Posts Tagged ‘small business’

Tax Credits For Qualifying Small Businesses

Wednesday, February 2nd, 2011

As the end of the fiscal year has now passed, small business owners need to be aware of the tax credits that are available for them to claim.

Among those credits is the Health Insurance Credit of up to 35%. This credit is for small businesses that provide all or part of health care coverage insurance for their workers.

The Affordable Care Act sets forth who can qualify for this credit.  Claiming the credit entails the filing of Form 8941. The IRS has issued literature pertaining to how to claim the credit and its surrounding guidelines.

Qualifying small businesses have less than 25 workers, a yearly payroll under $50,000, and pay for most of the workers’ health care coverage.  The available credit can net up to 35% off of the overall costs of providing health care coverage in the fiscal year 2010.

This tax credit will be extended for 3 additional years as well. By fiscal year 2014, the credit is expected to rise to up to 50%. Four million small businesses are projected to qualify for the credit. This was determined by the Council of Economic Advisers.

The IRS guidelines state that many small businesses meet the pre-requisites for the credit. Among those businesses are denominational organizations that cover workers. The companies that provide coverage using multi- employer health and welfare programs, as well as companies that utilize contribution strategies to provide health coverage, also qualify.

The Congressional Budget Office has projected that small business savings from this credit will approach approximately 40 billion dollars.  The credit also applies to non-profit companies. Any business that meets the guidelines can apply for the credit, profit or non profit.  A six year cap will be applied to small businesses for claiming the credit.

The White House has commenced a postcard campaign in order to notify small businesses that may qualify for the credit.  They have also made all of the mandates and guidelines available to those businesses and tax professionals.

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Have You Paid Your Payroll Taxes?

Sunday, January 30th, 2011

Take a guess…what do these business owners have in common?

* Chad Wetzel, owner and operator of a heating and ventilation company, Minneapolis, MN…

* Scott R. Lennander, owner of five Minnesota construction companies…

* Baxter Worth Paschal, Jr, Chiropractor in Charleston, NC…

* Eddie Ju Ling Ni, restaurant owner, Cleveland, OH….

All of them plead guilty to not paying payroll taxes to the IRS. In fact, 3 out of 4 of these men were sentenced to anywhere from 16 months to 72 months in prison for their crimes.   As you can see, not paying payroll tax is something that the IRS considers very serious…

Why the IRS Deals Harshly With Businesses That Don’t Pay Their Payroll Tax - As an employer, you are responsible for withholding part of your employees’ wages to pay their Income tax and FICA (Social Security & Medicare) tax. Since the employees place their trust in you that you are taking this money out of their paychecks and are paying these taxes with their money, they are called “Trust Fund Taxes”.  However, if for any reason you fail to pay this money – in the eyes of the IRS you have betrayed the “trust” of the employees and you have taken money that does not belong to you.  Therefore, the IRS can be particularly aggressive with businesses that don’t pay their payroll taxes.

The IRS May Try to Shut Down Your Business.  If you owe payroll taxes, the IRS may exercise their authority to collect by using the Trust Fund Recovery Penalty (TFRP) against you.  If it’s determined by the IRS that you are the responsible party for collecting the taxes, and you willfully failed to file them, you will be notified with the plan to assess the TFRP against you.  You will then have 60 days to pay the tax or appeal.

If you don’t pay the tax or appeal, the IRS may do everything in their power to get the money: 1. Seize your personal assets 2. Place a lien against your property, or worse…

Take Action Now Before It Gets Worse.  It’s tough running a business when you owe payroll taxes – like swimming upstream. You have to pay your suppliers – while still coming up with the tax money.  You must stay current with current payroll tax while you’re paying the old tax – and you can’t be late with the payments.  And through all of this, you have to figure out how to not go broke personally.  But, even though all of this is tough – consider the alternative. If you don’t take action and resolve your problems with the IRS, things can get very ugly.

Try not to forget about the real-life stories I described in the beginning of this article.  These are stories of real business owners who didn’t take action – not only did they lose their businesses…they went to prison and still remained responsible for the payroll taxes.

IRS payroll tax problems require serious intervention – call a professional.

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Repeal of 1099 Reporting Provision Likely 

Thursday, January 6th, 2011

With the elections over, a main issue for the lame-duck Congress is a requirement within the health care bill which many believe should be rewritten – the Form 1099 tax reporting. 

This requirement – referred to as the 1099 rule - was introduced within the healthcare legislation Congress pushed and passed in early 2010. It mandates that a company must file a 1099 form with the IRS for each time it accumulates $600 or more in expenses with another business or contractor, for merchandise acquired, and certain services.

The bill included this provision as an attempt to prevent fraud against the IRS by alleviating the $350 billion gap between the taxes that companies pay, and the taxes that some companies owe. The theory is, if collected, this money could be used to pay for the healthcare of many Americans.

 
One may argue, why punish millions of honest small businesses by creating an extraordinary amount of work for bookkeepers, because of the dishonesty of others? Especially since, in the end, the federal government may not even get the results it is hoping to achieve. 

