Category: SMALL BUSINESSES
Now is a good time for people to begin thinking about next year’s tax return. While it may seem early to be preparing for 2021, reviewing your recordkeeping now will pay off when it comes time to file again.
Here are some suggestions to help taxpayers keep good records.
Taxpayers should develop a system that keeps all their essential information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Throughout the year, they should add tax records to their files as they receive them. This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Having records handy makes preparing a tax return next year easier.
- Taxpayers should notify the IRS if their address changes. Taxpayers should let the IRS know if they change their address. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
- Review their tax return to make sure they didn’t overlook any credits or deductions. Double check credits and deductions. Records that taxpayers should keep include receipts, canceled checks and other documents that support income, including any unemployment compensation.
- Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for figuring gains or losses.
- Taxpayers should keep records for three years from the date they filed the return. 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.
Posted in INDIVIDUALS, SMALL BUSINESSES
Taxpayers have a variety of options to consider when paying federal taxes. This year, in response to the COVID-19 pandemic, the filing deadline and tax payment due date was postponed from April 15 to July 15, 2020.
The IRS reminds taxpayers filing Form 1040 series returns that they must file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by July 15 to obtain the automatic extension to Oct. 15. The extension provides additional time to file the tax return – it is not an extension to pay any taxes due.
Those who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020.One for their 2019 income tax liability and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment.
Automatic extension of time to file
Taxpayers who need more time to prepare and file their federal tax return can apply for an extension of time to file until Oct. 15. To get an extension, taxpayers must estimate their tax liability on the extension form and pay any amount due.
- Individuals – Taxpayers can use Direct Pay for two payments each day. Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. They will receive an email confirmation of their payments.
- Businesses – For businesses or those making large payments, the best payment option is the Electronic Federal Tax Payment System, which allows up to five payments per day. Enrollment is required. Taxpayers can schedule payments up to 365 days in advance and opt in to receive email notifications about their payments.
Additional electronic payment options:
- Taxpayers can pay when they file electronically using tax software online. If using a tax preparer, ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
- Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. Processing fees apply. No part of the card service fee goes to the IRS.
- The IRS2Go app provides mobile-friendly payment options, including Direct Pay and Payment Provider payments on mobile devices
Paying by check, money order or cashier’s check:
- 2019 Tax Liability – If paying a 2019 income tax liability without an accompanying 2019 tax return, taxpayers paying by check, money order or cashier’s check should include Form 1040-V, Payment Voucher with the payment. Mail the payment to the correct address by state or by form. Do not send cash through the mail. Indicate on the check memo line that this is a 2019 income tax payment.
- For those paying when filing their 2019 income tax return, do not staple or paperclip the payment to the return. For more information, go to Pay by Check or Money Order on IRS.gov.
- 2020 Estimated Tax Payments – Taxpayers making their 2020 estimated tax payment by check, money order or cashier’s check should include the appropriate Form 1040 ES payment voucher. Indicate on the check memo line that this is a 2020 estimated tax payment.
Paying by cash:
- Individuals and businesses, preferring to pay in cash, can do so at a participating retail store. Select the cash option in the “Other Ways You Can Pay” section and follow the instructions. There is a $1,000 payment limit per day and a $3.99 fee per payment.
Payment options for those who cannot pay in full:
For taxpayers who cannot pay in full, the IRS encourages them to pay what they can and consider a variety of payment options available for the remaining balance. Act as quickly as possible. Tax bills accumulate more interest and fees the longer they remain unpaid.
Most taxpayers have the following payment options:
- Online Payment Agreement — These are available for individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in combined payroll tax, penalties and interest and have filed all tax returns. Most taxpayers qualify for this option, and an Online Payment Agreement can usually be set up in a matter of minutes on IRS.gov/OPA. Online Payment Agreements are available Monday – Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time. Certain fees may apply.
- Installment Agreement — Taxpayers who do not qualify to use the online payment agreement option, or choose not to use it, can also apply for a payment plan by phone, or by mail by submitting Form 9465, Installment Agreement Request. Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Certain fees may apply.
- Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Penalties and interest continue to accrue until the full amount is paid.
- Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.
Though interest and late-payment penalties continue to accrue on any unpaid taxes after July 15, the failure to pay tax penalty rate is cut in half while an installment agreement is in effect. The usual penalty rate of 0.5% per month is reduced to 0.25%. For the calendar quarter beginning July 1, 2020, the interest rate for underpayment is 3%.
In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.
Posted in INDIVIDUALS, SMALL BUSINESSES
As part of its response to COVID-19, the IRS has postponed several tax deadlines until Wednesday, July 15, 2020. These postponements generally apply to all taxpayers with a filing or payment deadline between April 1 and July 15, 2020.
This relief includes individual and corporate quarterly estimated tax payments. Any taxpayer making payments received by July 15, 2020 will not be charged late-filing, late-payment or interest fees.
