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Business Payroll Tax Planning

There are two elements in the business plan that will account for business tax planning. The first is the actual wage. By strategically placing the employees where they need to be in the headcount, the company can avoid the business plan accidentally calculating wages that should not be assessed tax. For instance, many people will place a company's outsourced web designer, accountant, or attorney in the payroll section of the plan. When this happens, the plan automatically adds 15% to the payroll for payroll expense.

This isn't correct. These individuals will be on a 1099 basis and will not be calculated into the payroll expenses line. They should be an operating expense that is reflected as such in the profit and loss, but not in headcount where they draw assumptions to balance sheet possible, in the case assets are assigned, or to the payroll expenses line.

Where does this 15% come from? Well, every employer must withhold a percentage of tax for social security. Generally this is 7.5%. As well, the employer may be prepared to contribute anywhere from 30-19% for workman's compensation insurance based on the type of business. Some businesses, such as airplane mechanics or other jobs involving heavy equipment, may have a large overhead for payroll expense compared to something as benign as a restaurant, daycare, grocery, etc.

The business plan should be careful constructed to make sure not only are these items accounted for, but that they are located in the proper sections of the plan. Many times clients will place 6 months salary in the beginning expenses but then also place them in the headcount. This "double dipping" should be avoided.

Too complex? Contact a MasterPlans business plan consultant to help you figure out the ins and outs of business payroll tax planning.

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