Many democrats, such as Joe Manchin and Lois Capps, are against this requirement because they believe it puts more strain on small businesses already hard-pressed to keep their heads above water in this recovering economy. President Obama himself is also against the 1099 rule, stating it may prove to be counterproductive. 

A prominent Democratic Senator from Montana who contended the healthcare reform last year, Max Baucus, says he will introduce legislation to repeal the 1099 rule requisite in response to the valid concerns of small businesses. He believes common ground must be met between both the Republican Party and the Democratic Party in order to give the American people what they voted for. Furthermore, he suggests brainstorming together to find a better alternative to improve tax compliance and mitigate the deficit the nation is facing. 

Only time will tell as the lame-duck sessions continue and decisions are made.

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Minnesota Woman Sentenced for Failing to Pay Employment Taxes

Wednesday, December 1st, 2010

           On April 20, 2009, in St. Paul, Minn., Kara Kristine Sommer, of Burnsville, Minn., was sentenced to 18 months in prison and three years of supervised release for failing to pay the Internal Revenue Service (IRS) payroll taxes from employees of a construction business.  According to her plea agreement, Sommer admitted withholding or causing to be withheld amounts for federal income taxes and Federal Insurance Contributions Act (FICA) taxes from the wages of employees of Frontier Construction, Inc., located in Burnsville, from April 1, 2002, through Sept. 30, 2006.

             Sommer was responsible for accounting, payroll management and income taxes for Frontier Construction. Her duties included withholding federal payroll taxes from employee paychecks and paying over the withheld taxes to the IRS.  From April 1, 2002, to September 30, 2006, Sommer deducted and collected federal income taxes and FICA taxes from the taxable wages of Frontier employees.  Sommer admitted that during the tax years of 2001 through 2005, she willfully failed to account for and to pay over to the IRS a total amount of taxes of nearly $200,000.

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IRS Begins Cleaning Up Congress’ New Tax Reporting Mess

Monday, October 11th, 2010

Again, in an effort to close the tax gap, the IRS is currently drafting new tax filing policies that will take effect at the beginning of 2012.

Among the new regulations is the filing of 1099 forms for vendors with any transaction over $600.

Although this may be easy for large companies currently employing computerized tracking systems, this may prove to be detrimental to small businesses in more ways than one.

One major disadvantage is that individuals and other businesses may opt to do business with large companies that can simply send them monthly reports that are 1099-compliant.

Also, businesses may try to reduce the number of companies they transact with overall, with small businesses most likely being removed from the list.

Another regulation being drafted, according to IRS Commissioner Douglas Shulman, is that credit and debit card transactions are not included in the filing of a 1099, and instead using a different form of reporting.

Major card companies can then use this advantage to encourage more businesses to switch to card transactions to limit the paperwork.

Small businesses would then be caught in the middle as credit/debit card transaction fees normally cost 2% to 3% or higher.

National Taxpayer Advocate Nina Olson admitted that the IRS will face challenges upon the implementation of the new tax filing rules.

And it may not even be effective in the long run.  Olson went on to say “The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance.”

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Washington State Woman Sentenced for Failing to Pay Employment Taxes

Tuesday, August 10th, 2010

On December 18, 2009, in Seattle, Wash., Michelle L. Bielaski, of Bellevue, Washington, was sentenced to 15 months in prison, two years of supervised release, and ordered to pay $2,478,002 in restitution.  Bielaski pleaded guilty in June 2009, admitting that as secretary and treasurer of Falcon Construction, Inc., she failed to send to the Internal Revenue Service taxes that the company withheld from employee paychecks.  In her plea agreement, Bielaski admitted that the construction company had the ability to pay the withheld taxes over the years and in fact had paid salaries totaling approximately $3.9 million from 1998 to 2007.

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IRS Going After Independent Contractors

Friday, June 18th, 2010

As part of the ongoing hunt for more tax revenue, the IRS and state agencies have redoubled efforts to track companies misclassifying permanent workers as freelancers.

Over the past decade, the size of the average small business has fallen, indicating the use of more freelancers.

In February, the IRS launched a 3-year program to look into the hiring practices of 6000 companies to find misclassified workers violating the tax code.

President Obama’s proposed 2011 budget includes a budget to add 100 new federal employees to pursue such cases. Plus, it would repeal a 32-year old rule allowing companies such as healthcare and construction industries  to legally classify long-term workers as freelancers.

This move comes as the IRS has picked up overall scrutiny of small and medium-sized businesses, increasing by 30% the hours spent auditing companies with less than $10 million in assets.

Although the IRS denies an official focus on small business, some tax experts believe such a move makes sense.  Dean A. Zerbe, a managing director of alliantgroup, a Houston tax consultancy says “The IRS believes smaller businesses are more likely to evade taxes, it’s also easier and quicker to audit smaller businesses”.

So what is an Independent Contractor? The IRS says “People such as lawyers, contractors, subcontractors, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case. The general rule is that an individual is an independent contractor if you, the person for whom Statutory Employees the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”

I guess we shouldn’t be surprised that nobody seems to know the difference…

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Can the IRS Really Shut Down a Business?

