Tax Reduction Podcast

Episode 15. Payroll Tax Deduction Strategy

• Boris Musheyev • Episode 15

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Unlock the secrets to effective payroll tax deduction strategies for your business! In this podcast, we'll dive into advanced tax planning techniques that help business owners maximize tax savings. Discover how to leverage S-Corporation benefits, optimize deductions, and implement smart write-offs. 

Stay ahead with proven payroll tax strategies designed to reduce your tax liability. Perfect for entrepreneurs and small business owners looking to boost their bottom line through effective tax management. Learn how proper tax planning can transform your tax savings. Don't miss out on these essential tips for significant tax savings and deductions.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/

🤩 If you are looking for easy-to-use payroll software, I personally use and recommend to my clients Gusto Payroll Software - https://gusto.com/r/boris466

P.S. When you sign up for Gusto, you get a $100 Visa gift card

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Speaker 1:

If you have a business and you process payroll in your business, very often than not, a lot of business owners under-report or not properly report payroll tax expenses, meaning so when you pay your employees, you incur a payroll tax. How that gets reported on your taxes may be costing you a lot of deductions. On top of that, a lot of business owners don't properly report owner compensation on their taxes, so I'm going to show you exactly how to maximize your payroll tax deduction and, at the same time, stay in compliance with your owner compensation in your business. Ready, let's go.

Speaker 2:

Welcome to the Tax Reduction Podcast for Money-Making Entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

Let's get started over here. First of all, before we continue about payroll tax deduction strategy, let's really understand what is a payroll tax. Okay, a payroll tax it's basically cost, it's an expense to you, the business owner, every time you process payroll. So the government says hire employees, pay them salaries, but on top of that you're going to pay payroll tax. So you as an employer, you're probably already familiar that you pay what's called a social security tax and a Medicare tax. So altogether this makes up 7.65%. On top of that, another most common payroll tax is a state unemployment insurance tax. This is basically state is taxing you. Okay, state is taxing you on the fact that if the employee claims unemployment insurance, the state will pay them unemployment benefits. This tax ranges anywhere from 1% and up. It usually has a limit depending what state you're in. I think in New York state we're like at $14,000 limit. But overall I like to calculate a 10% total payroll tax, because there's some other costs that you incur when you run payroll and that is your payroll expense. So your total cost as an owner is 10%. That means think of it this way for every $100 that you pay to your employees, you incur a cost of $10. That's costing you, the business owner, on top of the salary that you pay to your business. So that is really a payroll tax. And when you report your taxes or when your tax preparer is doing your taxes and listen, by the way, if you're working with a tax preparer, somebody who's putting the right numbers in the right boxes, I can guarantee you right now you're overpaying in taxes. What you need is a tax advisor, because only with a tax advisor you'll be able to strategize what we're about to strategize for you. So right now, I want you to understand what is a payroll tax. Payroll tax is about 10% of what you pay your employees. On top of that, in most cases you as an owner, even when you draw a salary from the business, you also pay a payroll tax. So governments say, hey, we don't care that you own the business. If you pay yourself a salary, you still have to pay the employer's portion of Social Security and Medicare tax.

Speaker 1:

Now what is really a problem with the payroll tax for most business owners? For most business owners is how they report their payroll taxes on payroll tax expense, excuse me, on their tax return. When they file it, what happens most often than not? A lot of business owners. They think they're saving money on taxes by hiring a bookkeeper that's charging $65 a month or $100 a month or $150 a month. You have to understand that bookkeeper cannot survive on a salary of $150 a month. So what happens is that they end up having a lot of clients. And when they end up having a lot of clients, when you process payroll in your business, when it comes into your profit and loss, the bookkeeper doesn't sit there and distinguish between salary, payroll expense and officer compensation, and everything that comes out of your account on your bookkeeping assuming you use some kind of a bookkeeping software gets dumped into either a net payroll clearing account or payroll expense. At the end of the year, if you're lucky, your accountant preparer or bookkeeper will make some adjustments, but in most cases those adjustments are not correct. It's just a lump sum because they need to move it forward. So what happens is that on your profit and loss you'll see something net payroll clearing account or payroll expense throughout the year Everything just being dumped here. At the end of the year they may make adjustments to basically say salaries and wages and payroll expenses, but what's going to happen is that it doesn't always match the W-3, which we're going to talk about. We have a little let me just fix that to a W-3.

