I answer a lot of questions surrounding the IRS form 941. This is the employer's quarterly tax return.
The 941 needs to be filed each quarter. It is due on the last day of the month following the quarter end. The due dates are April 30, July 31, October 31 and January 31.
Deposits for most companies are made each month for employees withholding and matching FICA. The 941 reconciles all deposits made during the quarter to what is owed.
Most companies fall into trouble when they stop making their deposits thinking that they can "catch up" next month. Once you fail to make one deposit, it becomes a snowball effect and you end up owing the IRS a lot more than just your regular deposits.
One way to avoid this is to hire a payroll tax company which will figure your paychecks for you, process the checks for distribution to your employees, make your deposits and file your 941. It is a good idea. It may cast you some extra coin, but it keeps you out of trouble with the IRS. Besides having them do your payroll gives you more time to spend in your business doing more important things that can move your business forward, like being able to do more sales.
If you end up owing for more than 3 quarters will land you with a Revenue Officer of the IRS. And that is a bad deal.
If you need help with resolving an IRS issue please call a firm who knows how to take care of you.
Thursday, October 30, 2008
What is an Enrolled Agent?
As I work in my job assissting people with resolving their tax issues, I have decided to become an enrolled agent. We have several EA's in our office. Most people have no idea of the importance of an enrolled agent or what you must do to become one so I decided to shed some light on the subject.
An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before.
How do you become an enrolled agent?
There are two tracks to becoming an enrolled agent.
The two tracks are:
Written examination.
You can become an enrolled agent by demonstrating special competence in tax matters by taking a written examination. This track requires that you -
Apply to take the Special Enrollment Examination (SEE); prometric.com/irs;
Achieve passing scores on all parts of the SEE;
Apply for enrollment; and
Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.
IRS experience.
You can become an enrolled agent by virtue of past service and technical experience with the IRS that qualifies you for enrollment.
This track requires that you -
Possess the years of past service and technical experience specified in Circular 230;
Apply for enrollment; and
Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.
An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before.
How do you become an enrolled agent?
There are two tracks to becoming an enrolled agent.
The two tracks are:
Written examination.
You can become an enrolled agent by demonstrating special competence in tax matters by taking a written examination. This track requires that you -
Apply to take the Special Enrollment Examination (SEE); prometric.com/irs;
Achieve passing scores on all parts of the SEE;
Apply for enrollment; and
Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.
IRS experience.
You can become an enrolled agent by virtue of past service and technical experience with the IRS that qualifies you for enrollment.
This track requires that you -
Possess the years of past service and technical experience specified in Circular 230;
Apply for enrollment; and
Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.
Thursday, October 23, 2008
OIC? You have a better chance of getting a foul ball at a baseball game
I get incensed by the false advertising of companies that state that they can get you "pennies on the dollar"- as if it was dependent on the skill of that practitioner. Another false advertising claim by these companies is the statement, "it is your last chance to get rid of your tax debt." This one could not be farther from the truth. These companies are referring to the IRS Offer in Compromise program. In fact, this program has been with the IRS for about 60 years, with no end proposed by Congress, the US Treasury, or the IRS.
Now, your chances of an Offer- Doubt as to Collectibility (this is the one that they are advertising), are quite small. In fact, by conservative standards, the chances are about 1 in 714 for those who owe taxes.
Compare that with your chances of catching a foul ball at a baseball game: 563 to 1
The fact is that the Offer in Compromise is a rarely used form of resolving your debt. There are many other options you need to explore with a competent tax professional.
Now, your chances of an Offer- Doubt as to Collectibility (this is the one that they are advertising), are quite small. In fact, by conservative standards, the chances are about 1 in 714 for those who owe taxes.
Compare that with your chances of catching a foul ball at a baseball game: 563 to 1
The fact is that the Offer in Compromise is a rarely used form of resolving your debt. There are many other options you need to explore with a competent tax professional.
Paying Your Fair Share
I work for a tax resolution firm. Every day I see the hard times people have that owe the IRS money. They owe for just a few reasons.
They fail to file their tax returns and the IRS prepares returns for them, called SFRs, and they end up with a liability with huge penalties and a lot of interest. This causes a lot of hardship for the taxpayer and puts them in a hole that is VERY hard to get out of.