Monday, June 7th, 2010

In short…you betcha. Let’s take a look at a real-life example:

According to IRS records, an auction was held at Mangia Bev Italian Restaurant on 7/18/07, where “the property described below has been seized for nonpayment of internal revenue taxes due from Taxpayer”:

“Contents of restaurant, including but not limited to: refrigerators, freezers, fryer, ovens, tables, chairs, patio furniture, patio umbrellas, patio heater, water fountain, metal racks, fryer, warmer, stainless steel sinks, Panasonic televisions, folding tables, skillets, bowls, glassware, plates, flatware, microwave, pictures, prep stations, tools, Radiant Systems Point of Sale computer equipment and much, much more.”

I don’t know who the owners of the Mangia Bev Italian Restaurant were.

If they were anything like independent restaurant owners I’ve known in the past, I’m sure when they started they had high hopes for the future.

They may have dreamed of opening multiple locations and eventually reaping the benefits of being successful business owners in the United States.

Restaurant work is hard work with long hours, late nights and virtually no weekends off.  Most restaurant owners I’ve known are “jacks of all trades” who will do every job in the place, including washing the dishes if the dishwasher doesn’t show up.

After all that hard work, imagine what it would be like to sit and watch the IRS come in shut down your restaurant.

I wonder what happened along the way that lead to this?  Restaurant mismanagement?  Perhaps a divorce?  Sickness in the family?  Who knows?

Either way, eventually something happened that made it difficult for them to pay their bills.

Maybe they started having to juggle payments to food vendors and the owners may have even stopped taking a paycheck.

But, if they ever made the fatal mistake of non filing payroll taxes…it may have led to a very quick and decisive response from the IRS.

When it comes to payroll taxes, the IRS doesn’t mess around.

Regarding unpaid payroll taxes, the IRS makes it very clear:

“Caution:  Once we assert the penalty, we can take collection action against your personal assets. For instance, we can file a federal tax lien or take levy or seizure action..”

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Obama Cracking Down On Tax-Cheat Contractors

Friday, April 23rd, 2010

On Wednesday January 20th, President Obama sent a loud and clear message to potential and current government contractors : if you wanna play, you had better pay.

Federal Agency Chiefs have been directed to bar companies delinquent in their taxes from receiving government contracts.

The IRS has also  been instructed to take necessary steps to assure companies are not lying about their tax status in their bids.

Stan Soloway, President of the Professional Services Council, doesn’t believe anyone should be surprised by the new order:

“What the President really did was take the next step in a process we’ve been going through for the last couple of years. What he did was basically say — ‘Look, we now have a law and we now have regulations that say we’re not going to give contracts to people who are delinquent in their taxes. What I want to do is make sure we have the system in place to see if it’s working’.”

Although he was also quick to note that the decision does not stem from a large amount of suspected tax fraud.  Nor does the order state that a company automatically becomes ineligible if it has a delinquency.

“Companies and institutions have all kinds of delinquencies, because they may be negotiating with the IRS or in an appeal process with the IRS, or what have you. This can go on for years. The idea of elevating it is . . . you [give] it to somebody who can make some assessment as to whether they are really done with adjudication process and just thumbing their nose [at the system], or are they actually in an active negotiation?”

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IRS’ Latest Tools Reveal Commitment to Pursuing Taxes of the Self-Employed

Wednesday, March 24th, 2010

In an ever-increasing effort to close the tax gap, the IRS has again shown evidence of their commitment to focusing on small business and the self-employed.

Their latest effort includes a website and a free bookmark that “are part of a year-long campaign to help educate business operators about federal tax responsibilities and filing Schedule C, Profit or Loss from Business forms” say IRS officials.

The “Self-Employed Individuals Tax Center” is a new section of the IRS.gov website that acts as a starting point for self-employed and small business owners.  The free laminated bookmarks offer a list of key search words to use when trying to locate specific information on IRS.gov related to being self-employed or small business.

Once again, with these latest tools, the IRS has shown that it is beefing up it’s pursuit of tax money from small business and the self-employed.

The IRS is looking for around $136 Billion to $158 Billion of “under-the-table” money – money that’s being made by sole proprietors, partnerships and S-Corporations that is not being reported as income. According to the IRS, “Most of the understated income comes from business activities, not wages or investment income.”

These latest IRS tools are a “nice” way for the IRS to help small businesses and the self-employed report their incomes accurately.  However, once the IRS is forced to step in and pursue their money, things might not be so nice.

By not taking action and facing an IRS debt problem, a small business owner or self-employed person could face wage garnishment, and/or seizure of real estate, Social Security benefits, 401(k)’s, IRA’s, Cars / Boats / Houses, Accounts Receivable, Cash Loan Value of Your Life Insurance or Commissions Owed to them.

If anyone suspects they are in trouble with the IRS, they shouldn’t wait until the IRS comes knocking at their door. However, in this situation, it’s a very bad idea to go it alone without legal help.

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