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Posts Tagged ‘small business taxes’


Does This New IRS Form Affect Your Small Business?

January 31st, 2012 ::

By Maria Valdez Haubrich

Will your business be affected by the new 1099-K form the IRS is rolling out this year? Business Finance reports that businesses accepting payments by credit card, debit card, gift card or online payment options such as PayPal, you could be getting 1099-K forms in the mail.

The form or forms will be sent to you payment settlement entities such as banks if gross payments to your business by that entity in 2011 totaled 1) more than $20,000 and 2) more than 200 transactions. Payment settlement entities report the information to the IRS as well; the forms are due to small businesses by today, January 31.

The new reporting requirement was created as part of the Housing Assistance Tax Act of 2008 and is intended to make sure that merchants accurately report their income from credit and other payment cards. The goal is to increase compliance in reporting income among merchants, and over 10 years, the new requirement is expected to raise more than $9.5 billion in taxes on income that would otherwise have gone unreported or underreported.

Business Finance says the 1099-K forms will include contact information on both the entity filing the tax return and the payee; the gross amount of merchant card or third-party network payments the payee received in 2011, detailed by month. If your company gets a 1099-K, you must report the amounts on your business taxes.

If you sell products and services, you might get a 1099-K and a 1099-MISC reporting the sale of the same service, Business Finance notes. If so, you will have to contact the entity that issued the forms and ask them to correct the error, or they will be reporting your income twice to the IRS.

You can find detailed explanations about 1099-K forms and information on how to report the income on your tax forms at the IRS website.

Image Courtesy Karen Axelton

 

 

If You’ve Misclassified Workers, IRS Program Can Help

January 17th, 2012 ::

By Karen Axelton

Has your business classified workers as independent contractors who should really be classified as employees? This sensitive issue is a big concern for small business owners. More and more entrepreneurs are relying on independent contractors to handle their workloads, but the definition of “independent contractor” can be hazy. The Department of Labor is taking new aim at this problem for 2012, according to Compensation Café, and is joining with the IRS to share information, help reduce misclassification of employees and improve employer compliance.

The Labor Department will be focusing on enforcing laws and auditing employers, but the IRS is being a bit more forgiving. The agency’s Voluntary Classification Settlement Program, part of its “Fresh Start” initiative, allows business owners to come forward voluntarily and settle their misclassification issues instead of trembling in fear of an audit.

VCSP has several advantages:

  • Businesses can reclassify workers as employees for future tax periods and pay just 10 percent of the employment tax liability that results from this reclassification for the most recent tax year.
  • There are no penalties or interest on the employment tax liability.
  • The IRS will not audit your business on these workers’ classifications for prior years.

However, it’s not all peaches and cream. In order to get these terms, you must agree that the standard three-year “look-back” window for the IRS to review your employment taxes (and see if you owe more money) is extended to six years.

To apply for VCSP, complete Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before you want to begin treating the workers as employees. Your business must also meet these eligibility criteria:

  • Workers to be reclassified must have been consistently treated as non-employees;
  • Employer must have filed the appropriate 1099 forms for the prior three years;
  • Employer cannot currently be undergoing a classification audit by the IRS, Department of Labor or any state agency;
  • If the employer was previously audited by the IRS, DOL or any state agency, it must have complied with the results.

Being accepted into the VCSP program is not automatic; however, even if the IRS rejects your application, the agency has said that this rejection doesn’t automatically trigger an audit of your business. You are also allowed to reapply for the program in the future.

Compensation Café notes, however, that although the IRS and the DOL are collaborating on this issue, the DOL isn’t offering amnesty. That means participating in the VCSP program could lead to your business being assessed back taxes, penalties and fines by the DOL and/or state agencies. So before plunging into VCSP headfirst, talk to your accountant to determine how this could affect your payroll, benefits programs, unemployment and workers compensation insurance, and the possible additional penalties you might face.

Image by Flickr user MoneyBlogNewz (Creative Commons)

Small Biz Resource Tip: IRS: Starting, Operating, or Closing a Business

January 5th, 2012 ::

IRS: Starting, Operating, or Closing a Business

No matter what stage your business is in, it’s important to know what the legal requirements are, especially when it comes to paying taxes. The IRS website has dedicated information to help small business owners navigate through the confusing waters of tax compliance. If you’re starting out you can find out the tax implications of each type of business structure (corporation, LLC, etc.) plus how to select an accounting method and retirement plan. Other sections include operating a business (employment taxes and deductible business expenses) and information on closing a business, such as what documents need filing and what to do with revenue received.

