Business Taxes – Page 9 – Your #1 source for tax reduction strategies.

Business Taxes, Family Taxes, Tax Debt, Tax Deductions, Tax Reduction, Uncategorized

CAN I FILE BANKRUPTCY FOR TAX DEBT?

January 30, 2019January 30, 2019 Howard Tax Prep LLC

Once the IRS assesses a tax bill, it generally has 10 years to collect that amount before the statute of limitations expires. Holy smokes! That’s a long time to have a creditor chasing you! And this isn’t any ordinary creditor. The IRS has a lot of power that it can use to collect your late payments. The IRS can garnish wages, file a notice of federal tax lien, and empty your bank account.

If your tax bill has exploded beyond what you can pay, you’re probably already feeling the hot breath of the IRS. At this point, you need to consider your options for how to reduce or eliminate your tax bill.

If you have thought about bankruptcy, you need to be aware of its limitations. Tax debts are particularly sticky—many of them stay with you even after the bankruptcy process is complete. And it’s important to know that bankruptcy is not your only recourse. The IRS gives you four avenues of relief to help you get out of tax debt that you can read about here. Depending on your circumstances, one or more of those IRS methods could entirely eliminate that horrible tax cloud hanging over your head, or you can look into filing bankruptcy.

It is important to note that bankruptcy is not a simple process and has many lingering effects, such as the potentially decade-long hit to your credit. However, bankruptcy can be the perfect tool in the right situation—and it can permanently eliminate some of your income tax liabilities, including penalties and interest.

The following rules determine whether you can discharge your income tax debt in bankruptcy. You have to meet all three rules to qualify:

RULE #1: Debts must be more than three years old. You have to wait at least three years after the filing deadline for the tax years at issue (normally April 15 for calendar year taxpayers) before you file your bankruptcy petition. In other words, if you file your petition on April 15, 2016, you can discharge tax debts for tax years 2013 and earlier. But note that an extension pushes your filing deadline to October 15. So if you got an extension in 2013, you must wait until October 15, 2016, to file your bankruptcy petition before you can discharge tax debts from 2013.

RULE #2: You must file all tax returns. You have to wait at least two years after you filed your tax return before you file your bankruptcy petition. So what happens if you didn’t file a return for a year? To discharge that debt, you must file that return now and then wait for two years before you file for bankruptcy.

RULE #3: Wait eight months after IRS assessment. You must wait at least 240 days after the IRS assessed your taxes before you file the bankruptcy petition.

As you can see, timing is important. If you want to ensure that the bankruptcy proceeding will clear your tax debts, you must:

Make sure you have filed all of your returns.
Wait until enough time has passed so that you qualify for relief.
Commit No fraud. Bankruptcy will not discharge your debt if you committed fraud or willfully evaded taxes.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Taxes, General Information, Self Employed, Small Business, Uncategorized

Do You Make This Big Mistake with Your Independent Contractors?

January 22, 2019 Howard Tax Prep LLC

I often deal with Chicago small business owner taxes, and the one thing that I see often is a big mistake being made with independent contractors. Do you hire 1099 contractors? Are they really 1099 contractors? If so, have you done the one thing you need to do to protect their 1099 status so you don’t get hit with payroll taxes and penalties?

If you failed this one thing, the IRS can reclassify your 1099 contractors as W-2 employees even when you have a good case for their 1099 contractor status. This should scare you. Let’s review the Kurek tax court case (UNITED STATES TAX COURT MIECZYSLAW KUREK, Petitioner v. COMMISSIONER OF INTERNAL REVENUE)to see why.

Mieczyslaw Kurek operated a construction business that made improvements to the interiors of homes, including kitchens, bathrooms, and floors, where he and his workers installed tile, sheetrock, doors, and windows and did carpentry and painting. During the year before the court, Mr. Kurek had 29 contractors, of which only seven did some work in all four quarters of the calendar year.

