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Small-business Employers Now Have Opportunity to Grab Tax Relief!

November 3, 2011 By


A number of small-business employers, who pay approximately half of their employees’ health insurance premiums under some qualifying arrangements, may also be eligible for tax credit for healthcare. The advantage of such a tax credit is that small-business owners will be empowered to offer healthcare insurance. It would also sustain those that are already offering the service and thus, maintain their coverage. Actually, the credit program was specifically aimed at helping small-business employers and other organizations that are tax-exempt.
Here is a list of key points that small-business employers ought to know so that they score big on tax credits for the year 2010:

• Natural disasters, such as Hurricane Irene and other recent natural disasters, had postponed some tax filing deadlines to October 31, 2011. Also postponed to a similar date, was tax payment. Therefore, qualifying businesses had adequate time to file Form 8941, which was for small-business employer healthcare credit and claimed tax relief on Form 3800, which is for general business credit.

• Employers and shareholders that use Form 1040 to report their incomes had to October 17 to completely file their returns -that is if they requested for an extension of deadline. They may also have made use of Form 8941 to calculate small-business employer health care credit and claim it on Form 3800, which is for general business credit.

• Any tax-exempt organization can also make use of Form 8941 to claim credit. This is done through Form 990-T Line 44f. This opportunity is only open to organizations that file tax returns on a yearly basis and have requested for deadline extension till November 15th.

• Small businesses that may have filed are eligible to claim their credit by filing an amended 2010 tax return. Corporations use form 1120X while sole proprietors use Form 1040X.

• Any businesses that may not be able to use credit in 2010 are still eligible to make claims in the future years. Also, the duration of claiming the credit has been extended till 2014, especially for small-business employers.

The maximum amount of credit for small -business employers is usually 35% of the premiums payable, while for tax-exempt employers, the figure is 25% of premiums payable. This is applicable for the years 2010 to 2013. By the start of the year 2014, the rate will rise to 50% of premiums payable by any eligible small-business employer and 35% of premiums paid by tax-exempt organizations.

More vital information on eligibility requirements and how to calculate credit claims is freely available on the Small Business Health Care Tax Credit for Small Employers page on the Internal Revenue Service’s website.

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Stay out of IRS Trouble by Submitting your Payroll Taxes

September 7, 2011 By

The current economic recession has had a hard toll, especially on small businesses. Their access to financing and their ability to shoulder tough business seasons are much less than that of bigger businesses. For this reason, many small businesses are being tempted and choosing to skip the remittance of payroll taxes and instead using these funds to work at surviving in the struggling economy. However noble the reasons for defaulting on payroll taxes may be, the IRS is indeed, not happy with this trend. They are now aggressively seeking such businesses and implementing tough consequences for these defaulters. According to tax experts, payroll taxes may lack the urgency of remitting as compared to other business creditors as the IRS does not proactively seek to recover the funds. However, delaying or not submitting the payroll taxes has the potential of bringing your business to a halt. From freezing a business’s account receivables to placing a lien on the wages of staff responsible for remitting the payroll taxes, the IRS can literally cause havoc to your business. It is therefore, advisable to remain in the good books of Uncle Sam.

Report by Treasury Inspector General for Tax Administration on Payroll Taxes

The extent of delayed and non remitted payroll taxes by many businesses was highlighted by a report on payroll tax compliance done by the Treasury Inspector General for Tax Administration (TIGTA) in early 2011. According to the report by this IRS watchdog organization, about $54 billion of payroll taxes are not remitted every year. This is a huge contributor to the tax gap. For this reason, the IRS has taken drastic measures to catch up with defaulters of payroll taxes.

New Approach Taken by the IRS

Following the report by TIGTA, the IRS has randomly picked some 6,600 employers and is auditing them for payroll tax compliance. The IRS states that this is a start and probably, it hopes that the audits will send a warning to any businesses that are still not complying with tax requirements. Some tax experts have seen this move by the IRS as being unfair and harsh, as it sidelines some employers to take the blame of many others who are not complying. Unfortunately, a non-compliant employer is already at fault and lacks any defense and therefore, the employers who are picked in the sample have no recourse for being selected.

Implications of Withheld and Unremitting Payroll Taxes

According to the tax code, the IRS has a right to hold the company responsible for non-remitted taxes. It also has a right to hold responsible the various individuals and entities who have control over the business accounts and who are responsible for remitting the taxes. This includes the accountants, book keepers, treasurers, and owners of the business. The IRS can even hold business creditors responsible for payroll taxes if they prevent the remittance of the taxes by taking control of the business accounts to recover their debts.