 

Small Biz Resource Tip: Small Business Health Care Tax Credit

December 27th, 2011 ::

Small Business Health Care Tax Credit

Your business may be eligible for the Small Business Health Care Tax Credit. Enacted as an incentive for small businesses to provide health insurance coverage to their employees, the Patient Protection and Affordable Care Act includes a tax credit worth up to 35 percent of health care costs for tax years 2010 through 2013. On January 1, 2014 the rate will increase to a maximum 50 percent credit. Even if you did not owe any taxes, you can carry the credit back or forward to years you do owe. And if you qualify but forgot to claim the credit, you can still submit an amended claim. To see if you qualify, check the “3 Simple Steps” document on the IRS website.

Are Tax Burdens Crunching Your Small Business?

November 22nd, 2011 ::

By Maria Valdez Haubrich

How do you feel about taxes? How do they affect your business? A new study by IT trade association CompTIA polled more than 400 small businesses to see what these entrepreneurs thought about their businesses’ tax burdens.

The study found that an overwhelming majority of respondents believe tax compliance is especially challenging for small and midsize businesses because they lack the resources to easily comply with complicated tax laws. As a result, tax complexity costs small businesses time and money. Further adding to compliance costs, 15 percent of small and midsize businesses in the survey said they had been subject to a federal or state tax audit in the last ten years.

What areas of the tax code did small businesses say are most burdensome? Payroll taxes, the alternative minimum tax and employee retirement plans topped the list due to their complex compliance issues.

What would small and midsize business owners like to see changed in the tax code? Seventy-two percent said a reduction in payroll taxes would be important or very important to their business. Reducing the corporate tax rate and the capital gains tax rate were also cited as changes that would help small and midsize businesses.

“Small and medium-sized businesses are the job creators in this economy,” said Todd Thibodeaux, president and chief executive officer of CompTIA, in announcing the study. “Unfortunately many of these same companies are forced to divert resources away from operating their businesses toward complying with ever more complicated tax structures.”

While businesses of all sizes felt that the current tax code is burdensome and overly complex, they weren’t ready to change to an entirely new system. Instead, survey respondents supported simplifying the existing tax system.

Image by Flickr user James Morris (Creative Commons)

Small Biz Resource Tip: IRS Small Business Workshops and Webinars

November 21st, 2011 ::

IRS Small Business Workshops and Webinars

There’s no excuse for letting your business get into hot water with the IRS—not when the agency provides workshops across the country to help small businesses understand and stay in compliance with federal tax laws. Most seminars are free to attend and are presented by IRS partners and federal tax specialists. Check the listings for your state, as topics vary from workshop to workshop. Workshops cover areas ranging from a general overview of tax laws to tips for good record-keeping to retirement plans. If you can’t get to a workshop, no problem: The Virtual Small Business Workshop is available on CD and online.

 

IRS Gives Businesses a Break on Independent Contractor Misclassification

October 4th, 2011 ::

By Maria Valdez Haubrich

If your company has been classifying workers as independent contractors when they should really be classified as employees, good news: The Internal Revenue Service is offering a program that will allow you to reclassify workers and pay just a small amount to cover past payroll taxes—instead of the hefty fines that misclassification normally carries.

The program, dubbed the Voluntary Worker Classification Settlement Program, is part of a larger IRS initiative called “Fresh Start” that aims to help taxpayers and businesses address their tax responsibilities. Businesses that participate will owe about 1 percent of wages paid to reclassified workers in the past year; there is no interest or penalty.

The IRS cares about misclassification because it costs the agency a lot in taxes. A Wall Street Journal article reports that Labor Secretary Hilda Solis said employers can cut labor costs by 20% to 30% when they classify employees as independent contractors. According to the same article, a 2009 Government Accountability Office report found that misclassification in 2006 cost $2.72 billion in unpaid federal taxes. It also results in unpaid taxes for state workers’ compensation and unemployment insurance programs—which is a big blow to cash-strapped state governments. The White House Obama administration has said that misclassification may affect as many as 30% of all companies in the U.S.

The Voluntary Worker Classification Settlement Program is open to all companies, but the IRS is expecting most participants to be small businesses, because many small business owners are confused by the complex the requirements for classifying workers.

To be eligible, your business must:

  • Consistently have treated the workers in the past as nonemployees,
  • Have filed all required Forms 1099 for the workers for the previous three years
  • Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

To apply for the program, file Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before you want to begin treating the workers as employees.

While this program is good news, the bad news is that the IRS will become even more strict about misclassification of workers going forward. To help businesses meet the requirements, Solis has announced that the IRS and the Labor Department will work together to share information and “strategically educate” employers about compliance.

Learn more about the program at the IRS website.

Image used under creative commons license from TaxBrackets.org

 

Small Biz Resource Tip: Financial Analysis Software from Sageworks

September 14th, 2011 ::

Financial Analysis Software from Sageworks

Sageworks has announced a free version of its financial analysis software to help small business owners compare their numbers to those of industry peers and competitors. The software will give business owners a report showing benchmarks on profit margins, cash flow statistics, sales growth rates and expense control numbers. The data will include important stats ranging from competitors’ operating costs to suppliers’ working capital, and can help reduce uncertainty. Sageworks’ goal is to provide a financial health check for businesses that shows an easy-to-understand financial status as well as possible areas of improvement.

