In my opinion, you shouldn’t do tax withholdings yourself. Why? Because there are a lot of companies out there willing to do it for you for super cheap. It doesn’t make sense for you to stress about them and spend hours every month calculating the withholdings when you can have someone else do it for $40-$50 per month.
This article has paid affiliate links in it which are clearly marked. They were added because I should make money for recommendations for companies I would already recommend. The paid links are clearly labeled and I don’t make money unless you sign up for for those services.
Tax Withholdings
You are required to withhold taxes on all income paid to employees or owners in a company. If you’re a sole proprietor or in a single member LLC, you might have to do this quarterly, but in most cases, you’re looking at monthly withholdings.
On top of that, you have to remit these withholdings to the state and federal government. Their systems are fairly easy to use, but you still have to do the math yourself. That math you’re doing: that’s based on the W-4 and NC-4 forms your employees filled out and allegedly update when there’s a change.
I’m an attorney who has a degree in economics, loves spreadsheets, and does most of his own accounting. Although I can do these calculations myself, it is simply not worth it.
Payroll Software
Therefore, I use payroll software to handle all of my withholdings. I upload all the W-4s and NC-4s, and they take care of the rest. They give me a summary of the tax withholdings, so I’d know if there was anything majorly off. However, it has never been an issue. They also give me the W-2 at the end of the year.
There are a variety of payroll software out there. One of the biggest in the industry is ADP. However, I do not recommend them for small businesses. Although what they offer might be worth it to a large company, they charge hundreds of dollars each month for services most small businesses would never use. What we need is a company that handles our payroll, taxes, and basic employee administration.
I personally use Gusto (paid affiliate link), but I’ve had good experience with Paychex and a local company that was later bought out by a bigger company. I use Gusto because, at the time, it synced better with my accounting software Xero. I’ve stopped using Xero, but continued with Gusto because the experience has been top of the line.
Quickbooks (paid affiliate link) also has their own payroll processing. If you’re already using Quickbooks, I’d recommend checking that one out as well because it works very well with their accounting and time management software.
Accountants
If you use an accountant for your bookkeeping and taxes, they might also offer payroll solutions. In my experience, accountants cannot compete on price, but they do offer a much more hands on experience. It’s all about your preferences.
Conclusion
Taxes are super scary! If you make some small mistake, you could see fines and penalties. That’s why I recommend using a payroll company to do it for you. Whether you use a software solution like I do or an accountant, this is a valuable service for avoiding headaches.
After you’ve set up your LLC, corporation, or nonprofit, this is one of the very next steps for getting your companies systems in place.
Leave a Reply