Accuracy is important, and this is doubly true when submitting your company’s payroll at the end of the year, but with so many forms to keep track of, mistakes are hard to avoid. Here are a few ways to prevent costly errors on your W-2, W-3, and 1099 forms.
Common W2 and 1099 Mistakes
It isn’t inconceivable to imagine that the IRS and SSA compile a joint list of mistakes you should avoid on all tax forms each year, ranging from simple typos to full-blown misreporting. Such a list isn’t quite public record; however, you can generally assume that each year’s round of common mistakes revolves around small inconsistencies.
When filing 1099s, make sure you’ve reported your business expenses in addition to the usual information. While the IRS won’t dock you for giving them more money than you owe, your bank account won’t thank you. Items you’ll want to account for include new equipment, miles driven, and a percentage of your building’s lease.
Allegedly, filing W-2s for the wrong year is another common mistake the Social Security Administration looks for. This year, you’ll use a 2016 W-2 to file for the 2015 tax year. Remember as well that both your W-2 forms and your W-3 form are due to the SSA at the same time.
A few other common—and easily preventable payroll mistakes include the following mishaps:
- Filing late
- Reporting the wrong business designation
- Incorrectly filling out retirement information
- Incorrectly reporting total earnings
- Using a copied (not purchased) form
- Minor formatting (periods vs. commas, employee names, etc.)
As you’ve probably notices, practicing common sense and basic proofreading should prevent most potential payroll mistakes.
The majority of mistakes you’ll run into on any of the aforementioned forms are preventable by reviewing your forms after you’ve completed them with your employees. This will be a daunting task for larger firms—but if it’s an economically feasible task for your company to perform, consider it. The fewer forms that come back to you, the less work you’ll have to do later.
Another equally simplistic way to keep your company from undergoing an audit is by submitting your forms on time—at the very least. You don’t lose points for sending in your W-2s, W-3s, and 1099s early, and doing so will buy you that much more time to correct them if the occasion arises.
You should also ensure that your employees keep you up to date on pertinent payroll information. Check in with your employees at the beginning of every tax year before you process payroll to verify the following things:
- Household status
- Employee status (exempt or otherwise)
- Extenuating circumstances
- Contact information (address, phone number, etc.)
Of course, you can (and should) touch base with your employees several times throughout the year as well to prevent an onslaught of new information come tax season.
Preparing W-2s and W-3s
The main issues people tend to run into with W-2s and W-3s lie in the formatting and reporting, which are things you can easily address by double-checking your forms before sending them out.
However, one surprisingly common issue that affects both of these forms is a mix-up in destination. While 1099s go directly to the IRS for review, your W-2s and W-3s zip off to the Social Security Administration. Again, you’ll need to mail them at the same time.
This can create a bit of a logistical issue since your employees are bound to leave their W-2s to the last minute, and the W-3 is a bit contingent on the numbers reported on the W-2s. You can overcome this problem by setting a strict due-date for the W-2s, but you’re still liable to run into some edge cases toward the end of the reporting period.
It’s also worth noting that you should supply your employees with W-2s and W-3s as soon as possible. The more time they have to enter the pertinent information, the more time you’ll have to review the changes—at least in theory.
As previously mentioned, you can write off your business expenses—but there’s a caveat: the IRS tends to look down on situations in which a part-business, part-personal item (e.g., a phone or a computer) shows up as an all-business expense. For example, if you use your shiny new iPhone for both business-related calls and research in addition to FaceTiming your grandmother on the weekend, you technically can’t report that iPhone’s entire cost as a business expense.
The line between business and pleasure can get pretty blurry. For any doubts regarding the disparity between your business expenses versus your personal expenses, consider checking in with a payroll or tax consultant before submitting your 1099 this tax season—audits for 1099 users are an especially irritating (and costly) hindrance.
Every tax season introduces a bevy of new accompanying challenges. If you’re looking for a seasoned payroll company to catch your form mistakes, give Abacus Payroll a call at (856) 667-6225 today!
About the Author: Abacus Payroll
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