Are You at Risk for an IRS Audit This Year?

August 9th, 2011 ::

By Maria Valdez Haubrich

Are you likely to get audited by the IRS this year? The IRS is cracking down and expanding its investigations into more groups of taxpayers, The Fiscal Times recently reported.

The reasons for the crackdown are pretty obvious: Like everyone else, the federal government is hurting for cash and is seeking to get the full amount it’s rightly owed. It is focusing on high-income taxpayers and is being less sympathetic or flexible than in years past, according to accountants cited in the article.

The number of IRS agents enforcing audits shrank in 1998 and still isn’t back to pre-1998 levels, but has risen to 22,710 agents, up from fewer than 20,000 in 2004. That’s making it easier for the IRS to expand its enforcement efforts.

Last year, 1.1 percent of all taxpayers were audited. But business owners who file Schedule C Forms were audited at a rate of slightly more than 4 percent. Why? This group is estimated to be underreporting income by some $68 billion a year. High-income taxpayers are also a target; for those earning more than $200,000 in 2010, the audit rate was 3.1 percent, and for taxpayers earning more than $1 million, it was 8.1 percent.

But you don’t have to fit into one of those categories to get audited. One expert The Fiscal Times spoke to notes that by cracking down on someone who represents a large category of taxpayers—such as a sole proprietor—the IRS can increase compliance in that overall category. Why? That person’s friends and associates will hear of the audit and be scared into changing their behavior.

What are some red flags that could peg you for an audit? According to The Fiscal Times, they include:

  • Credit card statements that don’t jibe with tax returns. (The IRS will be cross-checking this year.)
  • Returns that claim refundable tax credits
  • Over-reporting deductions
  • Having offshore accounts
  • Claiming an oversized interest deductions for home loans
    Claiming the adoption credit (it was raised last year, giving rise to increased fraud)
  • Failing to report and pay taxes on gifts of real property
    to find taxpayers who haven’t disclosed real estate gifts,
  • Making overly large charitable donations relative to your income

Talk to your accountant about possible risks of an audit if any of these factors apply to you. With the IRS expanding its reach, it’s better to be safe than sorry.

Image by Flickr user Vectorportal (Creative Commons)

 DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

IRS Changes Can Help Business Struggling With Taxes

June 30th, 2011 ::

By Maria Valdez Haubrich

Is your business struggling with unpaid taxes? You’re not alone, and since the recession began, the IRS has taken steps to help individuals and businesses that owe taxes get a fresh start with their tax liabilities.

This year the Fresh Start program made several changes to IRS collection practices to help taxpayers, including:

1. Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens. A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt.This includes property owned at the time the notice of lien is filed as well as any property purchased after that. Since a lien can hurt a taxpayer or business’s credit rating, it’s crucial to pay taxes as quickly as possible to have the lien removed.

 

Currently, liens are automatically filed at certain dollar levels for people with past-due balances. The IRS will significantly increase the dollar thresholds at which liens are generally filed. The new dollar amount is tied to inflationary changes since the number was last revised. The IRS plans to review the results of the lien threshold change early next year.

2. Making it easier for taxpayers to have liens withdrawn after paying a tax bill. Liens will now be withdrawn once taxes are paid in full, if the taxpayer requests it. The IRS has also streamlined its internal procedures to speed the lien withdrawal process, and will withdraw liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.

3. Creating easier access to Installment Agreements for more struggling small businesses. The IRS has made streamlined Installment Agreements available to more small businesses by raising the dollar limit so that additional small businesses can participate. Formerly, only small businesses with under $10,000 in liabilities could participate; the new program raises the limit so small businesses with $25,000 or less in unpaid tax can participate. Small businesses now have 24 months to pay.

In addition, streamlined Installment Agreements are now available for small businesses that file either as an individual or as a business. Small businesses with unpaid taxes of more than $25,000 will qualify for the streamlined Installment Agreement once they reduce the balance to $25,000 or less. Small businesses must enroll in a Direct Debit Installment Agreement to participate.

4. Expanding the streamlined Offer in Compromise program to cover more taxpayers. An OIC is an agreement between a taxpayer and the IRS to settle the taxpayer’s tax liabilities for less than the full amount owed. In most cases, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The OIC program has been expanded to allow taxpayers with annual incomes up to $100,000 to participate. Participants must have tax liability of less than $50,000 (an increase from the former limit of $25,000 or less.)

Will any of these changes help your business? You can find out more about the changes and get necessary forms at the IRS website.

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

Image by Flickr user MoneyBlogNewz (Creative Commons)