Monday, March 30, 2009

What Everybody Ought To Know About Payroll Taxes

One of the most common errors small business owners make is neglecting to pay their payroll taxes. It is important the you as the business owner know when you payroll taxes need to be deposited and verify that they are being made. Even if you have a bookkeeper or accountant that you trust, the responsibility is ultimately yours.

The IRS website or your accountant can help you determine how often your payroll taxes must be deposited. Whether they are monthly or biweekly depends on the amount of your payroll. Many business owners make the mistake of paying other bills instead of paying payroll taxes. This is always a mistake, as basically, this is stealing. You are taking money from your employees (that should go to the IRS) and using it to pay your bills.

The IRS vigorously pursues employers who do not pay their payroll taxes. They will even close down your business if you cannot meet your payroll tax requirements.

Save your business money (in penalties and interest you would have to pay) and save yourself the hassles of the IRS potentially assessing a portion of that payroll liability to you personally. Be sure your payroll taxes are paid on time and your Form 941 and 940s are filed on time.

If you are behind in paying your payroll taxes and need someone to help you on the road to compliance, contact an Enrolled Agent.

Friday, March 27, 2009

Who Else Wants To Avoid A Tax Levy?

If you are one of thousands of tax payers who owe back taxes, you may be concerned about how to avoid a tax levy. The answer is simple, but few heed are willing to heed this advice.
  • Do Not Ignore Notices You Receive From The IRS!
Many tax payers tend to ignore these if they feel they cannot pay the taxes due and hope the IRS will stop sending the letters. They even refuse to sign for letters that are sent certified mail, thinking that what they don't know won't hurt them. Wrong.

Yes, the letters may stop coming, but what will start coming instead are wage levies, bank levies and if you are self employed, levies to your clients or those who rent properties you own.

The simple way to prevent this from happening is to either call the IRS yourself or contact an Enrolled Agent. If you decide to call yourself, you need to be sure you are aware of all your rights so read up on the collection process and tax payer rights on the IRS website.

If you decide to call an Enrolled Agent, your representative will help you understand what you need to do and how much time you have to respond to prevent a levy from being issued. They will need to know what letters you have received and when those letters are dated.

It really is easy to stop the levies from happening, by being willing to work on taking care of your tax liability now. You may want to set up an Installment Agreement and pay over time, or you may find you can borrow to repay the liability in full. You may even find you cannot afford to make a payment at all and submit your financial information to be considered Currently Non Collectible. An Enrolled Agent can help you wade through the process and find the best option for you.

Wednesday, March 25, 2009

The Secret to Resolving Your Tax Debt Without a Tax Attorney

If you have tax debt with the IRS, you only need a tax attorney if you have to go to US Tax Court. If you simply need representation before the IRS, you need an Enrolled Agent. An Enrolled Agent has been recognized, by the IRS after passing rigorous exams administered by the IRS, as qualified to represent tax payers.

Once you have signed a limited Power of Attorney form, the Enrolled Agent will be able to talk to the IRS on your behalf. Your tax situation may be very complicated and having someone in your corner who is familiar with the IRS' processes and procedures can insure you find the best option for your particular situation.

A thorough review of your current financial situation will help the Enrolled Agent understand what options will or will not work for you. Many people hear the ads for "pennies on the dollar" resolution. An Enrolled Agent can help you determine if you qualify for this option (few tax payers actually qualify). Even if you do not qualify for that resolution option, an Enrolled Agent will find the best option for you.

Effectur is a company that employs Enrolled Agents to represent their clients before the IRS. While resolving your tax debt is not inexpensive, hiring an Enrolled Agent is certainly a less expensive alternative to a tax attorney and will ensure you have the inside track on what options are available for your situation.

Click on the Effectur icon to the left of this blog to get answers to your questions and find out how we can help provide you with peace of mind.

Sunday, March 22, 2009

Form 940

If you have employees, then you are required to file an annual 940 form with the IRS. Some people confuse this form the the 941 form which you have to file by the end of the month following the end of each quarter.

