• Latest Tax Q&A

  • Notice for Net Operating Loss Changes
  • Checklist for Closing your Business
  • Checklist for Starting your Business
  • Employee vs. Independent Contractor
  • Nine Tips for Taxpayers Who Owe Money to the IRS

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Notice for Net Operating Loss Changes

on Aug 21 in Uncategorized tagged by janaolson

Notice 2010-58 provides guidance in Q& A format under § 13 of the Worker, Homeownership, and Business Assistance Act of 2009, which allows taxpayers to elect a 3, 4, or 5-year net operating loss (NOL) carryback instead of a normal 2-year carryback.  The election applies to an applicable NOL, which is an NOL for a taxable year ending after December 31, 2007, and beginning before January 1, 2010.  The notice answers frequently asked questions about election procedures, deadlines, and eligibility; the alternative tax net operating loss deduction; and the 50% limitation on an NOL carried back to the 5th preceding taxable year.

http://www.irs.gov/pub/irs-drop/n-10-58.pdf

Please click on above link for the 12 page details

Checklist for Closing your Business

on Aug 21 in Uncategorized tagged by janaolson

There are typical actions that are taken when closing a business. You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1. You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. If you do not have a pre-printed envelope in which to send your taxes, refer to the Where To File page for a list of addresses. Below is a list of typical actions to take when closing a business, depending on your type of business structure: Checklist Make final federal tax deposits Electronic Federal Tax Paying System (EFTPS) OR Form 8109-B File final quarterly or annual employment tax form. Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (PDF) Form 941, Employer’s Quarterly Federal Tax Return (PDF) Form 943, Employer’s Annual Tax Return for Agricultural Employees (PDF) Form 943-A, Agricultural Employer’s Record of Federal Tax Liability (PDF) Issue final wage and withholding information to employees Form W-2, Wage and Tax Statement (PDF) Report information from W-2s issued. Form W-3, Transmittal of Income and Tax Statements (PDF) File final tip income and allocated tips information return. Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips (PDF) Report capital gains or losses. Form 1040, U.S. Individual Income Tax Return (PDF) Form 1065, U.S. Partnership Return of Income (PDF) Form 1120 (Schedule D), Capital Gains and Losses (PDF) Report partner’s/shareholder’s shares. Form 1065 (Schedule K-1), Partner’s Share of Income, Credits, Deductions, etc. (PDF) Form 1120S (Schedule K-1), Shareholder’s Share of Income, Credits, Deductions, etc. (PDF) File final employee pension/benefit plan. Form 5500, Annual Return/Report of Employee Benefit Plan (PDF) Issue payment information to sub-contractors. Form 1099-MISC, Miscellaneous Income (PDF) Report information from 1099s issued. Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF) Report corporate dissolution or liquidation. Form 966, Corporate Dissolution or Liquidation (PDF) Consider allowing S corporation election to terminate. Form 1120S, Instructions (PDF) Report business asset sales. Form 8594, Asset Acquisition Statement (PDF) Report the sale or exchange of property used in your trade or business. Form 4797, Sales of Business Property (PDF) References/Related Topics Canceling an EIN – Closing Your Account Closing a Business Contact local and state agencies. There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business. Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business. Closing A Business Video

Checklist for Starting your Business

on Aug 21 in Uncategorized tagged by janaolson

The checklist below provides the basic steps you should follow to start a business. This list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.Information about specific industries can be found at the Industries/Professions Web page. Each state has additional requirements for starting and operating a business. For information regarding state-level requirements for starting a business, please refer to your state’s Web site. Refer also to the Small Business Administration’s Checklist for Starting a Business. Apply for an Employer Identification Number (EIN) if applicable. Select a business structure. Choose a tax year. Choose your accounting method. If you have employees have them fill out Form I-9 and Form W-4 (PDF). If your employees qualify for and want to receive advanced earned income credit payments, they must give you a completed Form W-5 (PDF). Pay your business taxes.

Employee vs. Independent Contractor

on Aug 21 in Uncategorized tagged by janaolson

Employee vs. Independent Contractor – Seven Tips for Business Owners As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file. Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

 1. The IRS uses three characteristics to determine the relationship between businesses and workers: 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. Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

2. 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.

 3. 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.

4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

5. Workers can avoid higher tax bills and lost benefits if they know their proper status.

 6. 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.

