A Tax Consultant for All Seasons

The IRS has published important information for all employers who outsource their payroll. Be sure you are aware of your responsibilities as the employer, even if your payroll company is contracted to make your payroll deposits. Read the information below from the IRS. If you find yourself with a payroll tax problems and need assistance with the IRS, contact an Enrolled Agent.

Many employers outsource some of their payroll and related tax duties to third-party payroll service providers. They can help assure filing deadlines and deposit requirements are met and greatly streamline business operations.  Some of the services they provide are:

• Administering payroll and employment taxes on behalf of the employer, where the employer provides the funds initially to the third-party.
• Reporting, collecting and depositing employment taxes with state and federal authorities.

Employers who outsource some or all of their payroll responsibilities should consider the following:

• The employer is ultimately responsible for the deposit and payment of federal tax liabilities.  Even though the third-party is making the deposits, the employer is the responsible party.  If the third-party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer’s account.  The employer is liable for all taxes, penalties and interest due.  The employer may also be held personally liable for certain unpaid federal taxes.
• If there are any issues with an account, the IRS will send correspondence to the employer at the address of record.  The IRS strongly suggests that the employer does not change their address of record to that of the payroll service provider as it may significantly limit the employer’s ability to be informed of tax matters involving their business.
• For the employer’s protection, employers should ask the payroll service provider if they have a fiduciary bond in place.  This could protect the employer in the event of default.
• Employers should ensure that their service providers are using EFTPS (Electronic Federal Tax Payment System) so the employer can confirm payments made on their behalf.  Everyone should use EFTPS and Treasury regulations require electronic payment for payroll taxes over $200,000 in a calendar year.  EFTPS maintains a business’s payment history for 16 months and can be viewed on-line after enrollment.  In addition, EFTPS allows employers to make any additional tax payments that their third-party provider is not making on their behalf such as estimated tax payments.  The IRS recommends employers verify EFTPS payments as part of their bank account reconciliation process

EFTPS is secure, accurate, easy to use and provides an immediate confirmation for each transaction.  The service is offered free of charge from the U.S. Department of Treasury and enables employers to make and verify federal tax payments electronically 24 hours a day, 7 days a week through the Internet, or by phone.  For more information, employers can enroll online at EFTPS.gov, or call EFTPS Customer Service at (800) 555-4477 for an enrollment form.

There have been recent prosecutions of individuals and companies who have, acting under the guise of a service provider, stolen funds intended for payment of employment taxes.  For more information, visit the IRS Web site at IRS.gov and type in the key words “employment tax investigations.”

Remember, employers are ultimately responsible for the payment of income tax withheld and both the employer and employee portions of social security and Medicare taxes.

The answer is, yes they can. They can take up to 15% of the amount of Social Security due to you, if you owe the IRS. Like any other levy, you can prevent this from happening by responding to notices you receive. If you owe the IRS and get Social Security, you will get a notice CP91. You have 30 days to respond to that notice before  the IRS will be able to levy you.

 Once this levy is in place, you will either need to full pay the liability or set up a payment plan to get the levy released. Your payment amount will depend on how much you owe or what your financial situation shows you have an ability to pay. They determine your ability to pay based on your income less the IRS standards for expenses, which are amounts they set as a standard of living, not necessarily what you are actually spending.

If you need assistance with the IRS, contact an Enrolled Agent, who can contact the IRS on your behalf.

The answer is, it depends. While I have blogged on this subject before, it seems to bear another try. Every day in my job as an Enrolled Agent, I am asked by clients to get their levies released. In some cases this is possible. If you have a wage levy and you have filed all your tax returns and are ready to commit to a payment plan then there is a good chance we can get it released.

 If you have a bank levy –where the bank took all the money out of your checking account, then the chances are not so good. The IRS requires that you demonstrate hardship to release. This means you can prove you are either about to be evicted or go into foreclosure, or your utilities are about to be turned off. Then they may release enough to prevent those things from happening. If you have serious medical condition and can provide a note from your doctor that you have to purchase these medications to survive, they will probably release enough to purchase they levy. 

If  you are unsure of how to handle this situation yourself, follow one of the links above and contact our tax consultants  who can help put you on the right road to solving your tax problems.

Your best bet if you owe the IRS, is to prevent a levy from happening rather than trying to get one released once one has been issued.( I will address releasing a levy in my next blog) You will get a series of notices, if you have unpaid taxes, and are given numerous opportunities to prevent the levies from happening. The last notice you receive will have in the bottom right corner L1058. The top of the notice will say Final Notice. Normally you have 30 days to respond to this notice.

