Business Taxes, cannabis, Chicago cannabis, Family Taxes, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Planning, Tax Reduction, Uncategorized

Proprietors and Partners Mistakenly Pay Themselves Illegal W-2 Wages

activity board game connection desk

In our Chicago South Loop Tax Preparation office, we often see sole proprietors and partners who are above the Section 199A thresholds look for W-2 wages as a means to salvage the 20 percent deduction allowed by Section 199A. They also often look enviously at the fringe benefits that are available to employees and not to them as sole proprietors or partners.

To overcome getting shorted on the Section 199A deduction or being denied fringe benefits, some sole proprietors and partners instruct their payroll services to make them W-2 employees. When the payroll services do this, the proprietors and partners believe they are now legitimate employees of their proprietorships and partnerships. Wrong. Totally wrong.

  • The sole proprietor may not be a W-2 employee of his or her sole proprietorship.
  • A partner may not be a W-2 employee of a partnership.
  • Some sole proprietors and partners have had their Certified Professional Employer Organization (CPEO) treat them as employees. Also, wrong!
  • Using a CPEO does not create the possibility of paying a W-2 wage to a partner or a sole proprietor.

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Takeaways

The sole proprietor is not a W-2 employee of the proprietorship. He or she is self-employed and operates under the rules for the self-employed. The partner is not a W-2 employee of the partnership. He or she is a partner and is treated as a partner under the
tax rules. Partners receive remuneration for services as guaranteed payments, which are subject to self employment taxes.

The single-member LLC is a proprietorship unless the member elects treatment as an S or a C corporation. Similarly, a multi member LLC is a partnership unless it elects treatment as an S or a C corporation.

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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cannabis, Chicago cannabis, General Information, General Tax Topics, Self Employed, Small Business, Tax Debt, Tax Deductions, Tax Reduction, Uncategorized

ILLINOIS CANNABIS LICENSE DEEP DIVE CLASS.

weed

Most recently, Illinois became the second most-populous state to legalize recreational marijuana. Cannabis licenses in Illinois will be issued in 2 groups. In the first wave in mid-2020, the state will award licenses for up to 75 stores, 40 processors and 40 craft growers. In a second wave in December 2021, the state could issue licenses for 110 stores, 60 craft growers and 60 processors.

Although Cannabis is legal on the state level, Federally, the DEA (Drug Enforcement Administration) still list cannabis as a schedule 1 drug. Those wanting to enter the cannabis business need to understand that the cannabis business doesn’t allow the same tax deductions as other business.

Class attendees will learn the following:

  • The different types of licensing offered.
  • How to maximize the point system.
  • The best entities for Cannabis businesses.
  • Complicated Taxation 280E Rules.
  • Software companies & bookkeeping options.

COMMON CANNABIS FAQ’S

  • What is the state of Illinois looking for in cannabis license candidates?

  • Can I start a home based recreational cannabis business?

  • What are my banking options?

  • What strategies can I use to reduce my Federal tax bill?

  • What type of license will be offered?

  • What must I include in a partnership agreement to protect myself?

  • What’s entity is used the most in the Cannabis business?

  • Is there funding available for s socially and economically disadvantaged small businesses & persons?

Get the answers to these questions and more on August 4th 2019! We have teamed up with Chicago Cannabis Consultants to educate consumers about the 4 types of recreational cannabis licenses, funding for social equity applicants, required insurance, and how to reduce Federal taxation. Chicago Cannabis Consultants have served the cannabis industry for the last 5 years in Denver, Nevada, and California. Chicago cannabis consultants have developed effective marketing, management, product development, and distribution techniques which they will be sharing with us during this class.

Light refreshments & small plates will be served until exhausted. 1 TICKET PER PERSON ANY DUPLICATE EMAILS WILL BE KICKED OUT OF THE SYSTEM AND WILL NOT BE ALLOWED ENTRY. To purchase a ticket, you must sign up for our email list here

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

How I went to IRS tax jail, aka IRS withholding compliance program.