 7. 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, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Nine Tips for Taxpayers Who Owe Money to the IRS

on Aug 09 in Uncategorized tagged by janaolson

Nine Tips for Taxpayers Who Owe Money to the IRS

Did you end up owing taxes this year? The vast majority of Americans get a tax refund from the IRS each spring, but those who receive a bill may not know that the IRS has a number of ways for people to pay. Here are nine tips for taxpayers who owe money to the IRS.

1. If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
2. You can also pay the bill with your credit card. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Official Payments Corporation at 888-UPAY-TAX (also www.officialpayments.com/fed) or Link2Gov at 888-PAY-1040 (also www.pay1040.com) or RBS WorldPay, Inc at 888-9PAY-TAX (also www.payUSAtax.com).
3. You can pay the balance owed by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or online at www.eftps.gov.
4. An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all returns that are required and be current with estimated tax payments.
5. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at IRS.gov.
6. You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS.  The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $25,000 or less, provide the highest monthly amount you can pay with your request.
7. You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.
8. If an agreement is approved, a one-time user fee will be charged.  The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account.  For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged.
9. Taxpayers who have a balance due, may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. There is a withholding calculator available on IRS.gov to help taxpayers determine the amount that should be withheld.

For more information about installment agreements and other payment options visit IRS.gov.  IRS Publications 594, The IRS Collection Process and 966, Electronic Choices to Pay All Your Federal Taxes also provide additional information regarding your payment options.  These publications and Form 9465 can be obtained from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Don’t Panic! Eight Things to Know If You Receive an IRS Notice

on Jul 12 in Uncategorized tagged by janaolson

IRS Tax Tip 2010-73

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

CONSUMER ALERT: The IRS does NOT email

on Jul 12 in Uncategorized tagged by janaolson

The IRS does not send taxpayers unsolicited e-mails about their tax accounts, tax situations or personal tax issues. If you receive such an e-mail, most likely it’s a scam.

IRS impersonation schemes flourish during filing season. These schemes may take place via phone, fax, Internet sites, social networking sites and particularly e-mail. 

Many impersonations are identity theft scams that try to trick victims into revealing personal and financial information that can be used to access their financial accounts. Some e-mail scams contain attachments or links that, when clicked, download malicous code (virus) that infects your computer or direct you to a bogus form or site posing as a genuine IRS form or Web site. 

Some impersonations may be commercial Internet sites that consumers unknowingly visit, thinking they’re accessing the genuine IRS Web site, IRS.gov. However, such sites have no connection to the IRS.

For more information on scams and what to do if you’re subject to one, see Online Scams that Impersonate the IRS, Suspicious e-Mails and Identity Theft and How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites. 

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5-Year Carryback of 2008 and 2009 Net Operating Losses (NOLs) for Eligible Small Businesses (ESBs)

on Jul 12 in Uncategorized tagged by janaolson

5-Year Carryback of 2008 and 2009 Net Operating Losses (NOLs) for Eligible Small Businesses (ESBs) Congress recently passed two laws that can affect businesses with Net Operating Losses (NOLs). American Recovery and Reinvestment Tax Act of 2009 (“ARRA”) Section 1211: ARRA allows an eligible small business (“ESB”) to elect to carry back an “applicable 2008 net operating loss” for a period of 3, 4, or 5 years to offset taxable income in those preceding taxable years. The “applicable 2008 net operating loss” means the taxpayer’s net operating loss for any taxable year ending or beginning in 2008. The election is irrevocable and can be made for only one tax year. The term “ESB” has the same meaning given that term by §172(b)(1)(F)(iii), except §448(c) is applied by substituting “$15 million” for “$5 million” in each place it appears. Section 172(b)(1)(F)(iii) provides that a small business is a corporation or partnership that meets the gross receipts test of §448(c) for the taxable year in which the loss arose. Sole proprietorships are evaluated on whether they would meet this test if the sole proprietorship were a corporation. Additionally, as discussed in Revenue Ruling 2009-09, because §172(d)(4)(C) treats any deduction for casualty or theft losses allowable under §165(c)(2) or (3) as a business deduction, a casualty or theft loss an individual sustains after December 31, 2007, is considered a loss from a “sole proprietorship” within the meaning of §172(b)(1)(F)(iii). Accordingly, an individual may elect either a 3, 4, or 5-year net operating loss carryback for an applicable 2008 net operating loss, provided the gross receipts test provided in §172(b)(1)(H)(iv) is satisfied. For further information: Check the ARRA web page and Refer to Revenue Procedure 2009-26 on page 935 in the Internal Revenue Bulletin 2009-19, Revenue Procedure 2009-19 on page 747 in the Internal Revenue Bulletin 2009-14, and Revenue Ruling 2009-09 on page 735 in the Internal Revenue Bulletin 2009-14. Worker, Homeownership, and Business Assistance Act of 2009 (“WHBAA”) Section 13: This law amends §172(b)(1)(H) to allow most taxpayers, not just ESBs, to elect to carry back an applicable NOL or loss from operations for a period of 3, 4, or 5 years to offset taxable income in those preceding taxable years.  This change applies to taxable years ending after December 31, 2007, and beginning before January 1, 2010.  The election is irrevocable and generally can be made for only one tax year.  An NOL carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year.  For further information, check the FAQ web pages and http://www.irs.gov/newsroom/article/0,,id=215657,00.html and Refer to Revenue Procedure 2009-52 on page 744 in Internal Revenue Bulletin 2009-49.