When the IRS catches up with a business that has not complied with payroll taxes, they will not only seek the payment of the due taxes, but will also levy the late payment charges that go as high as 25% of the payroll taxes due. The employer is also expected to pay any interests that would have accrued because of the delay in remittance. The amounts due can really sky rocket and can easily drive a business into economic hardship or even bankruptcy. It is therefore, best to pay your payroll taxes within the deadline and to seek compliance as soon as possible if you are already a defaulter to minimalize your IRS problems.

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State and Federal Income Tax Requirements for a Business Start-up

August 17, 2011 By

Are you planning to start a business? Well, there are several State and Federal requirements that you will need to meet in order to operate legally. These requirements depend a lot on the type of business entity you settle on for your business. These start-up requirements include both State and Federal tax registration requirements. Below is a list of some tax requirements for various business entities.

Employee Identification Number (EIN)

The Employee Identification Number (EIN) is a tax registration number that identifies employers and tax agents who withhold various taxes on behalf of the IRS. Most businesses require an EIN, especially if they have employees or if they withhold sales taxes. However, sole proprietors that do not employ may operate without an EIN. You can register for an EIN by filling out an online registration form available on the IRS website. You are also required to send an SS-4 to the IRS to accompany the registration form. You will then receive your EIN and you will use it when submitting any withheld taxes to the IRS.

State Business Registration

Various business entities will have different state registration requirements. You can get the details of these requirements by contacting your respective state business registration office or by consulting with a business attorney. In most cases, your business registration will award you a business number that you will be required to provide when filing various State and Federal taxes.

Books of Accounts

The tax authority requires various business entities to maintain various books of accounts as their primary support documentation for their taxes. It is therefore, important to ensure that you set the right books of accounts according to your business entity at the start of your business. This will enable you to be prepared for your State and Federal income tax returns. Generally, sole proprietors will not require detailed accounts but must maintain consistent schedules and records of business transactions. Partnerships, corporations, and limited liability companies will however, require proper double entry books of accounts and clearly indicate partners’ share of profits or dividend distributions to shareholders. The C-Corporation has more complicated books of accounts to keep. You may require the help of an accountant to set up the right account bookkeeping for your business. You can also purchase and install various accounting software that will assist you maintain proper bookkeeping and assist in preparing the taxes for your business.

State Tax Requirements

Various states will have different tax requirements for State taxes. If your business will be a withholding tax agent for sales taxes for example, you will need some tax registration from your State. Various business entities will also have different tax requirements. This is especially so for the business entities created and governed under the State law. These business entities include S-Corporations, C-Corporations and Limited Liability Companies. S-Corporations, for example, require the owner or owners to elect the option in which they will want to file their taxes. They can file their taxes as a sole proprietor, partnership, tax entity, or a Limited Liability Company.

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IRS Help: Valuable Small Business Taxation Tools

August 9, 2011 By

Taxes are a big deal for any small business owner. This is especially the case if you do not have enough funds to employ a full time accountant or tax specialist to manage tax issues concerning your business. However, the IRS is fully aware of this and provides sufficient tools and resources to assist small business owners to manage their taxes towards their prosperity. According to Faris Fink, the IRS Commissioner for the Small Business and Self-Employed Division, the IRS is always looking for more efficient and effective ways of educating and improving the tax experience for small businesses. Some of the tools that the IRS provides to assist small business with their taxes are provided below:

  • Training Webinar – Every now and then, the IRS provides live Webinars to provide information and answers for many of the questions raised by small business owners. To get an update on the next Webinar, you will need to go to the IRS website and go to the small business section. You can also search for “Webinar” in the search box on the IRS website to get to the Webinar section and register for a session.
  • The Small Business Tax Center – The IRS has also set aside a full section of their website to inform, educate, and provide the necessary tools to assist small businesses in their tax issues. The website – www.irs.gov/smallbiz provides all the information that a small business will need to comply with the Tax Law. Some of the tools available in the website section are provided below:
  • Virtue Small Business Workshop – One of the tools in the Small Business Tax Center website is the virtue small business workshop. The virtue workshop provides discussions on issues that affect small businesses when it comes to taxation. You can find practical answers to some of the tax issues you face as a small business owner.
  • Downloadable Tax Calendar – The downloadable calendar gives you reminders of various taxes deadline dates so as to alert you when these taxes are due. This ensures that you keep the deadlines and keeps you from paying unnecessary penalties for late submissions.
  • Common Tax Return Forms – You can also download the various forms that you need to pay taxes or make returns for your taxes. The forms also come with instructions as to the purpose of the form, who should fill the form, and how to fill it out.
  • General Information – The website also gives detailed information on tax issues including what to do if you get involved in an IRS audit, registration for an Employer Identification Number (EIN), and taxation on employees.

Available Tax Breaks for Small Businesses – The IRS also provides information as to areas that small businesses can capitalize on to take advantage of tax breaks.

