Tax Filings and When to Outsource

- Lessons Learned, Episode 31

When I quit my last real job, in 1995, I knew I'd have to pay state and federal taxes with payments I had to make (since no employer was making them). And I knew there were lots of other little taxes, but I wasn't sure what they were.

Required: Minimum of four payment calculations and payments for state and federal. And, of course, I had to file business income tax for each entity.

Tally so far: Ten filings per year.

Then I got a local business license that needs to be re-filed every year

Tally so far: Eleven filings per year.

Somewhere along the long, I found out that I needed to pay county property taxes on my business, which is more annoying than monetary.

Tally now: Twelve filings per year.

Next up, I got a seller's permit, which allows me to buy products through wholesale distribution in California. And that meant filing tax forms with the state to pay them the taxes collected. This started with quarterly filings and grew to monthly as my sales grew. Add twelve tax filings.

Tally now: 24 tax filings per year.

When I incorporated, I also had to pay an annual fee to keep my corporation name valid. 

Tally now: 25 tax filings per year.

Note: At this point, I had elevated my first administrative assistant to office manager. She had great accounting and QuickBooks skills, so it made sense for her to manage a lot of the details in all this.

In this case, I delegated the preparation of all filings. Then she walked me through the filings and I signed on the dotted line. The key for me was that I felt like I still understood every piece of the process. That's the level of comfort I need.

And then we looked at our growing payroll.

We pay twice per month. And, in a good year, we have a separate bonus payroll (so the taxes taken in one check are not out of line). For me, this was too much.

To run our own payroll, we had to deal with all those details I took advantage as an employee - state and federal deductions, plus unemployment, SUI, SUI and gawd knows what. As the number of employees grew, the calculations grew.

Payroll added twenty-five filings per year.

Tally now 49 tax filings per year.

And, to be honest, there was another one I can't remember. I just remember that I had a big spreadsheet to make sure we didn't miss anything, and it totaled fifty.

That's when we decided to hire a service to run payroll. We used our bank until they had a major screw-up. So we changed to a national firm. They messed up from time to time. One day it was just too much and we moved to the other national firm. 

All payroll companies are over-worked and running with thin margins. In my opinion, there is no "winning" when you choose a national or bank firm. But it is what it is. 

In the end, outsourcing payroll was one of the best decisions we ever made. As we grew to five, ten, fifteen employees, the time it took to make sure everything was right grew month by month. Outsourcing that for less than the cost of one hour of billable labor was absolutely worth it.

Because someone will ask, here are my favorites.

Number one without any doubt is Gusto (https://gusto.com), a totally-online service. They are also the only service we've used that hasn't screwed up any payrolls. We put in hours and dollars and out comes direct deposits. It's beautiful.

Number two, in our experience, was Paychex Online (https://paychexonline.com). It should be as simple and easy as Gusto, but it's not. They are horrible and slow in communicating. What meager "service" they have seems to be unaware that timing is very short when you have strict deadlines and problems need to be settled fast. They were the least troublesome of any of the old-school payroll processors. But we are happy to no longer be using them.

My IT companies never outsourced basic bookkeeping as we've always had someone very qualified on staff. In my opinion, it makes sense to have one person (working with the owner as needed) who manages client invoices, internal spending, payroll processing, distributor invoices, etc.

And that includes taxes as well.

In other businesses I own, I have tried to outsource bookkeeping services and found it to be more trouble than it's worth. That's my personal opinion. I delegate to someone on staff, not to someone outside my office.

YOU have to find your own way. Managing the money side of your business can go very wrong, very fast. And (in my opinion), 100% of fraud and embezzlement comes down to abdicating control of your finances to the point where you do not know where your money comes from or goes to.

Feedback Welcome.

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All comments welcome.

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Episode 31

This Episode is part of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page. 

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