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Author: Trudy M. Howard

Have you ever gotten away with something, and found yourself doing it again? Did you keep doing it thinking that you would never get caught, or if you did get caught, you could talk your way out of it? Well that was also me when it came to going exempt on my Federal taxes.

When I was 25 I started working for a major phone company, and I was earning about $70,000 per year. $70,000 wasn’t a shabby salary for a 25 year old single mother, but when the Federal taxes were deducted, I felt as if I was paying more in taxes than I was earning. With the increase in salary I no longer qualified for the earned income tax credit, I didn’t qualify for daycare assistance programs, and I was kicked out of the welfare office when I asked for medical help or food stamps! So what was a girl to do when she felt that she needed more money to survive? Was I supposed to create a budget and stick to it? Should I have stopped dining out? Maybe I should have picked up a side business (which would have created tax planning opportunities) and supplemented my income? While all of these things sound like viable, and reasonable options, 25 year old Trudy was not reasonable, and she certainly wasn’t going to discipline herself to stick to a budget. While discussing my financial crisis (don’t judge me) with a friend, she told me about a “magical thing” called “going exempt from Federal income tax.”
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In order to stop the government from taking $300 and $400 out of my paychecks, “all I had to do (which is the opening statement for all bad ideas)” was write exempt on my W4, hand the form to my employer, and magically, all of the deductions would stop. The first time that I went exempt I was afraid. Was the IRS going to come after me? Was my job going to fire me for not paying taxes? Would I owe the IRS a gazillion dollars? To my surprise (and eventual demise) none of these things happened. In fact, nothing happened, life continued on, and I was happy as jay bird; that is until tax time arrived.

In June of 2002 I received my first IRS tax bill (notice CP51A). I ignored it. More letters came; I ignored them. Certified letters came; I refused to pick them up. The only letter that caught my attention was the CP504 intent to levy, and it only caught my attention because it mentioned the word assets. Me being me, I waited until the last minute to contact the IRS, and after my bank account was levied, I finally understood that when the IRS sends letters, it’s best to call them immediately. One would think that the levy would have changed my ways, but nope! All the levy did was teach me to get tax debt help, and work out a payment plan with the IRS.

Schedule-button-nbor an with the IRS click here to call us 1-855-743-5765.

After resolving my tax debt issues, I began the crazy cycle of racking up tax debt, and asking for an installment plan. 10 years into this cycle I finally reached the mother of all IRS agents, and she told me “be careful, because an IRS agents can see that you keep racking up debt, and that you don’t have enough withholding. When you don’t have enough withholdings, the IRS can force you to increase your withholding.” My internal response was “girl bye… I’ve been doing this for years, run the payment plan and shut up” but my external response was “Really they can do that? I always figured that I would settle up with the IRS at the end of the year. I’ll do better this year, I promise.” Little did I know the gig was up, and I was on my way to IRS tax jail.

Merriam Webster defines prison as: “a state of confinement or captivity, or  a place of confinement especially for lawbreakers.” While IRS tax jail is not a physical jail with walls, those that have been placed into the IRS withholding compliance program can tell you that it certainly feels like jail! Once the taxpayer becomes a lawbreaker (by not paying their taxes as they go), they are eventually placed into the IRS withholding compliance program (aka IRS tax jail), and held captive for a minimum of 3 years. During this 3 year period the IRS states that: “your employer must withhold income tax from your wages as if you’re single with zero allowances.”

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To illustrate, in 2019, if a person is earning $70,000 (and there were thrown into IRS tax jail aka withholding compliance program), they would have $400.87 withheld from each paycheck to cover their Federal income taxes. In addition to the Federal tax deduction, every paycheck would also have deductions for Social Security ($166.92), Medicare ($39.04), and state taxes ( I live in Illinois, and in IL the tax would be $133.27. After taxes, the taxpayer would be left with a net pay of $1,952.21, not including deductions for health insurance, dental, vision, life insurance, disability, union dues, and so on. So if the IRS tax jail isn’t physical, how is one cast into IRS tax jail? The IRS sends tax payers to IRS tax Jail by sending letter 2800C to the taxpayers employer. 

