Don’t Forget – You are Responsible for Payroll Taxes

by

Any business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare (FICA) taxes. The business has to forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld  payroll taxes in a timely manner will find itself in trouble with the IRS.

The IRS may levy a penalty, known as the trust fund recovery penalty. The IRS assesses the penalty on individuals classified as “responsible persons.” The amount of the penalty equals to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.

Who’s a Responsible Person for Payroll Taxes?

Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.

The IRS states that a responsible person may be:

  • An officer or an employee of a corporation
  • A member or employee of a partnership
  • A corporate director or shareholder
  • Another person with authority and control over funds to direct their disbursement
  • Another corporation or third party payer
  • Payroll service providers

The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.

Working with the IRS

If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to us if you need to know more about the requirements. We can also help you analyze your business’s cash flow so you’ll be in a better position to meet your obligations to the IRS.

Keep Your S Corporation Safe from the IRS

by

Like many business owners, you may have structured your business as an S corporation because of the tax benefits it offers. An S corporation provides the same limited liability as a traditional C corporation, but it generally avoids the double taxation associated with a C corporation. You and the other shareholders (if any) pay income taxes on corporate income directly.

Once you have an S election in place, it’s important to make sure you avoid taking any action that would put the election in jeopardy. Your corporation’s failure to meet certain tax law requirements on an ongoing basis could result in the IRS’s termination of its S corporation status.

Ownership

An S corporation generally may not have a corporate shareholder. (Exception: An S corporation may be wholly owned by another S corporation.) All shareholders generally must be individuals, estates, certain trusts, or tax-exempt 501(c)(3) charitable organizations. However, a partnership may hold S corporation stock as a nominee for an eligible shareholder. Nonresident aliens may not be shareholders. A foreigner, non-citizen, resident alien may be an S shareholder, but you need to be careful because there are special qualification requirements, including  requirements regarding physical presence in the United States.

Number of Shareholders

An S corporation may not have more than 100 shareholders. For purposes of this limit, the IRS treats a husband and wife as one shareholder, as it treats certain other related individuals.

S Corporation Stock

An S corporation may have only one class of stock. Generally, a corporation has only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds.

Many small business owners have troubles with this requirement, by not making distributions to owners according to the ownership percentages.

For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.

A S Corporation Loss Equals a Personal Tax Deduction

by

Business owners aren’t in business to lose money. So there’s not much to like about a nonprofitable year. For a shareholder in an S corporation, however, a down year can have an upside — the corporate loss may give rise to a personal tax deduction.

S Corporation Basis

Standing between an S shareholder and the loss deduction is a tricky tax computation known as “adjusted basis.” Under the tax law, you have to limit your loss deduction to your adjusted basis in your corporate stock and in any debt the company owes you.

Adjusted basis, essentially, it’s a figure that tracks the shareholder’s investment in the company for tax purposes. The basis number changes every year to account for any money flowing between the company and the shareholder — distributions, capital contributions, loans, and loan repayments — as well as for the shareholder’s allocated share of corporate income or loss. The order in which you increase or decrease the stock basis is very important. You can find out more information about how to calculate the S corporation basis on the IRS website.

S Corporation Loss

If you anticipate an S corporation loss for the year, as an S shareholder you should find out whether you will have enough basis to benefit from the projected loss deduction. If not, it may be possible to increase basis by making a contribution to capital or by loaning the company money before year-end. In the case you have loss and deduction items in excess of stock and/or debt basis you have to suspend them and carry them over to next year. You also need to be mindful that a distribution in excess of stock basis represents a capital gain. When you give us a call today, our tax professionals can offer guidance so that the transaction will pass IRS muster.

Taxable and Non-taxable Income

by

To make your income-tax planning more effective, you should have a clear picture of your current tax situation. This means knowing what your taxable income was last year and what it is estimated to be in the following year.

Generally, you are required to report and pay taxes on all income that derives from your labor or capital. This applies to income received in any form (e.g., cash, services, meals, stock, property, etc.). However, certain types of income are tax exempt. The following lists include the most common items in both the taxable and nontaxable categories.

