Wednesday, May 3, 2017

Small Business And Startup Lawyer: IRS Income Tax Research Credits Can Now Be Used To Reduce Payroll Taxes !!!

Eligible small business startups can now choose to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability, according to the Internal Revenue Service. 

This new option will be available for the first time to any eligible small business when filing its 2016 federal income tax return. 

Before 2016, the research credit, like most tax credits, could only be taken against income tax liability. The option to elect the new payroll tax credit may especially benefit any eligible startup that has little or no income tax liability.

To qualify for the new option for the current tax year, a small business must have gross receipts of less than $5 million and could not have had gross receipts prior to 2012. A small business meeting this standard with qualifying research expenses can then choose to apply up to $250,000 of its research credit against its payroll tax liability.

To choose this option, fill out Form 6765, Credit for Increasing Research Activities, and attach it to a timely-filed business income tax return. Because many business taxpayers request a tax-filing extension, they still have time to make the choice on a timely-filed return. A number of special rules and computations apply to this credit. See the instructions to Form 6765 for details.

For eligible small businesses that already filed and failed to choose this option, there is still time to make the choice. Under a special rule for tax-year 2016, they can still do so by filing an amended return. This return must be filed by Dec. 31, 2017.

Amended return forms vary depending upon the type of business. Sole proprietors file Form 1040X. Regular corporations file Form 1120X. S corporations file Form 1120S, identifying it as a corrected return (line H(4). For information on amending a partnership return, see the instructions to Form 1065.

After choosing this option, either on an original or amended return, a small business claims the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form must be attached to its payroll tax return, usually Form 941, Employer’s Quarterly Federal Tax Return.

Further details on how and when to claim the credit are in Notice 2017-23, available on IRS.gov. The notice also provides interim guidance on other technical issues, such as controlled groups and the definition of gross receipts.


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Monday, May 1, 2017

IRS Tax Rules For Independent Contractor Versus Employee Status

Classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:
  • The extent of the worker's investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss
2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:
  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company
  • The extent to which the worker has unreimbursed business expenses
The IRS can help employers determine the status of their workers by using form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer's Supplemental Tax Guide, is also an excellent resource.
Share this tip on social media -- Employee or Independent Contractor? Know the Rules.  https://go.usa.gov/x58ra#IRS

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Friday, April 28, 2017

Tax Help And Advice For New And Established Small Businesses


The Internal Revenue Service is highlighting products to help small business owners and self-employed individuals understand and meet their tax obligations. 

Some of these tools focus on an emerging areas of business activity -- the sharing economy – also referred to as the on-demand, gig or access economy.

People involved in the sharing economy engage in activities such as renting a spare bedroom, providing car rides or offering a number of other goods or services. Because there are tax implications for companies providing the services and individuals performing the services.

The IRS has created the following special products to help these businesses and workers understand their tax responsibilities:

  • Sharing Economy Tax Center, a webpage to help people quickly find answers to tax questions, as well as tips and forms for the sharing economy.

Other Small Business Products:

The IRS provides an overview of other products in a newly created YouTube video. Some featured products for small business owners and self-employed individuals are:
  • Self-Employed Individual Tax Center – a resource for sole proprietors and others who are in business for themselves. This site has many useful tips and references to tax rules a self-employed person may need to know.
  • IRS Video Portal -- video and audio presentations on a variety of topics of interest to small businesses.
  • Online Learning and Educational Products  – a page with tools to help taxpayers learn about taxes on their own time and at their own pace. For example, the IRS Tax Calendar for Businesses and Self-Employed has important tax dates for businesses. Download the Calendar Connector tool to get the dates even when offline.
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Wednesday, April 26, 2017

Owe Federal Income Taxes? Maybe You Need To Make An Offer In Compromise !



Taxpayers who have a tax debt they cannot pay may be able to settle their tax debt for less than the full amount owed by making an Offer in Compromise.





Before applying for an Offer in Compromise, here are some things to know:
  • In general, the IRS cannot accept a settlement offer if the taxpayer can afford to pay what they owe. Taxpayers should first explore other payment options. A payment plan is one possibility. Visit IRS.gov for information on Payment Plans – Installment Agreements.

  • A taxpayer must file all required tax returns first before the IRS can consider a settlement offer. When applying for a settlement offer, taxpayers may need to make an initial payment. The IRS will apply submitted payments to reduce taxes owed.

  • The IRS has an Offer in Compromise Pre-Qualifier tool on IRS.gov. Taxpayers can find out if they meet the basic qualifying requirements. The tool also provides an estimate of an acceptable offer amount. The IRS makes a final decision on whether to accept the offer based on the submitted application.

  • Taxpayers wishing to file for an Offer in Compromise should visit IRS website’s Offer in Compromise page for more information. There taxpayers can find step-by-step instructions as well as the required forms. Taxpayers can download forms anytime at www.irs.gov/forms or call 800-TAX-FORM (800-829-3676) and ask for Form 656-B, Offer in Compromise booklet.
Additional IRS Resources:
IRS YouTube Videos:

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Thursday, April 20, 2017

Didn't Timely File Your IRS Federal Income Tax Return? Facts About Late Filing And Penalties

April 18 was this year’s general deadline for filing your federal tax return AND for paying any tax owed. 

