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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.

Family Taxes, General Information, General Tax Topics, Uncategorized

Tax Consequences of Paying Your Retired Parents To Watch Your Children

January 6, 2019January 6, 2019 Howard Tax Prep LLC

Author: Trudy M. Howard

QUESTION: Can I claim the money I pay my mom to watch my children after school? She is on S.S. and I would not want to impact her benefits as she is retired. I pay her $260 a week.

ANSWER: With the IRS most answers usually begin with “it depends” and this is one of those answers; it depends. There are several moving parts to this scenario that will determine the tax benefit/liability to you, and the tax benefit/liability to your mom. Tax liability is determined by figuring what location the child care is taking place in, your marital status, the age of the child, and your mom’s total income. It is unclear to me if you have a business, and you are wanting to “claim the money” as in deduct the total amounts paid from your taxable income as a business expense (which you cannot do), or if you want to “claim the money” for the dependent care credit. I’ll get into the dependent care credit later in the article, but for now, let’s start with is your mom an employee, or an independent contractor.

If your mom is doing the babysitting in your home, you may be considered a household employer, and you will NEED TO PAY EMPLOYER TAXES on the money that you paid to your mom. Employer taxes are Federal Unemployment taxes of 6% of the first $,7000 in wages, 6.2% for Social Security, and 1.45% for Medicare. However, as with everything concerning the IRS there is an exception to this rule. You do not have to count the wages paid for social security and Medicare taxes if:

The child is under 18 years of age, or has physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks, AND

You’re divorced and haven’t remarried.
You’re a widow or widower.
You’re living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed.

If your mom is watching your child outside of your home, (say you are dropping your child off to your mom), then your mom would be considered a “self-employed person” which means that she will need to pay self-employment taxes on her income. The reason she will need to pay report and pay self-employment taxes is because she would have earned over $400 in self-employment income.

TAXES MOM WILL HAVE TO PAY.

Because your mom is self-employed, she would have to pay SELF EMPLOYMENT TAXES in the amount of $1,591.20 (calculated using the 20% qualified business income deduction only, not with any business expense deductions), and if she has over $25,000 in income (social security income plus self-employment income), she may also have to pay INCOME TAXES on the earnings.

TAX BENEFIT TO YOU:

By paying your mom to watch your child, you may be eligible to claim the nonrefundable child and dependent care tax credit. The Child and dependent care tax credit ranges from 20%-35% of either $3,000 or $6,000 depending on your adjusted gross income. A qualifying individual for the child and dependent care credit is:

Your dependent qualifying child who is under age 13 when the care is provided.
Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year.
An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s 2018 return.

Once your AGI (adjusted gross income) is over $43,000 the max tax credit you will receive is $600 for 1 child, and $1,200 for 2 children. Each child must be under the age of 13. This credit is nonrefundable, so if you have a $0 tax liability & you receive the $600 credit, you would not receive a tax refund check for the $600.

CAN YOU DEDUCT THE TOTAL $13,520 FROM YOUR TAXABLE INCOME?

Per IRS PUBLICATION 926 The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. You can’t deduct the wages and employment taxes paid for your household employees on your Schedule C or F.

WILL THIS MONEY HAVE AN IMPACT ON YOUR MOM’S RETIREMENT BENEFITS?

There are several types of retirement income. Pension, 401k, IRA, Annuities, Social Security, SSI, Social Security Disability, Disability Payments from a Privately Owned Insurance Plan, etc. For purposes of this article I will be focusing on government sponsored retirement plans.

SOCIAL SECURITY RETIREMENT INCOME: –If your mom’s is unmarried, and her base income (including social security and all other income) is $25,000 or less, she will not have to pay any INCOME tax (remember income tax and self-employment taxes are two different taxes).

Per the benefits planner retirement section on the social security website, if your mom is at full retirement age she can earn as much as she wants, and have unlimited resources and still receive her benefits. However, if your mom is younger than full retirement age and makes more than the yearly earnings limit, her earnings may reduce her benefit amount.