Forms of Taxable Income

  • Wages, salary, fees, tips, commissions, or business profits
  • Gains received from dealings in real estate, securities, and other property
  • Dividends
  • Rents
  • Alimony and separate maintenance payments that the payer can deduct
  • Royalties
  • Income from your share of an estate or trust, aside from gifts or bequests
  • Annuities and pensions
  • Certain fringe benefits
  • Prizes and awards
  • Some legal settlements proceeds
  • Up to 85% of your Social Security benefits, depending on the amount of your other income.
  • Accrued interest earned but not actually received (for example, accrued interest earned on a zero-coupon bond held in a taxable account or accrued interest earned on U.S. Treasury inflation-protected securities (tips))

Forms of Nontaxable Income

  • Interest earned from state, tribal, and municipal bonds and mutual funds that own such bond
  • Gifts and inheritances
  • Expense reimbursements received from your employer
  • Returns of capital such as loan principal repayments and the portion of annuity and pension payments that represent a return of your original investment upon which you have already paid taxes
  • Home sale gains up to $250,000 for single homeowners and $500,000 for married homeowners filing jointly
  • Scholarships, as long as you satisfy some conditions

These lists are not all-inclusive. You can find more information on the IRS website.

Contact us today with any questions.

Unclaimed Checks – How to Deal With Them

by

Maybe the owner of the check lost or tossed the check. While it may be hard to understand how checks can go un-cashed, it happens. Unclaimed checks, such ad payroll checks, commission checks, shareholder dividends, checks to vendors, and even unredeemed gift cards create problems for businesses. This represents a revenue opportunity for cash-strapped state governments. That could be an unfortunate combination if your company isn’t in full compliance with state law.

Unclaimed Checks 

Generally speaking, the states do not allow businesses to hold on to un-cashed checks indefinitely. Each state has its own laws regarding unclaimed property. And businesses must follow the rules for reporting and remitting such property to the state.

In Texas, depending on the type of property, there are different periods ranging from one to fifteen years after which the state considers unclaimed property to be “abandoned”. And you must make a good faith effort to contact the owners during that period, so that they can claim their property. If these attempts fail, businesses must turn over the abandoned property to the Comptroller’s office. You can read more about Texas unclaimed property rules here.

States Want To Know

To supplement tax revenues, states have generally been stepping up their audit and enforcement efforts regarding abandoned property. For businesses, the cost of noncompliance can be quite high, especially if they haven’t been keeping reliable records. In the absence of records, auditors may — and often do — estimate a business’s liability. This may result in an exaggerated assessment.

Protect Your Business

Take steps to protect yourself by putting someone in charge of handling your business’s unclaimed property, keeping accurate records, regularly filing required reports of unclaimed property with the Comptroller’s office, and promptly turning over any unclaimed property according to Texas law. This helps you avoid costly problems in the future.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track.

Business Vehicle: Questions & Answers

by

IRS rules and exceptions abound, but there are some questions we can answer simply.

Next to your home, your car is probably the most expensive investment you make. And the costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return?

Sometimes. The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after you’ve filed it. Here are some questions and answers that may help you decide whether you’re eligible.

How does the IRS identify a “business vehicle”?

A car, van, pickup, or panel truck.

What are transportation expenses?

These are “ordinary and necessary expenses” incurred when you, for example:

  • Visit customers,
  • Attend a business meeting held at a location other than your regular workplace, or
  • Go from home to a temporary workplace that is not your company’s principal location.

The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.

What if I’m on an overnight business trip away from home?

The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.

What if I use my car for both business and personal purposes?

You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.

I work in a home office. Can I deduct any driving expenses?

Yes, you can deduct the cost of driving to “another work location in the same trade or business.”

How do I calculate my deductible expenses?

There are two options. You can choose between the standard mileage rate and actual car expenses – depreciation, oil and gas, insurance, and repairs.

Depreciation? Isn’t that difficult to calculate?

Yes, especially for cars. If you plan to take this kind of deduction, please let us handle your tax preparation for you. Depreciation is very, very complex, and sometimes requires more than one calculation method.

What kind of business vehicle expense records do I need to maintain?

You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, cancelled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (miles driven, purpose of trip, etc.).

These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc. There are numerous mobile apps that can help you with this task. We can steer you in the right direction.

If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.

Where will I be reporting transportation expenses?

If you are self-employed, you will report business-related vehicle expenses on Schedule C or Schedule C-EZ (Form 1040). Farmers should use Schedule F (Form 1040). You’ll also want to complete a Form 4562, which is used to report depreciation and the Section 179 deduction.

Maintaining accurate records for car and truck expenses is time consuming and detail intensive. And that’s once you understand all of the IRS’s rules and exceptions surrounding this deduction. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.