Unbelievably, it’s almost the end of the year! Now is the time to think about your final payroll for the year. The list of items that might need to be addressed or reviewed for the final payroll may be lengthy depending on the type of business you have, how many employees you have, and what types of benefits you offer. But for the purposes of keeping things simple and short, I will focus mainly on issues that are special to small business owners, not on employee issues.
If you own a sole proprietorship or an LLC that is not taxed as a corporation, you should not be paying yourself with a payroll check and you should not get a W-2 from your business at the end of the year. While you should be paying your employees through payroll, you should be taking money out of the business with an owner’s draw or member’s draw. You should be sending in estimated tax payments to cover the income tax and self-employment tax you expect to owe for the year. Haven’t been sending in estimated tax payments? Now is the time! consult your CPA to see how much you should send in to avoid possible underpayment penalties.
If you own an LLC that has elected to be taxed as a corporation, in addition to paying your employees through payroll, you should be paying yourself through payroll and you should be getting a W-2 at the end of the year. You may also be eligible to deduct your health insurance premiums as a business expense as long as you report them properly through payroll. You may be able to take some money out of the business via a shareholder’s distribution in addition to what you pay yourself through payroll. This is the time of year to be calculating these items. Again, consult your CPA about how to report health insurance premiums you paid for yourself as well as whether or not taking a distribution out of the business makes sense. But now is the time! It is common to run these items through your final payroll of the year but waiting until January probably won’t work.
Also consult your CPA if you have or want to set up a company-sponsored retirement plan. Retirement plans can be a great way to save on taxes while you save for retirement. However, depending on the type of plan you already have or choose to set up, there may be implications for your payroll so again, now is the time to figure out what you can do!
