Payroll questions

Should I be using QuickBooks for my business?
This is one of those things you should be outsourcing immediately. If you happen to be the only employee, just pay yourself once a month. A typical payroll service will charge you about $20 per pay period, which will include filing all the 941s and W-2s for you. Specifically tell them that you want them to pay the payroll taxes, rather than handing you a check and asking you to do it. Seriously, the interest and penalties for filing payroll taxes even a day late can mount up to as much as 37% of the payroll liability involved. You do NOT want to be doing this. You should be tending to your business.

Do I have to upgrade QuickBooks every year like Intuit suggests?
If you are a sole proprietor or partner, you will be taking an Owner's Draw, which is simply a check made out to yourself. Since it does NOT run through payroll and involves no payroll taxes, you'll be making quarterly estimated payments against your Federal and State income tax liabilities. If you are the officer/stockholder of an S Corporation, the situation changes dramatically. In order to save on social security taxes, you want to pay yourself as much dividends as possible, as opposed to payroll. However, since it is a red flag to the IRS for you to be paying out more dividends than payroll, ideally, you should figure out the total compensation you want to pay yourself; and then pay two thirds out to yourself as payroll and one third as dividends. The dividends should be paid either monthly or quarterly, and should be the same amount all year long. Cashflow, as it ebbs and flows, can affect the amount of salary you pay yourself in a particular month, but not the dividend. Otherwise, the dividends look like compensation to the IRS, and we have a rather nasty situation. As the officer/stockholder of C Corporation, you don't want to be paid dividends at all, since you'll wind up paying income taxes twice on the same money. In this case, you want to be maximizing your fringe benefits such as medical expenses and pension contributions. For more specific guidance, please talk to me when we're doing the year-end tax planning or tax preparation, and I'll give you specific dollar amounts to use in paying yourself.

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