Category: SMALL BUSINESSES

January 30th, 2020 by Oscar

Some businesses and other payers take out backup withholding from payments they make to certain people. These entities should remember their upcoming filing deadlines.

Description of backup withholding
The person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. They don’t do this because it’s assumed the taxpayer will report and pay taxes on this income when they file their federal tax return. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is what’s known as backup withholding. If a payer does backup withholding, they are required to deposit that withholding on those payments with the IRS.

Form 945, Annual Return of Withheld Federal Income Tax
Businesses and other payers must report backup withholding and any other federal income tax withheld from nonpayroll payments on Form 945. The deadline for filing Form 945 for tax year 2019 is Friday, January 31, 2020. However, if the payer made deposits on time and in full, the deadline is Monday, February 10, 2020.  

Information Returns
The information returns listed below are used to report backup withholding for tax year 2019. They’re generally due to the IRS on Friday, February 28, 2020, for paper filers and Tuesday, March 31, 2020, for electronic filers. 

These information returns are 
Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.
Form 1099-DIV, Dividends and Distributions
Form 1099-G, Certain Government Payment
Form 1099-INT, Interest Income
Form 1099-K, Payment Card and Third-Party Network Transactions
Form 1099-MISC, Miscellaneous Income
Form 1099-OID, Original Issue Discount
Form 1099-PATR, Taxable Distributions Received from Cooperatives
Form W-2G, Certain Gambling Winnings

1099-MISC and nonemployee compensation
There’s a different filing due date for Form 1099-MISC when reporting nonemployee compensation. When this form is used to report this in box 7 of the 1099-MISC, it’s due to the IRS by January 31. This due date applies whether the payer is submitting the form on paper or electronically.

Because of this, it’s important for people to remember a Form 1099-MISC has two possible due dates when filed electronically:

Friday, January 31 to report nonemployee compensation payments
Tuesday, March 31 to report all other payments

When filing 1099-MISC, the payer should separate the transmission of nonemployee compensation from other payments.

Information return filing extensions
A payer can request a 30-day extension to file any of the information returns listed above by filing Form 8809, Application for Extension of Time to File Information Returns. An extension is usually granted automatically.

However, the IRS does not automatically grant an extension for someone filing Form 1099-MISC reporting nonemployee compensation payments. Payers who need a 30-day extension to file this form must meet one of the criteria listed on line 7 of Form 8809.

Posted in INDIVIDUALS, NEWS, SMALL BUSINESSES

December 26th, 2019 by Oscar

Small business owners should review the rules for filing two commonly-used employment tax returns. The two forms are: Form 944 Employer’s Annual Federal Tax Return and Form 941 Employer’s Quarterly Federal Tax Return

Small business owners should remember these two forms are not interchangeable. A small business files one or the other. The employer should never flip-flop between the two forms on their own, and should always file in accordance with their designated filing requirement.

Here are some more details about these two forms. This will help business owners understand the differences between them:

Form 944, Employer’s Annual Federal Tax Return

  1. This form is for our smallest employers to file and pay the abovementioned taxes only once a year, instead of quarterly. 
  2. While this form is intended for employers who owe $1,000 or less, employers can’t file Form 944 unless they receive official IRS notification that they are eligible to do so.
  3. Once the employer receives notice they can file Form 944, they must file this form every year. They must continue to file Form 944, regardless of the tax they owe, unless the IRS notifies them differently.

Form 941, Employer’s Quarterly Federal Tax Return

  1. Employers use Form 941 to report income taxes withheld from employee’s paychecks and to pay the employer’s portion of Social Security or Medicare tax.
  2. If the IRS advises the employer to file Form 941 quarterly return, they must do so.

Posted in SMALL BUSINESSES

December 12th, 2019 by Oscar

The Internal Revenue Service remind employers and other businesses that wage statements and independent contractor forms still have a Jan. 31 filing deadline.

Before the Protecting Americans from Tax Hikes (PATH) Act, employers generally had a longer period of time to file these forms. But the 2015 law made a permanent requirement for employers to file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31.

Certain Forms 1099-MISC, Miscellaneous Income, filed with the IRS to report non-employee compensation to independent contractors are also due at this time. Such payments are reported in box 7 of this form.

