Checklist: Mid-Year Tax Review for Small Businesses

As a small business owner, you’ll want a clear, repeatable payroll process to avoid compliance issues and employee dissatisfaction. Your checklist should include:

• Registering your business and securing your Employer Identification Number (EIN)

• Properly classifying your team as it’s critical to distinguish between employees and independent contractors

• Choosing payroll software that’s intuitive and scales with your business

• Setting up your pay schedule and calculating payroll, including hours worked, wages, and necessary deductions

• Filing and paying payroll taxes on time

• Keeping organized payroll records for every team member

Deel can streamline all of this for you, including compliance in multiple states or even countries. For more information, read our guide to setting up payroll systems for small businesses.

The payroll cycle typically follows five essential steps:

1. Track employee hours (or collect service invoices for contractors)

2. Calculate gross pay based on hours worked or salary

3. Apply deductions for taxes, benefits, or garnishments

4. Disburse net pay via direct deposit or another method

5. Document everything for IRS compliance and internal audits

Deel automates much of this, reducing manual work. Learn more in this overview of payroll processing.

At year-end, you need to reconcile all payroll data to prepare for tax filings and employee forms. Here’s what that looks like:

• Confirm all payrolls are processed for the calendar year

• Issue W-2s to employees and 1099s to contractors by January 31

• Ensure all tax withholdings match what you’ve paid to federal and state agencies

• File W-2s with the SSA and 1099s with the IRS

• Pay any outstanding payroll tax liabilities

• Update systems for the new year, including wage thresholds, tax rates, and benefit elections

You can follow this year-end payroll checklist to make sure you don’t miss anything.

Each employee’s payroll file should be thorough and up to date. At minimum, include:

• Full name, address, Social Security number, and job title

• Compensation details, including wage rate and hours worked

• All payroll deductions and withholdings

• Tax documents like the W-4 and I-9

• Timesheets or clock-in/out records

• Pay stubs and year-end tax summaries

These records are crucial not only for compliance, but also in case of audits or disputes. Here’s Deel’s guidance on maintaining payroll records.

You’re responsible for both withholding and remitting several types of payroll taxes:

• Social Security: 6.2% employer + 6.2% employee

• Medicare: 1.45% employer + 1.45% employee

• Federal Unemployment (FUTA): Employer-paid, with variable rates

• State Unemployment (SUTA): Also employer-paid, varies by state

• Federal and state income taxes: Withheld from employees’ paychecks

These amounts can add up quickly, so budgeting is key. Deel offers a useful breakdown of employer payroll tax responsibilities.

To legally reduce your tax liability, consider these strategies:

• Maximize business deductions — like office supplies, software, marketing expenses, and professional services

• Offer retirement plans — contributions to a 401(k) or SIMPLE IRA reduce your taxable income

• Track everything — accurate record keeping means you won’t miss deductible expenses

• Work with professionals to ensure you’re leveraging every available credit and deduction

If you hire contractors, check out Deel’s insights into common tax deductions for independent workers, many of which also apply to small businesses.