They fail to withhold the correct amount of taxes from their paychecks. This makes them short on their withholdings at the end of the year. When they file their return , they have not had enough taxes withheld from their paychecks to pay their tax. Therefore they can not pay what they owe and end up in a deficit. You can figure how much you need to withhold from your checks by using this withholding calculator form the IRS website.
Another reason why people owe the IRS at the end of the year is self employed people fail to make their estimated tax payments each quarter during the year. A self employed person is paid by the job and is usually issued a 1099 misc. at the end of the year. No taxes are withheld during the year and the tax payer is not only resposible for the reagular tax amount he would owe for working but also the self employment tax. The self employment tax is what an employer would pay, matching FICA, if the taxpayer was employed earning a W-2. So as you can see, a self employed person will owe more tax that a regular employee.
A taxpayer really needs to set up a budget to live by and stick to it. Make your estimated tax payments if you are self employed and make sure your withholdings are correct if you are a W-2 employee. You do not want to owe the IRS. They can make life VERY miserable for a taxpayer.
If its to late for you and you owe the IRS now, please get in touch with a reputable tax resolution firm to resolve your tax debt issue.
They fail to file their tax returns and the IRS prepares returns for them, called SFRs, and they end up with a liability with huge penalties and a lot of interest. This causes a lot of hardship for the taxpayer and puts them in a hole that is VERY hard to get out of.
They fail to withhold the correct amount of taxes from their paychecks. This makes them short on their withholdings at the end of the year. When they file their return , they have not had enough taxes withheld from their paychecks to pay their tax. Therefore they can not pay what they owe and end up in a deficit. You can figure how much you need to withhold from your checks by using this withholding calculator form the IRS website.
Another reason why people owe the IRS at the end of the year is self employed people fail to make their estimated tax payments each quarter during the year. A self employed person is paid by the job and is usually issued a 1099 misc. at the end of the year. No taxes are withheld during the year and the tax payer is not only resposible for the reagular tax amount he would owe for working but also the self employment tax. The self employment tax is what an employer would pay, matching FICA, if the taxpayer was employed earning a W-2. So as you can see, a self employed person will owe more tax that a regular employee.
A taxpayer really needs to set up a budget to live by and stick to it. Make your estimated tax payments if you are self employed and make sure your withholdings are correct if you are a W-2 employee. You do not want to owe the IRS. They can make life VERY miserable for a taxpayer.
If its to late for you and you owe the IRS now, please get in touch with a reputable tax resolution firm to resolve your tax debt issue.
Wednesday, October 22, 2008
You're Getting Married and Your New Spose Owes the IRS
How do you keep your spouses liability separate from yourself. Well you are married, aren't you supposed to share everything?
In this case it is best to keep the liability with just the spouse who owes. There are two ways to do this.
First, you can file Married Filing Separate. This will keep your liabilities separate and the IRS will not be able to come after the innocent spouse for the liability. Doing it this way you will loose your married deduction on your tax return. To get that deduction you need to do the second item.
Second you can file Married Filing Joint BUT you have to file innocent spouse with your return. This is form 8857 with your return. This will protect the "innocent spouse" from the IRS but allow you to take the married deduction on your tax return.
If you have questions about resolving your tax debt or about filing taxes please call Effctur and check out their website.
In this case it is best to keep the liability with just the spouse who owes. There are two ways to do this.
First, you can file Married Filing Separate. This will keep your liabilities separate and the IRS will not be able to come after the innocent spouse for the liability. Doing it this way you will loose your married deduction on your tax return. To get that deduction you need to do the second item.
Second you can file Married Filing Joint BUT you have to file innocent spouse with your return. This is form 8857 with your return. This will protect the "innocent spouse" from the IRS but allow you to take the married deduction on your tax return.
If you have questions about resolving your tax debt or about filing taxes please call Effctur and check out their website.
Thursday, October 16, 2008
Joe the Plumber Owes Back Taxes
The man mentioned in the debate between Obama and McCain the other night owes back taxes.
According to this report on FoxNews.com, Joe the plumber owes back taxes. He owes the state of Ohio $1182.98 in back taxes and has a lien placed on his property by the state until he pays what is owed.