 If you ignore this notice, the IRS will proceed with enforced collection activity and can levy your wages, bank account and file a lien against your property. A levy on wages is embarrassing and in some instances can cause you to lose your job. A bank levy will take everything in your checking and or savings up to the amount you owe the IRS. Obviously, these can be devastating.  You need to contact the IRS as soon as you get the L1058 Final Notice, if you have not already done so. My best advise, is not to let it go this far. If you are unsure of your rights and are concerned about contacting the IRS yourself, contact an Enrolled Agent who can represent you before the IRS.

Your first thought when you move probably isn’t notifying the IRS. While it certainly is not the first thing you need to think about, it is definitely something you should do. You might think this is unimportant or you may think you’d just as soon the IRS not know where you are. What you may not be thinking of is all the negative ways that could impact you.

Every week in my job as an Enrolled Agent, I have clients who have moved, not told the IRS their new address and get an unpleasant surprise. There wages or their bank account are levied. They are upset because they got no warnings. The reason they got no warnings is because they moved and they did not provide the IRS with their new address.

You could miss notices about errors on  you tax return, notices that your returns are being audited, notices of balances due. Missing them may not seem like big deal, but if you miss a notice about an error or about an audit, you may lose the opportunity to provide information to reduce your taxes. If you miss a balance due notice, you miss the opportunity to take care of your liability prior to the IRS taking the money from you.

Believe me, the IRS will find you at some point, and does have your social security number so they can find where you work and where you bank. Avoid these unpleasant surprises and make sure the IRS ;and the Social Security Administration too, know your new address.

If you find yourself in a situation where you are levied and need help, contact the tax consultants at Effectur. They can help you determine what type of resolution is best for your situation and have their Enrolled Agents represent you before the IRS. Visit Effectur website at the link above, for more information on how Effectur can help you.

If you are a small business owner and are unsure about whether to classify you workers as employees are contact labor, the IRS just published important information to help you make that determination. Once you have read the information from the IRS, if you have additional questions, follow the links below or contact and Enrolled Agent.

The answer can have a profound impact on how much tax you pay as a small business owner. Knowing whether your workers are or are not employees will affect the amount of taxes you must withhold from their pay. It will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Employers who misclassify workers as independent contractors can end up with substantial tax bills as well as penalties for failing to pay employment taxes and failing to file required tax forms. Workers can avoid higher tax bills and lost benefits if they know their proper status.

Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Generally, whether a worker is an employee or an independent contractor depends upon how much control you have as a business owner. If you have the right to control or direct not only what is to be done but also how it is to be done then your workers are most likely employees. If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors.

Three broad characteristics are used by the IRS to determine the relationship between businesses and workers - Behavioral Control, Financial Control, and the Type of Relationship. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

Knowing the proper worker classification can be critical to your business. Don’t guess. Act now to make certain you know for sure.

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, and Publication 1779, Independent Contractor or Employee. Both of these publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Contractor vs. Employee
• Publication 1779
• Publication 15-A

Today the IRS published another warning about tax scams, unscrupulous tax preparers, and protecting your financial information.  Read the information below for important warnings. Anytime you have questions about  your taxes, contact a reputable tax professional such as an Enrolled Agent.The IRS has these tips to avoid falling prey to con artists.

Watch your personal and financial information very closely, particularly during electronic transactions. The IRS is among a growing group of government agencies and corporations whose names and Web sites are being copied by imposters posing as employees conducting official business and seeking your personal information.  Be aware that the IRS does not use e-mail to initiate contact with taxpayers about their accounts. Do not open links in unsolicited messages claiming to come from the IRS.

Not all scams come by way of the Internet or email.  The telephone is a low-tech source of scams.  Do not give away personal information to callers claiming to be from the IRS unless you have verified the caller’s identity.  You can confirm an IRS contact by calling 800-829-1040.

Thieves can use stolen personal data to access your financial accounts, run up charges on credit cards or apply for new loans. With a stolen identity a con-artist might try to use your Social Security Number to intercept your refund or falsify employment records, leaving the IRS with the impression that you did not report all of your income.

Some con artists earn their living by preparing false, and illegal, tax returns.  Make certain that all of the information on your tax return is accurate since you are responsible for its content regardless of who prepares your return.

Dishonest return preparers, promising unreasonably large refunds, can cause many headaches for you. Such preparers attract new clients by promising large refunds while skimming a portion of the inflated refunds and charging high fees for preparation services.  Choose carefully when you hire a tax preparer. As the saying goes, if it sounds too good to be true, it probably is.