The early filing date means that the IRS can more easily detect refund fraud by verifying income that individuals report on their tax returns. Employers can avoid penalties by filing the forms on time and without errors. The IRS recommends e-file as the quickest, most accurate and convenient way to file these forms.

Get a jump on the due date

Employers should verify employees’ information. This includes names, addresses, and Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January.  If paper Forms W-2 are needed, they should be ordered early.

Automatic extensions of time to file Forms W-2 are not available. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809, Application for Time to File Information Returns.

Posted in SMALL BUSINESSES

December 5th, 2019 by Oscar

A small business owner often wears many different hats. They might have to wear their boss hat one day, and the employee hat the next. When tax season comes around, it might be their tax hat.

They may think of doing their taxes as just another item to quickly cross off their to-do list. However, this approach could leave taxpayers open to mistakes when filing and paying taxes.

Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave taxpayers and their businesses open to possible penalties. Using professional guidance is the easiest ways to avoid these kinds of errors.

Being aware of common mistakes can also help tame the stress of tax time. Here are a few mistakes small business owners should avoid:

Underpaying estimated taxes
Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

Depositing employment taxes
Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers.  If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

Filing late
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

Not separating business and personal expenses
It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.       

Posted in SMALL BUSINESSES

November 21st, 2019 by Oscar

With health care open season now under way at many workplaces, the Internal Revenue Service today reminded workers they may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans.

Eligible employees of companies that offer a health flexible spending arrangement (FSA) need to act before their medical plan year begins to take
advantage of an FSA during 2020. Self-employed individuals are not eligible.

An employee who chooses to participate can contribute up to $2,750 through payroll deductions during the 2020 plan year. Amounts contributed
are not subject to federal income tax, Social Security tax or Medicare tax.
If the plan allows, the employer may also contribute to an employee’s FSA.

Throughout the year, employees can use FSA funds for qualified medical expenses not covered by their health plan. These can include co-pays, deductibles and a variety of medical products. Also covered are services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Under the FSA use-or-lose provision, participating employees normally must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. However, employers can, if they choose to, offer an option for participating employees to have more time to use FSA money.

  1. Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year. For example, an employee with unspent funds at the end of 2019 would still have those funds available to use in 2020.
  2. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses. For example, March 15, 2020, for a plan year ending on Dec. 31, 2019.
  3. Employers can offer either option (not both) or no option.

Employers are not required to offer FSAs. Interested employees should check with their employer to see if they offer an FSA.

Posted in INDIVIDUALS, SMALL BUSINESSES

October 31st, 2019 by Oscar

Una de las ventajas de alguien que maneja su propio negocio es la contratación de miembros de la familia. Pero cuando se incluyen a miembros de la familia en las operaciones comerciales, se aplican ciertos tratamientos tributarios y reglas de impuestos laborales. Aquí hay algunos datos que debe saber cuando trabaja con un cónyuge, padre o hijo.

Ambos cónyuges que llevan a cabo el comercio o el negocio

Si los cónyuges llevan a cabo un negocio juntos y comparten las ganancias y pérdidas, pueden ser socios, esto aplica sin o con un acuerdo formal de sociedad colectiva. Si es así, deben reportar ingreso o pérdida del negocio en el Formulario 1065. No deben reportar los ingresos en un Anexo C (Formulario 1040) a nombre de un cónyuge como propietario único. Sin embargo, los cónyuges pueden optar por tratar el negocio en participación como una sociedad colectiva al hacer una elección para negocio en participación calificada.

Negocio en participación calificada

Los cónyuges pueden elegir el tratamiento como un negocio en participación calificada en lugar de una sociedad colectiva. Un negocio en participación calificada lleva a cabo un comercio o negocio donde:

  1. Los únicos miembros son una pareja casada que presenta una declaración conjunta,
  2. Ambos cónyuges participan materialmente en el comercio o negocio, y
  3. Ambos cónyuges eligen no ser tratados como una sociedad colectiva.

Solo las empresas propiedad y operadas por cónyuges como copropietarios y no en nombre de una entidad de derecho estatal, como una sociedad colectiva limitada o una compañía de responsabilidad limitada, son elegibles para la elección de negocio en participación calificada.

