A straightforward concept, you run your business fully aware that the federal government, and in most cases the state governments, will impose a tax on your annual activity. However, what most business owners in Pennsylvania do not realize is that there is most likely a third jurisdictional tax to account for: Local Municipal Taxes. These can take on multiple forms: Earned Income Tax and Local Service Tax, which are Payroll related, and Business Privilege Taxes. Without the proper guidance from a trusted advisor, these taxes can and often do go overlooked, which can result in multiple tax notices along with compounding penalties and interest.
With respect to payroll related local taxes, you have employees working hard who should be compensated for their time and effort. Unfortunately, as life and governments become more complicated, so does the administrative burden of properly recording payroll, remaining in compliance with the taxing authorities, and offering loyal employees fair and competitive salaries.
As reluctant as a business owner may be to pay for a service that seems rudimentary, over time it only pays for itself, if you have the right team behind you. Localities are especially tricky. Luckily, in Pennsylvania there is a report that will tell you which local taxing authority has priority over all others, merely by comparing the work address versus the employee’s home address. However, not all third party payroll providers can actually, let alone accurately, file local payroll taxes on behalf of employers. This includes domestic employees such as nannies and house managers.
When it comes to Business Privilege Taxes or comparable local tax assessments, business owners need to be aware of the liability down the road, not only for cash management purposes, but for future planning purposes as well. As your business continues to grow and the local municipality is taxing you on your gross receipts, how long do you remain at the same location before contemplating a move? The more money you make, the more tax you will pay. Ultimately, your operations may be supported at a different location without the burden of local taxes on gross receipts. There could even be tax incentives for relocating to a particular area, if it is a good fit for the business.
Fortunately, accounting advisors here at Stephano Slack LLC know to ask all the right questions when assisting a business with their payroll and other accounting issues. It is hard enough to hire the right employees and retain them happily all while ensuring your business’s stability and growth, so why not ensure that your accounting advisors are proactive and have your best interests at heart so you can concentrate on growing your business and accomplishing the goals you strive for on a daily basis. We at Stephano Slack LLC are those kinds of advisors.
Dave Kubovsak, CPA
When it comes to tax…relax…we have your backs.