Hey All,
I have a client in the real estate industry that says he has colleagues with CPAs who run payroll only at the end of the year - take distributions throughout the year and only take a W2 on paper and pay all payroll taxes at year end. Is this acceptable to do? Being that his income comes in waves, it makes it easier on the client. I currently have him running payroll on a monthly basis but he wants to switch to annual per his "peers advice from his CPA."
My thinking was that if you are taking draws, you then cannot reclass it to net payroll after the fact unless you do that at minimum quarterly because then you're failing to pay and file payroll tax for that Q. Is it reasonable to do zero payroll throughout the year and file all zeroes for quarterly 941s and state for Q1-Q3, and then doing all the payroll year end for paper use (pay all taxes at year end as well)?
I feel like at minimum, payroll taxes have to get paid prorated throughout the year so I am a little eerie on doing this but in their industry it's apparently "common practice" and their CPAs are even giving lectures on it to the realtors but it doesn't meet the smell test for me. I don't really see the purpose being that you would still need to pay the estimated taxes quarterly, based on his P&L, so if taking a year end salary, would then reduce his P&L and he'd be overpaying the entire year and then paying double tax at year end when taking the salary so what's the point? Thoughts?
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Matthew R. Savello, CPA
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