Los cónyuges que eligen el estado de negocio en participación calificada son propietarios únicos para fines de impuestos federales. No se necesita un EIN a menos que el propietario único deba presentar declaraciones de impuestos del uso o consumo, nómina, alcohol, tabaco o armas de fuego. Un cónyuge no puede continuar usando el EIN de una sociedad colectiva para el negocio en participación calificada. El EIN debe permanecer con la sociedad colectiva; es usada por la sociedad colectiva para cualquier año en el que la empresa no cumple con los requisitos de un negocio en participación calificada.

Impuestos sobre nómina

Si el negocio tiene empleados, cualquiera de los cónyuges como propietarios únicos puede reportar y pagar los impuestos sobre nómina. Usan el EIN de la propiedad única de ese cónyuge. Si el negocio presentó o pagó impuestos sobre la nómina durante parte del año bajo el EIN de la sociedad colectiva, el cónyuge puede considerarse el “empleador sucesor” del empleado para determinar si los salarios alcanzaron los límites de base salarial de Seguro Social y de desempleo federal.

Un cónyuge empleado por otro. Los salarios de los servicios de una persona que trabaja para su cónyuge están sujetos a retención del impuesto sobre el ingreso e impuestos del Seguro Social y Medicare, pero no a la Ley Federal de Contribución para el Desempleo (FUTA, por sus siglas en inglés).

Niño empleado por padres. Los pagos por los servicios de un niño menor de 18 años no están sujetos a los impuestos del Seguro Social y Medicare, si el negocio es una propiedad única o una sociedad colectiva en la que cada socio es padre del niño. Los pagos a un niño menor de 21 años no están sujetos a FUTA. Los pagos están sujetos a retención del impuesto sobre el ingreso, independientemente de la edad del niño.

Pagos por los servicios de un niño están sujetos a retención de impuestos sobre el ingreso, así como impuestos del Seguro Social, Medicare y FUTA si trabajan para:

  1. Una sociedad anónima, incluso si está controlada por el padre del niño, o
  2. Una sociedad colectiva, incluso si el padre del niño es un socio, a menos que cada socio sea padre del niño.

Padre empleado por su hijo. Los salarios de los servicios de un padre empleado por su hijo están sujetos a retención del impuesto sobre el ingreso y a los impuestos del Seguro Social y Medicare. No están sujetos a impuestos FUTA.

Los empleados completan el Formulario W-4 para que su empleador pueda retener el impuesto sobre el ingreso federal correcto de su salario. El IRS alienta a todos a usar el Estimador de Retención de Impuestos para ayudarlos a asegurarse de que se les retiene la cantidad correcta de impuestos de su cheque de pago. El estimador se enlaza automáticamente al Formulario W-4, Certificado de Retención de Empleado, que luego pueden llenar y enviar a su empleador.

Posted in INDIVIDUALS, SMALL BUSINESSES

August 29th, 2019 by Oscar

Starting a business can be very rewarding. It can also be a little overwhelming. From business plans to market strategies, and even tax responsibilities…there are many things to consider. Here’s what new business owners can do to help get off to a good start.

  • Choose a business structure. The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:
    • Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
    • Partnership: An unincorporated business with ownership shared between two or more people.
    • Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
    • S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.
    • Limited Liability Company: A business structure allowed by state statute.
  • Choose a tax year. A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:
    • Calendar year: 12 consecutive months beginning January 1 and ending December 31.
    • Fiscal year: 12 consecutive months ending on the last day of any month except December.
  • Apply for an employer identification number. An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need an EIN.
  • Have all employees complete these forms:
    • Form I-9, Employment Eligibility Verification
    • Form W-4, Employee’s Withholding Allowance Certificate
  • Pay business taxes. The form of business determines what taxes must be paid and how to pay them.

Each state has additional requirements for starting and operating a business. Prospective business owners should visit their state’s website for info about state requirements.

Posted in INDIVIDUALS, SMALL BUSINESSES

August 16th, 2019 by Oscar

Small business owners, self-employed people, and some wage earners should look into whether they should make estimated tax payments this year. Doing so can help them avoid an unexpected tax bill and possibly a penalty when they file next year.