Once your employer receives letter 2800C per IRS.gov: “within 60 days the employer must “begin withholding income tax from this employee’s wages based on a withholding rate (or marital status) single, and withholding allowances of 0.” No amount of pleading, threatening, or arguing with your employer will change this. If you switch employers, the IRS will find you. The only thing that you can do is contact the IRS yourself (for the DIY crowd), or you can work with a professional tax debt resolution firm to negotiate with the IRS on your behalf.. Depending on your number of dependents, and marital status, the IRS may show you some mercy. There is always the option of doing nothing, and if you choose to do nothing, you can expect your lock in rate to begin within 60 days, and you will remain in IRS tax jail for a minimum of 3 years.

As with every good story, there is always a silver lining. If during your 3 year bid, you remain a good little taxpayer (by paying your taxes & staying in tax compliance) the warden can release you from IRS tax jail. 

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

Fraud by Tax Preparer Creates Big Trouble for Client

trouble.jpg

Is your tax preparer honest? You likely see indicators one way or the other. If your tax preparer commits fraud that benefits you, that can create trouble for you. In our Chicago South Loop tax preparation office,  we see a lot of clients that need tax debt relief. Many tax debt cases happen because a taxpayer unknowingly hired a dishonest tax preparer to file their tax return.  Let’s see how this works in real life.

Situation

The government indicted, tried, and convicted tax preparer Gregory D. Goosby of 30 fraud violations where he willfully aided and assisted in the preparation of false and fraudulent income tax returns.

Vincent Allen engaged Goosby to prepare his tax returns before Goosby’s fraud conviction. Allen gave Goosby his W-2, 401(k) statement, mortgage interest statement, and property tax statements. Goosby used those deductions but also added others, claiming false and fraudulent deductions for charitable contributions, meals and entertainment, and pager and computer expenses.

Guys with Guns 

Two special agents from the IRS’s Criminal Investigation Division interviewed Allen concerning Goosby’s preparation of his income tax returns. Allen agreed with the IRS that the deductions were false and fraudulent, but both the IRS and Allen blamed Goosby. The IRS did not charge Allen with intent to evade taxes (fraud).
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Statute of Limitations

In general, the IRS has three years from the date you file your tax return to audit it and propose adjustments. In the case of fraud, the IRS can audit your return at any time. There is no limit on how far back the IRS can go.

In this case against Allen, the first-ever case of this nature decided by the Tax Court, the fraud was committed by Goosby, the preparer, not by Allen, the taxpayer. So the Tax Court had to decide whether the fraud by the tax preparer extended the statute of limitations on the client’s return.

And that’s exactly what the Tax Court decided in this precedent-setting case. The tax preparer’s fraud extends the statute of limitations for fraud to the client even when the client is not charged with fraud. This means that if your tax preparer fraudulently prepares your return and you file it, the law extends the period during which the IRS can audit that tax return from the usual three years to forever.

Allen Was Lucky

Although Allen may not have felt lucky after he paid his lawyer fees and also handed over $10,000 in taxes, the IRS did not charge him with fraud and the court did not make him pay the 75 percent fraud penalty on the taxes due.
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Beware

Using a dishonest tax preparer is a mistake. When the IRS catches the dishonest preparer, it likely catches you, too. And as the Tax Court has now ruled, fraud is fraud, and that opens your tax return up to IRS examination forever.

Protect yourself. Do not engage dishonest tax preparers. With Howard Tax Prep LLC, you will always have an honest tax preparer. We will always do our best to help you lower your taxes, but we will never cheat.

