exemptions ✅ There's good news as the court has clarified and even expanded the exemptions which include: - Hiring family members actively involved in your business. - Using offshore loan processing services. - Engaging with other genuine service providers under specific contracts. WHAT SHOULD YOU BE DOING IN RESPONSE?🤔 Document Everything 📂 Ensure all your business relationships and contractual agreements are well documented to leverage possible exemptions. Also, go back over the last 6 years and compile any agreements, or documentation that could be used as evidence of a business relationship with a service provider to your business. Review Your Business Structure 🏗️ Consider if adjustments may help align your operations with the clarified exemptions. Including whether being a Sole Trader will continue to serve your business purpose, or seek advice if you are a contractor back to a Trust that owns your business. Engage with Industry Bodies 🤝 Raise your concerns and seek guidance from MFAA/FBAA. They are pivotal in advocating for our interests and can provide detailed insights and support. They are not only aware of your challenges but have been very active in putting our case forward. Contact Your Local MP 🏛️ It's crucial to voice your concerns at the governmental level to influence potential legislative adjustments favouring our industry. It would appear that for the decision to be overturned altogether, it would require a change in legislation and tax regulation. This could only be made possible through your local representative in parliament. WHAT'S NEXT? ❓ While the recent decisions set a precedent, there's still a possibility of an appeal. This means that the changes might not be immediate, and there's time to adjust and prepare. Finsure is also still currently in court, and the outcome of that case may also have an influence moving forward. Join the Conversation 💬 Your participation and proactive response are essential during this period. Let's support each other and ensure we are sharing best practices, insights, and resources. Stay tuned, and let's navigate these challenges together. #PayrollTax #BrokerSupport #LoanMarket #IndustryUpdate

Solo Practice Blog: Cash Flow, preliminary thoughts Today my payroll was due. The typical small business owner/lawyer actions on payroll day: EVERY ONE GET THEIR BILLING TO THEIR CLERKS ASAP. I go through this bi-weekly struggle, it is painful every time. In 2024 I decided that things were going to be different. I wanted to ensure that I would have to regular flow of money into my general account to make sure that it would not have to be a full court press on the bi-weekly due date. I decided to submit daily legal aid bills, to send regular invoices and updates to clients to ensure a daily stream of incoming revenue. So far it has been 6 weeks, and today for the first time when payroll was due, I sent my law partner this message: "So let me get this straight. Payroll was due today. And the money was just....there...? In our bank account? And we could do other things today and not hunt for money?" Here are some starting points on this topic, because I know I will be writing alot more about it: 1. Daily dockets. It is so important to log what you are doing every day, whether it is billable or not billable. You need to keep track of this. 2. Talk about money and accounts owing with your clients as comfortably as you would talk about their case with them. Send them regular invoices. 3. Develop a system where you bill regularly, whether it is submitting a legal aid bill or drawing from Trust. This doesn't all have to be done in one day. Set up a system that alerts you when you get to a certain number of hours for drawing bills: I have committed to submitting bills when I am in the 6-8 hour range. I want to do it frequently, so I can maintain a certain balance in my general account, and so payroll day doesn't feel so stretched. 4. If I don't submit my cash bills every day for draw, I make them ready for when I know we are going to be doing Trust billing. That way payroll day is not a whirlwind of billing and invoicing, and we can do one Trust draw (our bookkeeper is grateful). 5. Legal Aid needs daily attention and bill submission. Even if it is a small bill. Legal Aid billing is tedious, exhausting, and time-consuming. If you don't keep on top of all of the bills, you will forget them, and regrettably forfeit those small amounts just because you have forgotten them. The flow of cash from Legal Aid into your account keep your business pushing forward. And you won't leave cash on the table by forgetting to bill your accounts. 6. I ask my clerk to ask me for my dockets and for my bills for submission. She keeps me accountable. It relieves her stress too. Please accept this grain of salt with my advice: This is my best case scenario advice. I will have payroll weeks this year when I am feeling the financial stress of the deadline. I will also have payroll weeks this year when I am in trial or on vacation and relying on my previous weeks' draws to cover the amount. This is part of the ebbs and flows of small business.