Tuesday, June 30, 2009

What Everyone Needs To Know About Filing S Corporation Taxes

If you are owner or part owner in a S corp, you need to file the Corporation's taxes on the Form 1120s. My best advice to you is, do not attempt to file this form yourself. You need a tax professional such as an Enrolled Agent or CPA. The rules for filing an 1120s are complex and require knowledge as to what expenses can and cannot be taken by an S corp.

When you incorporate your company, you must file for the S corp election by filing the IRS Form 2553. If you do not file this election timely, you will have to file the form 1120 and the company will pay taxes at the corporate tax rate. If you file the S corp election and it is approved by the IRS, you will be taxed at your individual tax rate.

Your 1120s is due on March 15th if you are a calendar year company and 2 1/2 months after the end of your fiscal year, if you are a fiscal year corporation. You may file for an extension just as you can for your personal income tax.

Once the 1120s is completed, each owner will receive a K-1 that they will file with their own 1040 return. Your percentage of the company's profit or loss depends on your percentage of ownership of the corporation.

You may have received a salary during the year, so you may have both a W2 which reflects your salary paid throughout the year and the K-1 which shows your portion of the corporate income or loss.(regardless of whether or not you actually received this money, it is still your portion of the income earned or the loss incurred)

S corps can take most reasonable business expenses, including the owners' reasonable salary. You will need your previous years tax return(if you have filed before) and your companies profit and loss statements as well as your balance sheet, for your tax preparer to be able to prepare your return. They will also need to know the date your company was incorporated.

Hopefully you consulted with a tax professional when you set your corporation up. You have to make decisions about your accounting method and many other business decisions. Being sure you make good decisions up front and knowing about record keeping requirements will make tax time go much more smoothly for both you and your tax preparer.

Do your homework and find a competent tax professional who can help you make good business decisions and help you file your tax returns correctly and on time.

Tuesday, June 23, 2009

The Secrets To Running a Cash Business

If your business is primarily cash, you need to take several precautions. You need to be very scrupulous in keeping records in case you are ever audited by the IRS. Here are some hints:
  • Give each customer a receipt or invoice for payment.
  • Attach your receipt/invoice to your deposit slip receipt you get from the bank.
  • Keep your deposit slip with your receipt/invoice attached to your bank statement.
  • Keep your receipts for all cash purchases you make as well and keep them with the bank statement too so both income and expense records are together.
  • NEVER pay personal expenses out of your business bank account.
  • If you take cash out before you make a deposit, be sure you account with a receipt for what you spent it on. Better yet, make the deposit and then write a check for the expense.
Remember, if you cannot prove an expense, you may not be allowed to claim it on your tax return. There are some exceptions like taxi rides, tolls...etc. For those, just list them on a piece of paper and attach to the bank statement.

If you are audited and have your records well organized and your income and expenses substantiated, you should sail through an audit with flying colors. If not, your expenses you cannot prove may be disallowed and than can make assumptions about your income from prior year that may not be close to what you are making now. Keeping good records protects your hard earned money and your business.

If you have questions and need assistance contact a tax professional such as an Enrolled Agent or a CPA.

Monday, June 22, 2009

Top Ten Facts About Dependents

Many taxpayers have questions about who qualifies as a dependent for tax purposes. Here are 10 facts to help you out. Your dependent:

1. Can never be your spouse
2. Must be a U.S. citizen
3. Cannot claim the exemption on their tax return
4. Must meet relationship test
5. Must meet the age test if your child(under 19 or under 24 if full time student unless disabled)
6. Must meet the support test
7. Is not being claimed on another taxpayers tax return
8. Must meet the residency test( lived with you for more than half the year except for temporary absences--like away at college)
9. Meets special test if child can be claimed by more than one parent
10. Meets the income test
For more details and examples of situations see IRS Publication 501.

Friday, June 19, 2009

The Secret To Penalty Abatement With the IRS

Owe the IRS? Have penalties and interest accrued and seriously increased the amount you owe? You can never abate interest. You can, in some cases, have the penalties abated. Here are a couple of options.
1. If you only owe for one or two years you can ask for "first time penalty abatement" on the first year only.
2. If you owe for many years, you will need to write a letter to the IRS requesting that they abate the penalties due to reasonable cause and not willful neglect. You will need to provide documents that substantiate what went wrong and why you did not file and or pay your taxes. It will need to be a situation that affected your entire life, not just your taxes.

I forgot or I was busy and didn't have time are not considered reasonable cause. Write up a compelling argument, provide documentation to show why your taxes and your entire life fell apart.