Everyone must pay tax as they earn income. Taxpayers who earn a paycheck usually have their employer withhold tax from their checks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.

Here’s some information about estimated tax payments:

  • Taxpayers generally must make estimated tax payments if they expect to owe $1,000 or more when they file their 2019 tax return.
  • Whether or not they expect to owe next year, taxpayers may have to pay estimated tax for 2019 if their tax was more than zero in 2018.
  • Wage earners who also have business income can often avoid having to pay estimated tax. They can do so by asking their employer to withhold more tax from their paychecks.
  • Aside from business owners and self-employed individuals, people who need to make estimated payments also includes sole proprietors, partners and S corporation shareholders. It also often includes people involved in the sharing economy.
  • Estimated tax requirements are different for farmers and fishermen.
  • Corporations generally must make these payments if they expect to owe $500 or more on their 2019 tax return.
  • Aside from income tax, taxpayers can pay other taxes through estimated tax payments. This includes self-employment tax and the alternative minimum tax.
  • The final two deadlines for paying 2019 estimated payments are Sept. 16, 2019 and Jan. 15, 2020.
  • Taxpayers can check out these forms for details on how to figure their payments:
    • Form 1040-ES, Estimated Tax for Individuals.
    • Form 1120-W, Estimated Tax for Corporations.
  • Taxpayers can visit IRS.gov to find options for paying estimated taxes. These include:
    • Direct Pay from a bank account.
    • Paying by credit or debit card or the Electronic Federal Tax Payment System.
    • Mailing a check or money order to the IRS.
    • Paying cash at a retail partner.
  • Anyone who pays too little tax through withholding, estimated tax payments, or a combination of the two may owe a penalty. In some cases, the penalty may apply if their estimated tax payments are late. The penalty may apply even if the taxpayer is due a refund.
  • For tax year 2019, the penalty generally applies to anyone who pays less than 90 percent of the tax reported on their 2019 tax return.

Posted in INDIVIDUALS, SMALL BUSINESSES

July 25th, 2019 by Oscar

Tax planning should happen all year long, not just when someone is filing their tax return.  An important part of tax planning is record-keeping. Well-organized records make it easier for a taxpayer to prepare their tax return. It can also help provide answers if a taxpayer’s return is selected for examination or if the taxpayer receives an IRS notice.

Here are some suggestions to help taxpayers keep good records:

  • Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic record-keeping. They could also store paper documents in labeled folders.
  • Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier.
  • It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  • Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.
  • Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
  • In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.
  • For business taxpayers, there’s no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

The IRS has several online tools taxpayers can use to stay updated on important tax information that may help with tax planning.

Posted in INDIVIDUALS, SMALL BUSINESSES

June 20th, 2019 by Oscar

Taxpayers who receive certain types of income may need to have backup withholding taken from these payments. Backup withholding can apply to most payments reported on Forms 1099 and W-2G.

Here are some facts to help taxpayers understand backup withholding and determine if they should have it withheld from their income payments.

First, here’s what backup withholding is
The person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. They don’t do this because it’s assumed the taxpayer will report and pay taxes on this income when they file their federal tax return. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is what’s known as backup withholding.

Backup withholding is set at a specific percentage
The current percentage is 24 percent for US residents and 30 percent for non residents.

Here are some payments subject to backup withholding

  • Interest payments
  • Dividends
  • Payment card and third-party network transactions
  • Patronage dividends, but only if at least half the payment is in money
  • Rents, profits, or other gains
  • Commissions, fees, or other payments for work done as an independent contractor
  • Payments by brokers
  • Barter exchanges
  • Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch
  • Royalty payments
  • Gambling winnings

Here are some situations when the payer must take out backup withholding

  • If a taxpayer identification number is missing. A taxpayer identification number specifically identifies the taxpayer. This includes number like a Social Security number and an individual taxpayer identification number.
  • If the name provided does not match the name registered with the IRS for a specific TIN, taxpayers should make sure that the payer has their correct TIN.

Posted in INDIVIDUALS, SMALL BUSINESSES