This is not as unique as you might think. Millions of people owe back taxes to either the IRS or the state in which they live.
Getting out of debt with the IRS can be a very arduous task. What a tax payer needs is a resolution with the IRS or the state. Not knowing how to handle the situation can cost you time and money.
Hiring a tax resolution firm to resolve your issue can help you in many ways. Call a reputable firm and get some help today.
According to this report on FoxNews.com, Joe the plumber owes back taxes. He owes the state of Ohio $1182.98 in back taxes and has a lien placed on his property by the state until he pays what is owed.
This is not as unique as you might think. Millions of people owe back taxes to either the IRS or the state in which they live.
Getting out of debt with the IRS can be a very arduous task. What a tax payer needs is a resolution with the IRS or the state. Not knowing how to handle the situation can cost you time and money.
Hiring a tax resolution firm to resolve your issue can help you in many ways. Call a reputable firm and get some help today.
Business Use of Your Car
If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.
You can generally figure the amount of your deductible car expense using one of two methods:
the standard mileage rate method or
the actual expense method.
If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction. Please refer to Publication 463, Travel, Entertainment, Gift and Car Expenses, for the current standard mileage rate. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes.
To use the standard mileage rate, you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Further, to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.
However, for a car you lease, you must use the standard mileage rate method for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that are after 1997.
To use the actual expense method, you must determine what it actually costs to operate the car for business purposes. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to business miles driven.
Other car expenses for parking fees, and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
Generally, the Modified Accelerated Cost Recovery System is the only depreciation method that can be used by car owners to depreciate any car placed in service after 1986. However, if you used the standard mileage rate in the year you place the car in service, and change to the actual expense method in a later year and before your car is fully depreciated, you must use straight–line depreciation over the estimated remaining useful life of the car. There are limits on how much depreciation you can deduct.
Travel, Entertainment, Gift, and Car Expenses, explains the depreciation limits, and it discusses special rules applicable to leased cars.
The law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement.
If you are an employee whose deductible business expenses are fully reimbursed under an accountable plan, i.e., a plan that meets the 3 accountable plan requirements, the reimbursements should not be included in your wages on your Form W-2, and you should not deduct the expenses.
If your employer uses a non–accountable plan to reimburse you for the expenses, the reimbursements are includable in your wages. Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a non–accountable plan with your wages, salary, or other compensation and report the total on your Form W–2. Your employee business expenses may be deductible as an itemized deduction. For a definition of Accountable and Non–Accountable plans, refer to Publication 463 and Topic 514.
You can generally figure the amount of your deductible car expense using one of two methods:
the standard mileage rate method or
the actual expense method.
If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction. Please refer to Publication 463, Travel, Entertainment, Gift and Car Expenses, for the current standard mileage rate. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes.
To use the standard mileage rate, you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Further, to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.
However, for a car you lease, you must use the standard mileage rate method for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that are after 1997.
To use the actual expense method, you must determine what it actually costs to operate the car for business purposes. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to business miles driven.
Other car expenses for parking fees, and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
Generally, the Modified Accelerated Cost Recovery System is the only depreciation method that can be used by car owners to depreciate any car placed in service after 1986. However, if you used the standard mileage rate in the year you place the car in service, and change to the actual expense method in a later year and before your car is fully depreciated, you must use straight–line depreciation over the estimated remaining useful life of the car. There are limits on how much depreciation you can deduct.
Travel, Entertainment, Gift, and Car Expenses, explains the depreciation limits, and it discusses special rules applicable to leased cars.
The law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement.
If you are an employee whose deductible business expenses are fully reimbursed under an accountable plan, i.e., a plan that meets the 3 accountable plan requirements, the reimbursements should not be included in your wages on your Form W-2, and you should not deduct the expenses.
If your employer uses a non–accountable plan to reimburse you for the expenses, the reimbursements are includable in your wages. Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a non–accountable plan with your wages, salary, or other compensation and report the total on your Form W–2. Your employee business expenses may be deductible as an itemized deduction. For a definition of Accountable and Non–Accountable plans, refer to Publication 463 and Topic 514.
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