Your LLC

on Jul 12 in Uncategorized tagged by janaolson

IRS Historical Timeline

on May 31 in Uncategorized tagged by janaolson

Historical Highlights of the IRS

1862 – President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation’s first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.

1867 – Heeding public opposition to the income tax, Congress cut the tax rate. From 1868 until 1913, 90 percent of all revenue came from taxes on liquor, beer, wine and tobacco.

1872 – Income tax repealed.

1894 – The Wilson Tariff Act revived the income tax and an income tax division within the Bureau of Internal Revenue was created.

1895 – Supreme Court ruled the new income tax unconstitutional on the grounds that it was a direct tax and not apportioned among the states on the basis of population. The income tax division was disbanded.

1909 – President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.

1913 – As the threat of war loomed, Wyoming became the 36th and last state needed to ratify the 16th Amendment. The amendment stated, “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.

1918 – The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.

1919 – The states ratified the 18th Amendment, barring the manufacture, sale or transport of intoxicating beverages. Congress passed the Volstead Act, which gave the Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Eleven years later, the Department of Justice assumed primary prohibition enforcement duties.

1931 – The IRS Intelligence Unit used an undercover agent to gather evidence against gangster Al Capone. Capone was convicted of tax evasion and sentenced to 11 years.

1933 – Prohibition repealed. IRS again assumed responsibility for alcohol taxation the following year and for administering the National Firearms Act. Later, tobacco tax enforcement was added.

1942 – The Revenue Act of 1942, hailed by President Roosevelt as “the greatest tax bill in American history,” passed Congress. It increased taxes and the number of Americans subject to the income tax. It also created deductions for medical and investment expenses.

1943 – Congress passed the Current Tax Payment Act, which required employers to withhold taxes from employees’ wages and remit them quarterly.

1944 – Congress passed the Individual Income Tax Act, which created the standard deductions on Form 1040.

1952 – President Truman proposed his Reorganization Plan No. 1, which replaced the patronage system at the IRS with a career civil service system. It also decentralized service to taxpayers and sought to restore public confidence in the agency.

1953 – President Eisenhower endorsed Truman’s reorganization plan and changed the name of the agency from the Bureau of Internal Revenue to the Internal Revenue Service.

1954 – The filing deadline for individual tax returns changed from March 15 to April 15.

1961 – The Computer Age began at IRS with the dedication of the National Computer Center at Martinsburg, W.Va.

1965 – IRS instituted its first toll-free telephone site.

1972 – The Alcohol, Tobacco and Firearms Division separated from the IRS to become the independent Bureau of Alcohol, Tobacco and Firearms.

1974 – Congress passed the Employee Retirement and Income Security Act, which gave regulatory responsibilities for employee benefit plans to the IRS.

1986 – Limited electronic filing began. President Reagan signed the Tax Reform Act, the most significant piece of tax legislation in 30 years. It contained 300 provisions and took three years to implement. The Act codified the federal tax laws for the third time since the Revenue Act of 1918.

1992 – Taxpayers who owed money were allowed to file returns electronically.

1998 – Congress passed the IRS Restructuring and Reform Act, which expanded taxpayer rights and called for reorganizing the agency into four operating divisions aligned according to taxpayer needs.

2000 – IRS enacted reforms, ending its geographic-based structure and instituting four major operating divisions: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business and Tax Exempt and Government Entities. It was the most sweeping change at the IRS since the 1953 reorganization.

2001 – IRS administered a mid-year tax refund program to provide advance payments of a tax rate reduction.

2003 – IRS administered another mid-year refund program, this time providing an advance payment of an increase in the Child Tax Credit. Electronic filing reached a new high – 52.9 million tax returns, more than 40 percent of all individual returns.

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