If you need assistance preparing your letter contact a tax professional such as an Enrolled Agent.

Tuesday, June 16, 2009

Who Else Wants to Understand The IRS Form 940?

If you are an small business owner with payroll, you are probably are familiar with the IRS form 941. That return you have to file quarterly. Many business owners are not as familiar with the Form 940. This is the form for reporting your Federal Unemployment Taxes. This form is filed annually, not quarterly, although you are required to make the 940 deposits quarterly if the balance for that quarter is over $500. Use the same 8109 form you use to deposit your 941 taxes just fill in the oval for 940.

If the amount of your FUTA tax is under $500 you can wait until the next quarter's deposit is due and add the previous quarters balance to the current quarter. When computing your tax remember that only the first $7000 in wages per employee is subject to the FUTA tax.

You compute the tax due by multiplying the rate times the total payroll for that quarter that is subject to the tax. The rate is normally 6.2% but is reduced by the State Unemployment Tax you pay. If you are eligible for the full credit, then your rate is only .8%.

Payroll for 1st Quarter 2009
Employee A $5000
Employee B $8000
All $5000 of employee A's wages are subject to FUTA tax
only $7000 of employee B's wages are subject so the total amount subject to the tax is $12,000. If you qualify for the full state credit, multiply
12,000 x .008 = $96. Your balance is under $500, so no balance for the quarter is due. (Note: the 7,000 is the max for the year not the quarter, so for any employee with wages over 7,000 in the 1st quarter, none of their wages for the other 3 quarters will be subject to the tax)

See the Instructions for form 940 to learn how to compute how much, if any of the state credit you are eligible for. You are required to have paid your state unemployment tax by the due date of the 940 to be eligible for the credit. This return is usually due the 2nd of Feb the following year. If your total balance for the year is $500 or less, you can send the payment in with your 940 return.

If you need additional help in completing this form or computing your FUTA taxes, contact a tax professional.

Wednesday, June 10, 2009

Help! What If I Can't Make My IRS Payment?

If you are one of thousands of taxpayers who are in a payment plan with the IRS, but due to current economic conditions cannot make your payment, you have options. If you have lost your job and your entire financial situation has changed, you need to contact the IRS and be prepared to lay out your new situation. If you expenses have not changed and your income is all that has changed, you may just need proof (like a termination letter) you no longer have a job.

If your expenses have changed as well, you may need to provide proof of those changes as well. When you talk to the IRS, only say what has happened and answer honestly and completely any questions they may ask. Do not volunteer information, except to briefly explain your situation. Don't get chatty, even if the person you talk is friendly and personable, remember, they work for the IRS. You could make one simple statement that could cause you problems.

If your liability is substantial and you need assistance, contact an Enrolled Agent, who can represent you before the IRS. What ever you do, do not ignore your situation. If you default you payment plan, the IRS can levy your bank accounts, retirement accounts and file a lien even if your tax liability is low. Call either the IRS or an Enrolled Agent before the IRS makes a bad financial situation even worse.

Thursday, June 4, 2009

If You Ingore Them Will They Go Away?

If you have tax debt and like many tax payers you have decided to ignore them and hope they will go away. You seriously needed to reconsider. If you have received Certified Mail from the IRS and have considered not signing for it, think again. If you ignore the IRS, you do so at your own peril.

These notices from the IRS are sent to give you a chance to take care of your tax debt, before the IRS starting taking it from you.....on their terms. As long as you respond before the notice cycle ends, you have the options as to how you repay your liability. Once they start taking it out of your checking, savings and wages, you have lost that control.

Sign for those notices and either contact the IRS yourself or contact an Enrolled Agent to represent you before the IRS. Act before the options are taken out of your hands and your financial situations worsens.

Monday, June 1, 2009

Do I Need A Tax Attorney?

If you have tax debt, you may be wondering if you need to hire a tax attorney. If you need to go to tax court to resolve you tax problems, then yes, only an attorney can represent you. However, if you like most taxpayers with tax debt, you just need help resolving your tax debt with the IRS, you need an Enrolled Agent. An Enrolled Agent is a tax professional who has passed a set of exams administered by the IRS. An Enrolled Agent can represent you before the IRS and help you obtain the best possible resolution of your tax debt.

Enrolled Agents are familiar with the IRS policies and procedures and can assist those with tax debt in situations where a tax attorney or CPA is not required. Effectur is a company that employs Enrolled Agents (s0me of our EAs are former IRS employees). Use the link above to the Effectur site and get answers to your tax debt questions and see how to contact a tax consultant to help you on your way to resolving your tax debt.