From 940 is for your Federal Unemployment taxes. The amount you pay is usually reduced by the amount of State Unemployment taxes you pay each quarter to your state. You do not get to take this credit, however, if you have not paid those State Unemployment taxes by the time you file your 940.

Although Form 940 is only filed once a year (by Feb 28th), you do have to deposit the taxes quarterly. You must file them by the end of the month following then end of the quarter, if your balance do is $100 or more. If the balance is less than 100 you can wait until the next quarter in which the cumulative balance is 100.

Be sure when you do your calculations you only need to count the first 7,000 of wages for each person. You may have payroll software that does the calculations for you, but if you are a small business and do not, I always kept a worksheet showing my figures for each quarter.

Be sure when you complete your deposit Form 8109 to make your deposit, that you fill in the 940 oval so this amount will not go towards your 941 taxes. Also be sure you fill in the oval for the correct quarter.

If you do not make your payments or file your form timely, you will incur penalties and interest. If you need assistance in completing you payroll tax forms, contact an Enrolled Agent or other tax professional.

Monday, March 16, 2009

Tax Penalties

If you don't file and or pay your taxes by the 4/15 deadline, you will incur penalties and have to pay interest on the unpaid balances. You may not be aware just how expensive that can be.

The failure to file penalty is higher than the failure to pay penalty. The penalty for failure to file is 5% per month or part of a month for each month that the return is late.(not to exceed 25% of the unpaid taxes. If you file more than 60 days after the due date(or the extended due date), then the penalty is smaller of $135 or 100% of the tax due.

You may be eligible to have the penalties abated, if you can provide that you have reasonable cause(in the eyes of the IRS) for filing your return late. Usually this is for traumatic or tragic events that prevented you from being able to file on time. You must submit a letter to the IRS requesting this abatement and explaining and substantiating why you did not file on time.

The failure to pay penalty is 1/2 of 1% for each month or part of a month that the taxes remain unpaid. If you have both failure to file an failure to pay penalties, then the failure to file penalty is reduced by the amount of the failure to pay penalty. The minimum penalty stated above, still applies.

If you have an extension and did not full pay your taxes by the due date, as long as you paid at least 90% of the total tax due, you will not have a failure to pay penalty.

If you need help with your taxes, contact an Enrolled Agent or other tax professional.

Friday, March 13, 2009

How To Avoid Stress on April 15th

1. Do not wait until the last minute to begin your return. You may find you are missing something and not be able to complete it by the deadline if you don't know ahead of time. At the very least, be sure you have all your documents together and all the forms you are going to need, unless you are planning to efile.

2. Efile your return and use direct deposit to get your refund. Worried about giving the IRS your checking account information? Don't be, they already know it! If you are getting interest on your bank account, they may get a 1099-INT on your account for interest you were paid, plus you used your Soc Sec Number to set it up, so the IRS can find it.

3. If you think you should not file since you don't have the money to pay all you owe, the IRS will work with you to set up a payment plan. File a form 9465(available at with your return and tell the IRS how much you feel you can pay per month. For them to accept it you will need to be able to pay it off in 5 years. If the amount you over is over 25,000, they will probably request additional financial information. Most importantly FILE YOUR RETURN. If you don't you will incur both failure to file and failure to pay penalties.

4. Have qualified tax preparer prepare your return or visit to get the answers to questions you have if you feel you can complete it yourself. Remember, errors can be costly, so be sure you know what you are doing or find a qualified tax preparer such as an Enrolled Agent to prepare your returns.

5. File and extension if you know you will note be able to file. Go to and complete the form 4868 which will give you another 6 months to file your return. Keep in mind this is an extension to file not an extension to pay. Filing an extension with what you feel you will owe, will save you in failure to pay penalties. If you cannot pay anything, at least filing the extension can save you in failure to file penalties.

Save yourself stress and headaches by doing your taxes before the deadline.

Wednesday, March 11, 2009

To Itemize or Not to Itemize

If you are wondering whether or not you should itemize your deduction use the info published by the IRS to help you determine which option is right for you.