Relationship with Workers

Mr. Kurek had the following relationships with the workers:

He told the workers what work needed to be done and set deadlines for the jobs.
The workers worked on projects. No one worked full time for Mr. Kurek.
Mr. Kurek negotiated a flat fee and timeline with each worker for the work to be done on the project.
He paid each worker every week according to the percentage of the work the worker completed.
He paid the workers by checks made out to them personally.

How the Work Was Done

The workers set their own hours and work schedules.
Mr. Kurek came to the worksite every day or two.
Mr. Kurek did not tell the workers how to do their jobs, but he replaced workers who missed deadlines.
If he thought a worker was doing the work improperly, he would order the worker to repair the problem or redo the work.
Mr. Kurek allowed the workers to work simultaneously on other projects with him or with other independent construction groups.
The workers brought their own sets of small tools to the work-sites, worth around $1,000.
Mr. Kurek bought or rented the larger tools and he left them at the work sites for use by the workers.

No Office or Benefits

Mr. Kurek did not provide an office or any other facility for the workers. He did not:

Train the workers.
Offer them any employee benefits such as sick or vacation pay, medical insurance, or pension plans.
Carry unemployment insurance, severance pay, or workers’ compensation insurance on the workers.
Require the workers to have any type of insurance or license.

Your Opinion

Based on what you know from what you have read above, are the workers 1099 independent contractors or W-2 employees?

What Did You Pick: Employee or Contractor?

Interestingly, you could be right with either choice. Because Mr. Kurek failed the one test that could have saved independent contractor status for his workers, the court used the seven common-law factors to evaluate employee status and it ruled that the workers were W-2 employees.

The IRS has a 20-factor test to determine if a worker is a 1099 independent contractor or a W-2 employee. But if Mr. Kurek does this one thing, he does not have to face the 20 factors, just as he doesn’t have to suffer the court’s seven-factor test.

Escape
IRS Publication 1976, Do You Qualify for Relief under Section 530, says that Mr. Kurek could have treated his workers as 1099 independent contractors if he had:

A reasonable basis for treating the workers as independent contractors, such as showing that a significant segment of home improvement businesses treated their workers as independent contractors or relying on the advice of a lawyer or accountant who knew the facts about his business.
Consistently treated the workers and all similar workers as independent contractors.
Filed the 1099s for those independent contractor workers to whom he had paid $600 or more.

Failure
Mr. Kurek failed to file the 1099s. With this failure, he simply said

Hello IRS,
Goodbye Section 530 statutory relief,
Goodbye 1099 worker status, and
Hello payroll taxes and penalties.

Because Mr. Kurek failed to file the required 1099s, the court could not grant relief under Section 530 and had no choice but to examine the seven common-law factors. Sadly, the court’s application of the seven factors to Mr. Kurek’s workers caused the court to reclassify the workers from independent contractor status to W-2 employees.

What You Need to Do
Make your life easy. Avoid the big hurdles of the tax court’s seven-factor common-law tests or the IRS’s 20-factor common-law tests. You want to qualify for Section 530 relief. To ensure that relief: File the 1099s—period.

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Fact check me: T.C. Memo. 2013-64 UNITED STATES TAX COURT MIECZYSLAW KUREK, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 5459-11. Filed February 28, 2013.

Section 530 Tax Relief: IRS publication 1976 Section 530.

Business Taxes, Self Employed, Small Business, Uncategorized

De Minimis or 179 Expensing or Bonus Depreciation?

January 12, 2019January 12, 2019 Howard Tax Prep LLC

Before tax reform, many Chicago small business tax preparation pros thought that the de minimis safe harbor election was the best way to immediately expense the entire cost of your small-business assets for federal income tax purposes.

Now that the Tax Cuts and Jobs Act tax reform gives you 100 percent bonus depreciation through 2022, you have three possible reasons to use 100 percent bonus depreciation as your federal income tax default expensing method:

If you are filing Schedule C for your business activity, there is no self-employment tax on the sales proceeds.
It’s an easy method. You face none of the de minimis rules.
There are increased Section 199A deductions in certain cases.

