It's true.
If Congress and the President do nothing, everyone's personal tax rates will go up on January 1, 2011. There's quite a debate in Congress about this right now, with the usual bickering and name-calling that we pay our beloved politicians to engage in.
This is because the so-called "Bush Tax Cuts" are going to expire on 12/31/10 and unless Washington passes a law to extend the current tax rates, they will revert to the higher rates in existence prior to the rates passed when Bush was in office.
What do you think Washington should do?
Let the world know by posting comments below.
And if you want to learn more about this situation, here are some fascinating articles that go into more detail . . .
From the Wall Street Journal . . .
There's a Tax War in Congress and what you should do now . . .
http://online.wsj.com/article/SB10001424052748704644404575481903960961386.html?mod=WSJ_Taxes_Taxes_2
Here's a Republican view . . .
http://politics.usnews.com/opinion/articles/2010/09/13/chuck-grassley-tax-increases-would-cause-more-unemployment.html
And here's what a Democrat has to say. . .
http://politics.usnews.com/opinion/articles/2010/09/13/sander-levin-dont-extend-bush-tax-cuts-for-the-rich.html
And even Oprah has something to say about taxes this week . . .
http://www.tmz.com/2010/09/17/oprah-winfrey-australia-giveaway-audience-gift-all-expenses-paid-no-catch-no-taxes-no-strings-attached/
Thursday, September 30, 2010
Tuesday, September 14, 2010
What Happens If You File a Business Income Tax Return After Sept 15?
The due date for business income tax returns on extension is September 15. If that date has passed and you still haven't filed a return for your corporation, partnership or LLC that is being taxed as a corporation or partnership, what are the consequences?
The short answer is this: You will probably pay for your tardiness.
The long answer is twofold:
Scenario 1 - Balance due returns.
If the business has a balance due on the return that hasn't been paid yet, the late payment penalty and interest charge clock has been ticking since the original due date of the return (March 15 for corporations and April 15 for partnerships).
For corporations and LLC's being taxed as a corporation, the tax had to be paid by March 15 to avoid these charges. For partnerships and LLC's being taxed as a partnership, the tax had to be paid by April 15 to avoid these charges.
In addition to late payment penalty and interest, you can also be charged a late filing penalty if you did not file an extension and then file the return after the original due date, or if you did file an extension but then file after the extended due date of September 15. (More on that below.)
Scenario 2 - Zero balance due returns.
Typically, only regular corporations have tax liability on their corporate income tax returns (Form 1120). S Corporations (Form 1120S) and partnerships (Form 1065) usually have no income tax liability on their income tax returns because the profit "passes through" to the owners' personal income tax return and the tax gets paid there.
So if there's no tax, aren't S Corps and partnerships off the hook if they file a return late? Unfortunately, no.
There is a penalty for not filing a return on time. As mentioned above, there is a late filing penalty even when there is no tax due. The penalty is $89 for each month or part of a month the return is late (up to 12 months), multiplied by the number of shareholders/partners/members in the business during any part of the year for this return. Ouch!
Example: you have an S Corp or partnership or LLC that has 3 owners. You filed the extension and so now the return is due September 15. But you've all been busy and the return didn't get filed by September 15. Automatically, even if you file on September 16, you've already incurred a late filing penalty of $267 ($89 times 3).
And for every month that passes without the return being filed, you are penalized another $267. Another ouch!
Well, do I have your attention now? I hope so. If you haven't filed the return yet, do yourself a favor and save yourself hundreds of dollars and get the return done ASAP.
Is there any way to avoid paying these late payment penalties, interest charges, and late filing penalties? Yes. If the late payment or late filing is due to "reasonable cause", you can attach a reasonable cause statement to the return and request the IRS to waive the penalties and interest.
What is "reasonable cause"? There are several situations that usually qualify, such as death in the family, serious illness, theft, and natural disasters.
The short answer is this: You will probably pay for your tardiness.
The long answer is twofold:
Scenario 1 - Balance due returns.
If the business has a balance due on the return that hasn't been paid yet, the late payment penalty and interest charge clock has been ticking since the original due date of the return (March 15 for corporations and April 15 for partnerships).
For corporations and LLC's being taxed as a corporation, the tax had to be paid by March 15 to avoid these charges. For partnerships and LLC's being taxed as a partnership, the tax had to be paid by April 15 to avoid these charges.