In contrast to shady tax preparers, some con artists openly tell you that you do not have to pay taxes.  Be wary of anyone who encourages you to side-step your responsibility to file an income tax return or to pay the proper amount of tax due.

Some promoters make outlandish claims that taxes are not legal, that wages are not income, that a voluntary tax system means you can choose not to file or pay and that income tax returns violate your protection against self-incrimination or the right to privacy.  Often these promoters will use techniques that are strikingly similar to any other con-artist to charge a high fee to share their “secrets” with you.  Such arguments are false and have been repeatedly rejected by the courts.  You may end up paying for this mistake twice, first when you pay for the bad advice and second when you are faced with a higher tax bill plus penalties and interest.

For more information about these and other tax scams visit the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov.  Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:

• IRS Warns of New E-mail Scam

If you are planning on selling your home, read the important information below, published by the IRS. Especially, if you are in the military, you may find the information useful. An important note - be sure to file your return on time. If your return is filed in a timely manner and you had no capital gain above the exclusion, you do  not need to report the sale on your return.  If you do not file on time, the IRS will count as income the entire amount of the sale, until you prove otherwise.

Save yourself time and frustration and file your return on time. If you need assistance in preparing your returns, contact an Enrolled Agent or other tax professional.

During summer months, many people sell their home and move to a new location.  Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax
to the IRS.

Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home.  That profit, considered a capital gain, is usually subject to income tax.  However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit.

Individuals may be able to exclude up to $250,000 of capital gain on the sale of their home, and married taxpayers filing joint returns may be able to exclude up to $500,000. The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

To qualify, you must meet both the ownership and use tests.

• Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
• Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.

If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if only one of you meets the ownership test.

If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home.  But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

For sales after 2007, the maximum exclusion on the sale of a main home by an unmarried surviving spouse is $500,000 if the sale occurs no later than 2 years after the date of the other spouse’s death. However, this rule applies only if the requirements for joint filers relating to ownership and use were met immediately before the date of death, and during the 2-year period ending on the date of death, there was no sale or exchange of a main home by either spouse which qualified for the exclusion.

If you were on qualified official extended duty in the U.S. Armed Services, the Foreign Service, or the intelligence community, you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when, for more than 90 days or for an indefinite period, you are:

• At a duty station that is at least 50 miles from your main home, or
• Residing under government orders in government housing.

Intelligence community members must serve on extended duty at a duty station that is located outside the United States.

If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax.

For more information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov.  Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

I was recently asked about the tax implications of buying a home and renting it to a son or daughter. If your child uses it as his or her main residence and pays a fair rental price for it, then you can consider it as any other rental property.

 The rules really change is you decide not to make any profit from the rental. You then cannot deduct any loses. You can only claim expenses up to what you received in rental income.

 You best bet is to charge more than you are paying for the mortgage for rent, In some years, like years you have to make repairs, you may incur a loss. You will be able to deduct that loss (up to $25000) on you tax return, if you are considered to materially participate in handling the rental property. Material participation means you are actively involved in handling the property, such as collect rent, make repairs etc.

 While you may hesitate to profit from renting to your own child, the tax implication of not doing so are great. Their rental should be a fair price in your market and should show a profit(unless expensive repairs have to be made. For additional information, visit the IRS website or contact an Enrolled Agent or other tax professional.

I was recently asked whether you can claim a child as a dependent if they have income. The answer is, it depends. In this case, this was for their 21 year old daughter who is a full time student. Since she is under 24 and a full time student, she meets the residency test, even if she is not living at home. She meets all the other requirements such as relationship, citizenship, qualifying child. You also have to file your return Married Filing Jointly.

 Another issue is whether or not her absence is considered temporary as in a college student who lives away from home most of the year, but comes home for holidays.

 The next question now, is support. If your under 24 full time student pays more that 50% of her support(meaning food, rent, tuition..etc). In this case, she cannot be claimed as your dependent for income tax purposes. As long as you pay more 50% or more of her expenses, you can still claim her as your dependent.

 If the child is 24 or older, you then have to meet the income test. This means if she earns over the current years exemption amount which was $3400 for 2007, she does not met the income test and you cannot claim her.

 For the child who is under 24 if her absence is temporary and you pay 50% or more of her support then, yes, you can take her as a dependent. If she either pays more than 50% of her support or she is permanently living away from home, you cannot claim her as a dependent.

If you need further clarification on you dependency issues, visit the IRS website, or contact an Enrolled Agent or other tax professional.