What taxpayers need to know
- The due date for filing estimated tax forms and paying estimated taxes has been automatically postponed to July 15, 2020.
- Taxpayers who still owe 2019 income tax, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020: One for their 2019 income tax owed and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment. The IRS offers several convenient ways to make electronic tax payments.
- Taxpayers do not need contact the IRS or file any forms to receive this relief.
- This relief applies to individuals, trusts, estates, corporations and other non-corporate tax filers.
Taxpayers needing more time to file their return should request an extension by July 15, 2020. A taxpayer’s requests for an extension to file gives them until October 15, 2020 to file. Exceptions may apply for military personnel serving overseas.
For example, a Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns, would normally provide an additional six-month extension until October 15, 2020. However, this year, a Form 7004 filed by July 15, 2020, will extend the time to file by three months, not six. The extended filing deadline is still October 15, 2020.
The tax filing deadline has been postponed to Wednesday, July 15, 2020. The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mailed a tax return will experience a longer wait. There is no need to mail a second tax return or call the IRS.
Posted in INDIVIDUALS, SMALL BUSINESSES
Para la mayoría de los contribuyentes, la fecha límite de presentación y pago se pospuso para el 15 de julio. Aquellos que necesitan más tiempo para presentar más allá de esta fecha, pueden solicitar una prórroga de tiempo para presentar. Los contribuyentes deben solicitar una prórroga para presentar antes del 15 de julio. Esto les da hasta el 15 de octubre para presentar su declaración de impuestos. Una prórroga de tiempo para presentar no es una prórroga de tiempo para pagar. Los impuestos deben pagarse no más tardar del 15 de julio.
Cómo solicitar una prórroga de tiempo para presentar
Para obtener una prórroga para presentar, los contribuyentes deben hacer una de las siguientes acciones:
- Presentar el Formulario 4868 a través de su profesional de impuestos, software de impuestos o el uso de Free File en IRS.gov.
- Enviar un pago electrónico con Pago Directo, el Sistema de Pago Electrónico de Impuestos Federales (EFTPS) o con tarjeta de débito o crédito o su dispositivo móvil y seleccionar el Formulario 4868 o prórroga como tipo de pago.
Una prórroga automática de tiempo para presentar se procesará cuando los contribuyentes paguen la totalidad o parte de sus impuestos electrónicamente antes de la fecha de vencimiento del miércoles, 15 de julio.
Aunque la fecha límite de presentación de impuestos se pospuso al 15 de julio de 2020, el IRS continúa procesando declaraciones de impuestos electrónicas, emitiendo reembolsos de depósitos directos y aceptando pagos electrónicos.
La agencia está de vuelta procesando declaraciones de impuestos en papel enviadas por correo. Sin embargo, los contribuyentes que enviaron por correo una declaración de impuestos en papel probablemente experimentarán un tiempo de espera más largo. Aquellos que ya enviaron una declaración de impuestos en papel que aún no se ha procesado, no deben presentar una segunda declaración de impuestos o escribir al IRS para verificar el estado de su declaración de impuestos o pago de impacto económico.
Posted in INDIVIDUALS, SMALL BUSINESSES
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.
SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
The following entities affected by Coronavirus (COVID-19) may be eligible:
- Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees, or that meets the SBA industry size standard if more than 500
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
This loan has a maturity of 2 years and an interest rate of 1%.
The Paycheck Protection Program will be available through June 30, 2020.
Posted in NONPROFIT ORGANIZATIONS, SMALL BUSINESSES
The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
Taxpayers can also defer federal income tax payments due on April 15, 2020,
to July 15, 2020, without penalties and interest, regardless of the amount
owed. This deferment applies to all taxpayers, including individuals, trusts
and estates, corporations and other non-corporate tax filers as well as those
who pay self-employment tax.
Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004.
The IRS urges taxpayers who are due a refund to file as soon as possible.
Most tax refunds are still being issued within 21 days.
This announcement comes following the President’s emergency declaration last week pursuant to the Stafford Act. The Stafford Act is a federal law designed to bring an orderly and systematic means of federal natural disaster and emergency assistance for state and local governments in carrying out their responsibilities to aid citizens. It was enacted in 1988.
Treasury and IRS will issue additional guidance as needed and continue
working with Congress, on a bipartisan basis, on legislation to provide further
relief to the American people.
Posted in INDIVIDUALS, SMALL BUSINESSES
Some businesses and other payers take out backup withholding from payments
they make to certain people. These entities should remember their upcoming
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.
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
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
- This form is for our smallest employers to file and pay the abovementioned taxes only once a year, instead of quarterly.
- 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.
- 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
- 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.
- If the IRS advises the employer to file Form 941 quarterly return, they must do so.
Posted in SMALL BUSINESSES
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
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.
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
Posted in SMALL BUSINESSES