Speaker 1:

And I've seen many times when I received tax returns from business owners and I reviewed their payroll expenses, very often it didn't match the payroll report that was run by the payroll company. Put two and two together it's missing right. The payroll report says, hey, they paid, let's say, $100,000 in payroll you know wages, salaries and payroll taxes but on the tax return I see a lower number. And the lower number is really the fact that at the end of the year they tried to reconcile it very quickly. They don't know where to stick it and they stick it into what's called a payroll liability, which goes on a balance sheet.

Speaker 1:

So you, as a business owner, you might be thinking well, boris, why do I need to know this? Aren't the people that I pay to be a professional and to help me should know this stuff? You are correct, but it depends who you're working with. Are you working with a bookkeeper or tax preparer who's putting the right numbers in the right boxes, or are you working with a tax advisor to be able to analyze these things? And I see this problem very often. What I see most often actually even worse is that all the payroll expenses get put on a salaries and wages.

Speaker 1:

On the business tax return and officer compensation.

Speaker 1:

Line seven of an S corporation is blank and the officer paid himself or herself a salary.

Speaker 1:

And if this line is blank, if it's missing a number which should be here, it triggers an audit Because IRS looks for to see if the owner of the business, or especially an S corporation, pays themselves a reasonable compensation.

Speaker 1:

And they do, in fact, pay themselves a reasonable compensation. What they don't do, what doesn't happen under taxes, taxes it doesn't get reported properly on the office of compensation. Instead, it gets reported on salaries and wages on the business tax and just everything gets dumped there, and even salaries and wages in most cases are not correct. What I encourage you, the business owner, is not only have somebody who knows what they're doing when it comes to this, but really, when you have your quarterly meetings with your tax advisor, always review your profit and loss with them, always review salaries and wages and be like hey, how's my salaries and wages? Are we capturing everything there? Are we taking account into the fact that I have an office or compensation? I pay myself a salary? Now, in the next segment. We're really going to talk about the tax strategy to make sure that you're actually maximizing your deduction and staying in compliance. We'll be right back after this break.

Speaker 2:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Bora's put together a free PDF for you, the business owner Seven tax write-offs every S Corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

Welcome back Now. Let's talk about a tax strategy for taking a payroll tax deduction. First and foremost, when you're doing your taxes as a business owner, you always want to make sure you provide your accountant or whoever's doing your taxes with what's called a payroll report from your payroll company and on that, from that payroll report, they're going to extract salaries and wages and there's also going to be something that's called the W-3. When you take a look at your tax return, your salaries and wages plus the officer compensation must match what's reported on the W-3. W-3, basically a governmental form copy that you let the government know. The IRS know hey, this is the total payroll cost of all the W-2s that is being reported and your salaries and wages would match that. The most important thing here is to make sure that the officer compensation, line 7 of an S corporation, or even on a C corporation, is listed.

Speaker 1:

There is a number there. If you don't have a number, it may trigger an audit. At the same time, take a look on your payroll liabilities. Question your accountant, your bookkeeper, whoever's working with you hey, I see payroll liabilities on my balance sheet. Why is there a number and why is this number high?

Speaker 1:

Now, true, before the year is over, then there should be a number there. In most cases there is, but a small a number of all your payroll taxes, right. So if you ran a hundred thousand dollar payroll right before december 31st, your payroll tax liability should be about at least ten thousand dollars plus what you withheld from employees. So you should already know that what number should be there. But when you see a really big number, that most likely your accountant is really using it as a plug number right to plug it in and you, the business owner, in, as a result, really overpaying or really missing out on a deduction which causes you to overpay in taxes because salaries and wages and office or compensation was not reported.

Speaker 1:

Probably now I always say this in all the social media content that I put out and and when I speak to business owners if you have a tax preparer, then you do not have a tax planner or a tax strategist. If you want to pay less in taxes, what you need is a tax advisor. You got to work with a tax advisor and the first step with working with a tax advisor is reviewing your prior tax returns. In most cases, there will be opportunities found to either amend the tax return or to create opportunity for going forward in the future years to be able to save money on taxes. Thank you so much, until the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.