132 | How to Write a business Plan
a later month, in a similar fashion to the M & M Copy Shop. 6. Withholding Taxes. Most businesses must pay their employees’ taxes every month. That means that every month you send the IRS the amount of wages you’ve withheld from your employees’ paychecks plus the amount you’re required to contribute to their Social Security. If you make these tax payments every month, they don’t affect your cash flow, so they won’t show up on your Cash Flow Forecast. Some businesses qualify to pay with holding taxes every three months rather than every month. To qualify for the quarterly payment program, you must owe the IRS less than $2,500 every quarter. If you do not qualify for the quarterly option or wish to pay every month, skip ahead to line 8. If you wish to explore the quarterly option, read the following discussion of withholding taxes. When you completed the Profit and Loss Forecast, you added at least 14% to the total wages and salaries you pay each month as an additional expense (Profit and Loss Forecast, line 4b, Withholding Taxes). That’s your approximate mandatory contribution to your employees’ Social Security fund and federal unemployment insurance. You’ll write a check to the government to pay that amount.
These are approximate tax figures, for your planning purposes. Later, you’ll need to learn more about the tax rules. Some good information resources include Tax Savvy for Small Business, by Frederick W. Daily (Nolo), and IRS Publication 15 Circular E (Employer’s Tax Guide), available, along with other publications, at the IRS website (www. irs.gov). Click on “Businesses” under the heading “Information For:”
In addition, the government also expects you to collect money from your employees for their portion of income and Social Security taxes and pay the government directly. While every employee is different because of their individual tax situations, the average employee has about 15% of their total wages or salary withheld from every paycheck for federal withholding. This is money that belongs to the employee that you must mail to the IRS. If you will pay a total withholding of less than $2,500 every quarter, you may choose to pay taxes quarterly rather than monthly. Make sure you verify your employees’ actual withholding rates before deciding on this option. Example: Let’s say that you plan to
hire one full-time sales clerk in your business for a total salary of $1,500 per month or $4,500 per quarter. Multiplying 29% by the quarterly salary (0.29 x $4,500 = $1,300) gives an answer of $1,300, which is less than $2,500. In that