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2008, they are:

Single $5,450
Married Filing Jointly $10,900
Head of Household $8,000
Married Filing Separately $5,450

  • Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 or older or blind, whether an exemption can be claimed for you by another taxpayer, whether you plan to claim the additional standard deduction for state and local real estate taxes, and whether you have a net disaster loss from a federally declared disaster. If any of these apply, you must use the Standard Deduction Worksheet in the Form 1040EZ, 1040A or 1040 instructions.
  • Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $159,950 ($79,975 if you are married filing separately). This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, investment interest and certain qualified cash contributions for relief efforts in a Midwestern disaster area.
  • Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
  • Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.
  • Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

Monday, March 9, 2009

Payroll Taxes

One of the most frequent mistakes I see small businesses make is with their payroll taxes. They either do not now the rules about depositing them or they turn the responsibility over to someone else and assume it is being done correctly.

Daily, I see cases where a client trusted a bookkeeper or accountant to make their payroll tax deposits and then find out they were not being made. You as the small business owner are responsible for being sure these tax deposits are being made and will be held responsible by the IRS if they are not. You are the one who will be penalized. Anyone who has signature authority on the business checking account can be held liable.

If you do not know how frequently your deposits need to be made or your 941s need to be filed, the IRS website can guide you. Many small businesses make theirs on the 15th of the month for the previous months payroll taxes.

Remember you are taking part of this tax out of your employees paycheck and holding this money in trust for the IRS. Choosing to pay another business expense rather than your payroll taxes can cost you not only penalties and interest, but your business itself. The IRS can close your business down and seize it's assets if you do not pay your payroll taxes.

If you are behind in paying your payroll taxes, call the IRS or an Enrolled Agent to represent you before the IRS and set up a payment plan. The longer you wait, the more it will cost you. The liability can even be assessed to you personally, ruin your credit and put a lien on your home.

Friday, March 6, 2009

IRS Certified Letters

So you got a note from the postman on your door that says you have a letter you have to sign for at the post office. The note says the sender is the IRS. What do you do? You may be tempted to ignore the notice and not go sign for the letter. Ignorance is bliss, right?

WRONG. In this case not knowing what this certified letter says keeps you from knowing the time frame in which the IRS is likely to put a lien on your house, levy your wages and clean out you bank accounts!

One common letter sent by the IRS certified is the CP504. This letter tells you that you have 10 days to respond and is your notice that the IRS can put a lien on your house.

Another common letter sent certified is the L1058 or Final Notice which informs you that you have 30 days before the IRS can levy your wages and bank account.

If you do not pick up these letters and sign for them, the post office will send them bank to the IRS unclaimed and basically you have announced to the IRS that you are unwilling to face or take care of your tax debt.

Moving without notifying the IRS does not stop the clock from ticking on these notices. They just have to send them to your last known address. If you move and do not notify the IRS of your new address and the notices go out, you will still have liens and levies even though you never actually received the notices. It is your responsibility to keep the IRS up to date on your address.

If you receive one of the notices and need someone to guide you through the process, contact an Enrolled Agent.

Monday, March 2, 2009

IRS Collection Statute of Limitations

If you are wondering if the IRS has an unlimited amount of time to collect back taxes, the answer is no. The IRS has until 10 years after the date the tax is assessed(usually when the return in filed, or an audit is completed) to collect the tax owed. If the taxes are not paid within that time frame(with some exceptions) then the taxes are written off.

Exceptions that can extend the statues are:
  • Filing bankruptcy- extends through the bankruptcy process and for 6 months after the bankruptcy is discharged.
  • Filing and Offer in Compromise and for 30 days after rejection.
  • While an Appeal is pending.
  • When the IRS requests taxpayer to sign a waiver to extend the statue to prevent certain types of enforced collection when a statue is about to expire.
Be aware that the closer you get to a statute expiration date, the more aggressive the IRS will become in its attempt to collect back taxes. Your best bet to avoid coming close to the statute by setting up a payment plan.
However, if you are in a financial situation where you cannot make a payment, then the possibility exists that the statute could expire during the time in which you are in a Non Collectible Status. In that case, you will not have to pay the taxes due.

If you need assistance in handling your tax debt contact an Enrolled Agent or other tax professional.