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

DID YOUR CPA REALLY FILE YOUR TAXES?

warning
Here in our Chicago South Loop Tax Preparation office, we’ve seen an increase in the number of people that have paid CPA’s to file their taxes, only to find that their taxes were never filed! Many people aren’t aware of the fact that their taxes haven’t been filed until they receive a letter or notice from the IRS requesting tax returns for the years in questions.
While you can file a complaint against professional tax preparers, the IRS still holds individual taxpayers responsible for ensuring that their tax returns were filed. Because individual taxpayers are responsible for filing their returns (and for what’s on their returns) we recommend that every taxpayer request a copy of their tax return transcript every 2-3 years. Keep reading to find out how to access your tax return transcript.
4 Ways to Get IRS Transcripts

1.) ONLINE: Access the IRS online system at  Get Transcript Online . You will need to have the following:

  • A wireless phone IN YOUR NAME.
  • Most recent tax return.
  • Account number from a credit card, mortgage, home equity loan/ line of credit or auto loan.

2.) BY MAIL: If you’re unable to register online, or you prefer not to use Get Transcript Online, you may order a tax return transcript and/or a tax account transcript using Get Transcript by Mail Please allow 5 to 10 calendar days for delivery.

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3.) BY PHONE: call 800-908-9946. Please allow 5 to 10 calendar days for delivery.

4.) BY FAX/MAIL: Complete Form 4506-T, Request for Transcript of Tax Return to 855-298-1145, unless you live in Maine, Massachusetts, New Hampshire, New York,
Pennsylvania, Vermont. If you live in one of the aforementioned states, you will fax your form to 855-821-0094. 
We’ve included a sample of how to complete form 4506 below.

f4506T Transcript Tax Return EXAMPLE_Page_1.jpg

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

How to Handle Multiple Rental Activities and the 199A Deduction

apartment

In our  Chicago tax preparation office we often prepare real estate investor taxes. With the fairly new tax laws, there’s still a lot of confusion out there around your rental activity and Section 199A. Your Section 199A considerations multiply when you have multiple rental activities. Here’s what you need to consider:

  • Are your rental activities multiple trades or businesses, or one trade or business?
  • Can you aggregate the rentals for Section 199A purposes? Do you want to?
  • How does the Section 199A rental safe harbor impact your Section 199A deduction if you use it?

Whether your rental activities are each a trade or business, or they constitute one trade or business, is inherently based on the facts of your particular situation. The IRS also believes that multiple trades or businesses will generally not exist within an entity unless it can use different methods of accounting for each trade or business under the Section 466 regulations. These regulations explain that you can’t consider a trade or business separate and distinct unless you keep a complete and separable set of books and records for that trade or business.

This determination is an important factor for you if any one rental activity (taken individually) doesn’t rise to the level of a trade or business, but all the rental activities (viewed collectively) do rise to the level of a trade or business. One of the factors the IRS looks to when determining whether a rental activity is a trade or business is the number of properties rented.

Aggregation

The Section 199A regulations allow you to aggregate multiple trades or businesses such that you treat the aggregated group as one trade or business for determining your Section 199A deduction. This is an important consideration if one or more of your rental businesses have insufficient wages or unadjusted basis in assets (UBIA) to get the maximum Section 199A deduction for that property.
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The final regulations tell us you can aggregate, in most circumstances, provided that the rental activities share centralized administrative functions, such as accounting, legal, and human resources functions. The big wrinkle is the type of rental business: you generally can’t aggregate residential rental businesses and commercial rental businesses with each other because they aren’t the same type of property.

Rental Safe Harbor

Along with the final regulations, the IRS gave you an optional safe harbor to deem your rental activities as qualifying for the Section 199A deduction. The safe harbor isn’t the best strategy because most rentals qualify as a trade or business anyway.
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, Family Taxes, General Information, General Tax Topics, retirement planning, Self Employed, Small Business, Tax Planning, Uncategorized

Backdoor Roth IRA Opportunities Still Available After TCJA

backdoor

Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.
Schedule-button-nbThe backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that we are aware of, so we think it’s a good strategy. We also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no 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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