Payroll taxes

You, as a business owner, must understand that you and you alone are responsible for everything your business does. It does not matter if you are a sole-proprietorship, corporation, partnership, LLC, LLP, or any other form of business. As President, Secretary, Treasurer, partner, director, other "officer" of the business you have what is called a fiduciary (financial) responsibility to the company. It means you could be held financially liable for decisions you make. I am not going to get into the legalities of corporate or partnership protections within the law.



Having said that, your services, product, etc must be priced to cover all expenses (supplies, materials, utilities, etc) to include payroll and of course a profit. If you do not have a profit, why are you working. For a sole-proprietor that means you have money left over for your income that will support yourself and family. How you come up with that amount will depend on your line of work.

Since this is a discussion about taxes, this is primarily a discussion of payroll. If you have a company that is anything except a sole-proprietorship, you will have a payroll. You as the President, Secretary, Treasurer, Director, chief cook and bottle washer, no matter what you call yourself, are an employee of the business. Only a sole-proprietor is not an employee of their business. They do not issue a Form W2 to themselves. LLC (single or multi-member), Corporation, etc you are an employee and should be paying yourself from the business.

Payroll is what you told the employee you would pay them. This could be an hourly wage, commission, salary, etc. If that is $12.00 per hour, it is all of it without subtraction of taxes and other deductions. We are not going into benefits or non-taxable deductions. Just talking about wages... Now from that you withhold Federal Withholding, Social Security, and Medicare. At the IRS this is called the Trust Fund portion of payroll. However, your tax liability is that plus the employer share of Social Security and Medicare.

These funds are not, repeat not, to be used to pay other expenses of the business. This tax liability must be sent to the Internal Revenue Service. Where a business gets into trouble is when funds are tight, the employment taxes are sitting there waiting to be sent to the IRS but the supplier bill, electric bill, and other bills are piling up. I repeat, DO NOT USE the employment tax funds for those bills. If you do it once, it is easier next time. If you do, it is considered THEFT of wages. You have basically stolen from your employees. I know that is blunt, but what else is it. The money is not yours once the employee earns it.