Traditionally, wages are paid to employees and employees are often responsible to file their own deductions at tax time. However, with tax laws today, the employee cannot even take some deductions they would be entitled to – such as auto expenses – due to the alternative minimum tax.
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Get Your Report Now!The other problem from the employer's side is that you have to pay FICA taxes, workers' compensation, state unemployment, social security, and more. Typically this adds up to a sizeable percentage of their gross wage, often around 10 percent, that you have to pay on top of the wages.
Depending on how many employees you have, you can save yourself thousands of dollars by setting up your wage payments differently. In a BLR webinar titled "Tax Savings for Small Businesses: How to Maximize Valuable Deductions and Avoid IRS Overpayments," Brian C. Greenberg, CPA, outlined a great solution for small businesses that addresses these issues.
A great technique to use is to allow your employee to turn in their business expenses to you and you reimburse the employee. When a sale is made, the agreement is made that the out-of-pocket expenses can be turned in for reimbursement. You reimburse the employee and count this as part of the employee's overall benefits. You save on taxes and fees because some of what you're paying is a reimbursement instead of a wage. The employee saves as well because he or she does not have to pay taxes on the reimbursement, and this way they can get the reimbursement that they may have missed if filing on their own. This is the same net effect as a pay increase, without actually paying any more money. This can be very beneficial for a small business. The more employees you have, the more you save.
Brian C. Greenberg, CPA, is the founder of Brian C. Greenberg & Associates, LLC, a New Jersey-based tax accounting firm. (www.greenbergcpa.com) With 30 years of experience as an accountant, Greenberg has developed a diversified background to service his clients’ needs. Greenberg has extensive media experience both nationally and locally, commentating for the Wall Street Journal Report, Fox Business News, Bloomberg News, Forbes TV, and local TV in Philadelphia with ABC, NBC, and Fox. He has appeared as an analyst on the economy, stock market, taxes, budget issues, school issues, and more.
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