Before deciding on the best method for federal tax purposes, make sure to check on how your selection will affect your property taxes and what that does to your net savings.

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Business Taxes, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Deductions, Uncategorized

12 Things You Must Ask Your Tax Preparer!

September 17, 2018January 23, 2019 Howard Tax Prep LLC

Author Trudy Howard

1.) Can I pay my fees out of my return?

This one question will give you insight into whether or not your preparer has passed the IRS & BANK CRIMINAL & CREDIT BACKGROUND CHECKS! If your tax return preparer only accepts cash (or cash equivalents such as PayPal, cash app, or even credit/debit cards), 9 times out of 10 you’re dealing with an unauthorized E-file provider. In order to offer clients, refund advances, and the ability to have their tax preparation fees deducted from their tax refund, a tax preparer (or the agency they work for) has to be approved by the IRS as an ERO (electronic return originator) that is authorized to send the IRS E-files. ERO providers have to pass background checks, credit checks, and suitability checks in order to become an authorized E-file provider.

2.) Do you screen your tax return preparers and assistants to see if they’ve ever been arrested for (or charged with) bank fraud, theft, identity theft, or any other criminal charges?

This is HUGE. During tax season I always see an increase in social media post referencing bank accounts that have been compromised, and identity theft issues. While your preparer may not be committing fraudulent acts, your preparer may have unknowingly hired a data entry assistant that is using/selling your information. Ask questions about the assistant, and find out if they’ve been background checked.

3.) Will my preparer sign my return, and do all of the preparers have a paid tax identification number?

I’ve seen HUNDREDS of tax returns in which consumers paid someone to prepare their returns, only to have the “tax return preparer” use Turbo Tax or some other software, and submit the tax return as a SELF PREPARED return without the return preparers signature. THIS IS A HUGE RED FLAG! Whenever you pay someone to prepare your tax return, that preparer needs to sign your return. Also, although YOU ARE RESPONSIBLE for what is on your tax return, some penalties can be waived if you can prove that you relied on the advice of a tax professional. **

4.) What safety measures do you have in place to protect my data (locked file cabinets, encrypted file sharing, etc.)?

This is self-explanatory.

5.) What are the minimum education and experience requirements for your preparers?

You don’t necessarily need a CPA, but you also don’t want someone that dropped out of the 8th grade.

6.) Do you have a special concentration (small business, truck drivers, realtors, salespeople etc.)?

Have you ever heard the term jack of all trades, master of none? Make sure that you get a tax preparer familiar with your industry as tax law, and deductions can vary based on profession. For example, a salesperson can’t take per diem, but an owner operator truck driver can.

7.) Do your preparers have any accounting experience?

There are 2 words that come to mind when thinking of why you want your tax preparer to have accounting knowledge/experience. Those two words are: depreciation, and basis.

8.) How many continuing education hours are your tax preparers required to meet? How often must they complete these continuing education requirements (yearly, every 3 years, etc.)?

Tax law changes often, so you want an agent that stays abreast of the new Federal, State, and county tax law changes.

9.) Are you and your agents listed on the IRS website under the
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications?

The IRS has an online directory that will let you know if the person you are dealing with is credentialed; use it.

10.) If I get audited can you represent me before the IRS?

Make sure that your preparer can represent you in front of IRS employees, and the tax payor advocate service.

11.) Are you open year round? What if I need help after April 15th?

You want to work with a tax firm that is open year round, and not just during tax season. Many “fly by night” operations come into town for tax season, submit fraudulent tax returns, and then disappear into the night just as quickly as they appeared.

12.) Do you offer tax planning services?

Tax preparation is the method of recording facts & reporting the facts to the IRS in proper format. Tax planning is the act of analyzing data & creating a plan of action to reduce tax liability. Tax planning requires that your tax preparer not only knows tax law, but also understands how to apply tax law.

*See Whitsett, T.C. Memo. 2017-100. Also see United States v. Boyle, 469 U.S. 241, 250 (1985))

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Author Trudy Howard

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