If you are due a refund, there is no penalty if you file a late tax return.

Taxpayers who owe tax, and failed to file and pay on time, will most likely owe interest and penalties on the tax they pay late.

To keep interest and penalties to a minimum, taxpayers should file their tax return and pay any tax owed as soon as possible.

Here are some facts that taxpayers should know:

  1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of penalties
  2. Penalty for late filing. If taxpayers file their 2016 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if they owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as 5 percent of their unpaid taxes each month up to a maximum of 25 percent. 
  3. Penalty for late payment. The penalty is generally 0.5 percent of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent of their unpaid taxes.
  4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
  5. Taxpayers should file even if they can’t pay. Filing  and paying as soon as possible will keep interest and penalties to a minimum. IRS e-file and Free File programs are available for  returns filed after the deadline. If a taxpayer can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS.  
  6. Payment options. Taxpayers should explore their payment options at IRS.gov/payments. For individuals, IRS Direct Pay is a fast and free way to pay directly from a checking or savings account. The IRS will work with taxpayers to help them resolve their tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.
  7. Late payment penalty may not apply. If taxpayers requested an extension of time to file their income tax return by the tax due date and paid at least 90 percent of the taxes they owe, they may not face a failure-to-pay penalty. However, they must pay the remaining balance by the extended due date. Taxpayers will owe interest on any taxes they pay after the April 18 due date.
  8. No penalty if reasonable cause.  Taxpayers will not have to pay a failure-to-file or failure-to-pay penalty if they can show reasonable cause for not filing or paying on time.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
Additional IRS Resources:
IRS YouTube Videos:

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Monday, April 10, 2017

Need An Extension Of Time To File Your Federal Income Taxes Form 1040 ?


This year’s tax-filing deadline is April 18. 


Taxpayers needing more time to file their taxes can get an automatic six-month extension from the IRS.




Below are five things to know about filing an extension:

  1. Use IRS Free File to file an extension. IRS Free File allows taxpayers to prepare and e-file their taxes for free. It can also be used to e-file a free extension to file request. Midnight April 18 is the deadline for receipt of an e-filed extension request. Free File is accessible for tax return preparation and e-filing through Oct. 17. It is only available through IRS.gov.
  2. Use Form 4868. Fill out a request for an extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The deadline for mailing the form to the IRS is April 18. Form 4868 is available on IRS.gov/forms.
  3. More time to file is not more time to pay. Requesting an extension to file provides taxpayers an additional six months (until Oct. 16) to prepare and file taxes. However, it does not provide additional time to pay taxes owed. Taxpayers should estimate and pay any owed taxes by April 18 to avoid a potential late-filing penalty. To avoid penalties and interest, pay the full amount owed by the original due date.
  4. Use electronic payment options to get an automatic extension. An extension of time to file will automatically process when taxpayers pay all or part of their taxes electronically by April 18. There is no need to file a paper or electronic Form 4868 when making a payment with IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or by debit or credit card.  Select “Form 4868” as the payment type. Keep the confirmation as proof of payment.
  5. The IRS can help. The IRS offers payment options for taxpayers who can’t pay all the tax they owe. In most cases, they can apply for an installment agreement with the Online Payment Agreement application on IRS.gov. They may also file Form 9465, Installment Agreement Request. If a taxpayer can’t make payments because of financial hardship, the IRS will work with them.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return

Additional IRS Resources:
What Is the Due Date of My Federal Tax Return or Am I Eligible to Request an Extension?
IRS YouTube Video:

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Wednesday, April 5, 2017

Save Federal Income Taxes By Deducting Employee Business Expenses

Employees, if you itemize on your federal tax return, remember to deduct your work-related expenses. 


Generally, employee business expenses are deductible if they are more than two percent of adjusted gross income.  In most cases, they go on IRS Schedule A, Itemized Deductions.

Other key points about employee business expenses:

1. They must be Ordinary and Necessary.  Employees can deduct unreimbursed expenses that are ordinary and necessary to their work as an employee.  An ordinary expense is one that is common and accepted in the industry.  A necessary expense is appropriate and helpful to a business.

2. Expense Examples. Some potentially deductible costs include:
  • Required work clothes or uniforms not appropriate for everyday use.
  • Supplies and tools for use on the job.
  • Business use of a car.
  • Business meals and entertainment. 
  • Business travel away from home. 
  • Business use of a home.
  • Work-related education.
This list is not all-inclusive. Special rules apply for reimbursed expenses by an employer. IRS Publication 529, Miscellaneous Deductions, and Publication 463, Travel, Entertainment, Gift and Car Expenses, provide more details.

3. Forms to Use. In most cases, expenses are reported using Form 2106 or Form 2106-EZ. IRS Schedule A may also be used.

4. Educator Expenses. K-12 teachers may be able to deduct up to $250 of certain expenses paid in 2016. These may include books, supplies, equipment and other materials used in the classroom. They are an adjustment to income rather than an itemized deduction. In other words, people do not need to itemize to claim them. IRS Publication 529 has more.

5. Keep Records. The IRS urges people to keep good records for proof of income and expenses and also as a reminder not to overlook anything. IRS Publication 17, Your Federal Income Tax, has more on what to keep.



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