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A Repealed IRS Tax Provision That Would Have Hurt Small Businesses

May 6, 2011 By

Last year, the Obama administration sponsored and backed an IRS Tax Provision to have every business in a America file a disclosure form with IRS for business conducted with people or companies exceeding $600 a year. This provision was to take effect beginning 2012. The filling of this Form 1099 was projected to raise $17 billion in about 10 years as the IRS cracked on individuals and companies who evaded taxes through various loopholes. The move was part of an extensive Obama administration drive to raise government funding for an expensive healthcare program that was voted in by Congress in 2010.

However, following the tabling of this Provision, there was extensive and blaring objection from the small business community protesting against the new Provision. Small business owners and advocates said the move would drastically increase the administrative processes and paperwork and would significantly upset their businesses. Prior to this Provision, the act had required disclosure of businesses only conducted with freelancers and consultants. However, the Provision now required for all businesses including all vendors, utility service providers, retailers, and any other business relationships. Some small businesses complained that the move would increase the number of forms filled up to 50 times the usual amount, necessitating extra and expensive resources.

Following this outcry, both Republicans and Democrats took a step back to reassess the intricacies and impact of the Provision to small businesses. Both sides of Congress agreed that the Provision was unfair and were willing to give it another look and reconsider their position. Though the Obama administration had favored and pushed for the Provision, they now retracted and publicly acknowledged that it was a mistake and that it would adversely affect operations in small businesses, which are the engine of the U.S. economy.

This softened position by both sides of Congress was followed by a repeal of the Provision sponsored by R-Gold River Rep. Dan Lungren. The repeal was voted in by a bipartisan vote of 87 against 12. The repeal was welcomed by the members of the small business community, who would have been most negatively impacted by the Provision.

However, the Obama administration is still on the lookout for more government revenues to back its expensive health reforms and at the same time, manage a growing government deficit. As they backed the repeal of the Provision, the administration said that they had found alternative ways of raising the funds otherwise expected from the IRS Tax Provision. Analysts and other tax stakeholders are eager to see what the Obama administration will do from here on out to handle these funding deficits.

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IRS Tax Help: S-Corporation Clarification

November 17, 2010 By

IRS Tax Help

A small corporation that passes profits on to the owners and are not taxed in the same manner as traditional corporations are ‘small S-corporations’. It’s no secret the IRS is not happy with the amount of earnings taken by such owners. The IRS wants them to take a reasonable salary.

The benefit of an S-corporation is supposed to be owners taking a moderate salary with Medicare and social security kept and coordinated (like all other employees). If that salary was nearer to what is paid to an employee it would allow more of the earnings under Medicare and Social Security Benefits.

It seems Congress is reacting and making the situation even worse. They added a revision to HR 4213 – American Jobs and Closing Tax Loopholes Ac 2010. It subjects all profit of certain S-corporations to Medicare and Social Security. It is the small personal service corporations with the main asset of ability and staff and owner reputation under attack by the Act. Exactly how small must an S-corporation be i.e. how many workers?

This act seems unfair as it places a bigger tax burden on small business. For example, a small personal service business is targeted but not a larger retail store making the same profit. On the other hand, a larger taxable business with more staff is not liable to the requirements of the Act. It is not known why Congress targeted the smallest of businesses that don’t have the resources to contest the Act. They have not taken into account those small business owners who take a low salary and if audited would have to claim a larger salary and increase payment to Medicare and Social Security in any event.

The words ‘principle asset is the reputation and skill of three or fewer workers’ is problematic. What if a business’s name is not good due to poor service, are they let off the tax hook? Must only well managed business’s pay tax? At exactly what stage does a business have the right reputation, service and skills to become eligible for this tax?

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Avoid an IRS Audit– Form an S Corporation

September 8, 2010 By

Advising Tax Clients to Form S Corporations to Lessen Chance of IRS Audit

It is usual for business proprietors and their consultants to give thought to which kind of business to choose because of the high possibility of being examined by the IRS. This is borne out by the audit statistics (schedule C) returns provided by the IRS. The statistics show the IRS doesn’t audit S Corporations as much.

However, there are some individuals who are saying it appears to be an infringement of Circular 230 if a tax consultant informs a taxpayer to manage within the S Corporation kind of business due to fewer audits than sole proprietorship.

This comes as a complete surprise because if you carry out a simple online search it reveals a long list of tax consultancies telling taxpayers to do just that so they can avoid an IRS audit.

If you investigate further, you will find no trace of such an IRS rule. If you carefully scrutinize Circular 230 and also the AICP Standards of Tax Services there is nothing about such an infringement. It is not going against the grain or unethical for tax consultants to tell taxpayers to incorporate so they have little chance of an IRS audit. Those who do are simply telling their clients the truth.