In addition to late payment penalty and interest, you can also be charged a late filing penalty if you did not file an extension and then file the return after the original due date, or if you did file an extension but then file after the extended due date of September 15. (More on that below.)
Scenario 2 - Zero balance due returns.
Typically, only regular corporations have tax liability on their corporate income tax returns (Form 1120). S Corporations (Form 1120S) and partnerships (Form 1065) usually have no income tax liability on their income tax returns because the profit "passes through" to the owners' personal income tax return and the tax gets paid there.
So if there's no tax, aren't S Corps and partnerships off the hook if they file a return late? Unfortunately, no.
There is a penalty for not filing a return on time. As mentioned above, there is a late filing penalty even when there is no tax due. The penalty is $89 for each month or part of a month the return is late (up to 12 months), multiplied by the number of shareholders/partners/members in the business during any part of the year for this return. Ouch!
Example: you have an S Corp or partnership or LLC that has 3 owners. You filed the extension and so now the return is due September 15. But you've all been busy and the return didn't get filed by September 15. Automatically, even if you file on September 16, you've already incurred a late filing penalty of $267 ($89 times 3).
And for every month that passes without the return being filed, you are penalized another $267. Another ouch!
Well, do I have your attention now? I hope so. If you haven't filed the return yet, do yourself a favor and save yourself hundreds of dollars and get the return done ASAP.
Is there any way to avoid paying these late payment penalties, interest charges, and late filing penalties? Yes. If the late payment or late filing is due to "reasonable cause", you can attach a reasonable cause statement to the return and request the IRS to waive the penalties and interest.
What is "reasonable cause"? There are several situations that usually qualify, such as death in the family, serious illness, theft, and natural disasters.
Friday, September 3, 2010
7 Things Every Business Owner Should Know to Avoid Running Afoul of the IRS
One of the most controversial grey areas of tax law is the "independent contractor vs employee" issue.
Most small businesses hire workers to perform services, i.e. outsourcing.
Is the person you hire an employee or an independent contractor?
Does it really matter? You better believe it does!
The answer to that question is critical. And if you don't answer it correctly, you can end up in big trouble.
If you treat someone as a contractor and that person is really an employee, the IRS can re-classify that person as an employee and you'll be responsible to pay the taxes that should have been withheld from his/her paychecks, plus the employer's payroll taxes, plus penalties and interest for late payment.
Ouch!
So it's in your best interest to get this right.
Here are some tips to help you make the correct classification, courtesy of the IRS:
7 Things Every Business Owner Should Know
About Independent Contractors vs. Employees
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work isdone through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
- Type of Relationship relates to how the workers and the business owner perceive their relationship.
2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
(As I said before.....OUCH!)
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.
Additional resources include:
-- IRS Publication 15-A - Employer's Supplemental Tax Guide
-- IRS Publication 1779 - Independent Contractor or Employee
-- IRS Publication 1976 - Do You Qualify for Relief under Section 530?
These publications and Form SS-8 are available on the IRS website (www.IRS.gov) or by calling the IRS at 800-829-3676.
Many Happy Returns,
Wayne
Most small businesses hire workers to perform services, i.e. outsourcing.
Is the person you hire an employee or an independent contractor?
Does it really matter? You better believe it does!
The answer to that question is critical. And if you don't answer it correctly, you can end up in big trouble.
If you treat someone as a contractor and that person is really an employee, the IRS can re-classify that person as an employee and you'll be responsible to pay the taxes that should have been withheld from his/her paychecks, plus the employer's payroll taxes, plus penalties and interest for late payment.
Ouch!
So it's in your best interest to get this right.
Here are some tips to help you make the correct classification, courtesy of the IRS:
7 Things Every Business Owner Should Know
About Independent Contractors vs. Employees
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work isdone through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
- Type of Relationship relates to how the workers and the business owner perceive their relationship.
2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
(As I said before.....OUCH!)
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.
Additional resources include:
-- IRS Publication 15-A - Employer's Supplemental Tax Guide
-- IRS Publication 1779 - Independent Contractor or Employee
-- IRS Publication 1976 - Do You Qualify for Relief under Section 530?
These publications and Form SS-8 are available on the IRS website (www.IRS.gov) or by calling the IRS at 800-829-3676.
Many Happy Returns,
Wayne
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