There are good reasons for a business owner to opt for fewer audits. An IRS audit is known to be nerve-racking, distracting and it entails the revelation of personal and sensitive data. An IRS audit takes up a great deal of time that many businesses want to avoid. These are all very reasonable considerations that show not every business that wants to avoid an IRS audit is out to hide an underhand act.

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Small Business Tax Relief Help

August 30, 2010 By

Correct Classification of Employees

Incorrect classification of workers can end in problems with the IRS.  You must understand ‘IRS audits and employee classification assessments’.   The IRS regards an incorrect classification as an attempt to deny workers their tax advantages e.g. saying an employee is an independent contractor.  In such a situation the IRS will expect the employer to reimburse the worker for any tax benefits denied.

According to TheStreet.com, US businesses underpay worker taxes by more than $14 billion annually.  There are those purposefully doing this to skip out on giving 401K plans and health insurance to workers.  Others simply don’t know how to correctly classify their employees.  Only accuracy can avoid tax troubles and audits.  If the right tax forms containing accurate information are not filed in time the IRS assessment is regarded as the right one. There are a number of actions you can take as a safety measure.  It does help to plan your taxes in advance and to make use of existing IRS electronic payment schemes.
A small company without a tax expert is vulnerable. In one instance, a company failed to recognize mistakes in IRS employment tax appraisals. They filed 1099 Form (payments to employees) when the IRS appraised the taxes.  The IRS appraisal was incorrect however, because the company’s forms were filed after the appraisal, not before, the company was not allowed to use section 503 as a safety mechanism at a federal district court.  This was due to not filing the right forms in time.

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Avoid Common 941 Payroll Tax Mistakes

August 23, 2010 By

941 Tax Mistakes

Many new employers find payroll reporting confusing. Currently the 941 Payroll Tax Form must be filled in the 2nd quarter of 2010. The new Hiring Incentives to Restore Employment Act (or HIRE) adds further confusion. According to this Act, all employers who hired new staff members later than February 3, 2010, who were out of work for the last sixty days or who worked under forty hours, get a tax break for each employee. It is usual for an employer to pay what the employee pays towards the withholding of Medicare and Social Security. Due to the Hiring Incentives to Restore Employment Act, an employer is exempt from paying the Social Security share for those fresh employees.

A BNA article claims 941 difficulties are being noticed by the IRS. The 941 forgiveness modification is presently made after working out the complete amount of Medicare and Social Security. Employers are placing the forgiveness modification on the incorrect row. EIN and math errors are occurring, and the IRS must attempt to make corrections but, if the corrections cannot be made, employer will be asked to supply further information. If the employer fails to provide the information requested, the 941 will be processed with no forgiveness adjustment.

The IRS intends to audit the HIRE stipulation. It is likely they will request proof in the form of an affidavit that an employee meets the necessary work standards and was not fired so the employer could gain. The IRS will check so employers don’t receive payroll forgiveness and Work Opportunity Tax Credit (or WOTC) in respect of the same worker. WOTC gives recompense if eligible fresh employees work for 52 weeks. The maximum amount awarded is the lesser of $1000 per employer or 6.2 percent of the 52 week salary– an employer may not have both. An employer may alter a 941 to the latest 941X if he/she sees there is more credit from WOTC than payroll forgiveness.

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Tax Relief: Does Closed for Business Mean Closed to IRS Collection?

June 2, 2010 By

The Internal Revenue Service does not overlook taxes owed by a business/ home business that closed its door. Even if the business has not been operating for several years it will not be free from the expectations of the Internal Revenue Service. You can be sure the Internal Revenue Service will make every effort to collect employment taxes and officers of that business will be held responsible. However, if the business closed down in a proper manner by following the correct tax procedures and none of its assets got transferred to third parties in order to continue operating in a fraudulent fashion it will be regarded as not collectible. In such an instance any Internal Revenue Service tax notices are being automatically produced by a computerized procedure.

A business that is regarded as truly not collectible will not have the attention of the Internal Revenue Service. The Internal Revenue Service can pursue any of those who made the decisions not to pay employment taxes to the Internal Revenue Service. They would be under the impression that officers of the business are liable to a lesser or greater degree. A penalty for trust fund recovery would have been evaluated by the Internal Revenue Service against officers responsible for the employment taxes withheld from workers’ salaries.

A business that is correctly closed and is not collectible will not be pursued by the Internal Revenue Service. As there are no assets, they will go after officers, owners and managers due to their personal liability. This is known as ‘joint’ and ‘several liability’. If the collection of one hundred percent by the Internal Revenue Service is from another person you no longer have a obligation to pay. The collection can be carried out in any way the Internal Revenue Service decides is best but may not be more than one hundred percent of what is owed.

According to the IRS Taxpayer Advocate 2002 to 2007, trust fund assessments amounting to 13.5% was carried out against owners, officers and managers. The Internal Revenue Service is not excessive in their pursuance of closed businesses.

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