“(Full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.) If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040.”

To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with

the total of:

One-half of your benefits, plus
All your other income, including tax-exempt interest

SOCIAL SECURITY DISABILITY: –This benefit is based on an inability to work, and work history. Per the disability section on the social security website: “Social Security Disability Insurance pays benefits to you and certain members of your family if you are “insured,” meaning that you worked long enough and paid Social Security taxes.” While there are limits on what a person can earn while on disability, they can receive help from outside sources and retain their benefits.

SSI–SOCIAL SECURITY SUPPLEMENTAL INCOME--The Supplemental Security Income (SSI) program pays benefits to disabled adults and children who have financial need, and limited income/resources. This benefit pays a small amount to those that are disabled, but don’t qualify for regular social security disability. The basic monthly SSI payment for 2019 is the same nationwide. It is:

—$771 for one person; or

—$1,157 for a couple.

Not everyone gets the same amount. You may get more if you live in a state that adds money to the federal SSI payment. You may receive less if you or your family has other income. Where and with whom you live also makes a difference in the amount of your SSI payment. SSI eligibility is based on a person’s access to money & assistance, (aka means, aka support, income, total household income), and per the SSA “Income is any item an individual receives in cash or in-kind that can be used to meet his or her need for food or shelter. Income also includes (for the purposes of SSI), the receipt of any item which can be applied, either directly or by sale or conversion, to meet basic needs of food or shelter.” Resources are limited to $2,000 for single people.
Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office at 855-743-5765. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Family Taxes, General Information, Uncategorized

5 Steps To Take When Someone Illegally Uses Your Child’s Social Security Number On A Tax Return.

January 3, 2019 Howard Tax Prep LLC

Author Trudy M. Howard

It’s the end of tax season, you’ve finally gotten all of your documents together, and then it happens; your electronically filed tax return is rejected. Here in our South Loop Chicago Tax Preparation office, I work with many Chicago tax preparation clients that receive the dreaded IRS Reject Codes R0000-507-01 and F1040SSPR-507 . Rejected electronic file codes R0000-507-01 and F1040SSPR-507 mean that the IRS system recognizes the child’s social security number as being claimed on another return. While it may be frustrating, if you are truly entitled to file the child/dependent in question, there are steps you can take to claim your child on your refund after someone filed them.

Step 1: Complete a paper tax return claiming all of your rightful dependents.

Step 2: Complete an IRS Identity Theft Affidavit (IRS form 14039)

Step 3: Locate the IRS mailing address for your state, and mail your paper tax return along with the completed form 14039.

Step 4: Wait on acknowledgment letter that form 14039 was received, and allow the IRS from 120-180 days to resolve your case.

Step 5: The IRS may determine that you need to placed into the PIN program, which means that on an annul basis you will receive a 6 digit Identity Protection pin number that has to be entered on your tax returns.

Also per the IRS Website: “If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490 (Monday – Friday, 7 a.m. – 7 p.m. local time; Alaska and Hawaii follow Pacific time).”

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General Tax Topics, Small Business, Tax Reduction, Uncategorized

5 last-minute strategies you can use to cut your 2018 tax bill!

December 26, 2018December 26, 2018 Howard Tax Prep LLC

Trudy Howard

In my South Loop Chicago Tax Preparation office, I often see clients looking for tax savings at years end. Although December 26th is cutting it close, your year-end tax planning doesn’t have to be hard. I have outlined below five strategies that will increase your tax deductions or reduce your taxable income so that Uncle Sam gets less of your 2018 cash.

1.) Prepaying your 2019 expenses right now reduces your taxes this year, without question. While it’s true you kicked the can down the road some, perhaps you have an offset with a big deduction planned for next year. And even if you don’t have such a plan at the moment, you have plenty of time to create one or to put more big deductions in place for 2019.

2.) The easiest year-end strategy of all is simply to stop billing your customers, clients, and patients. Once again, this kicks the can down the road some and makes your 2019 tax planning more important.

3.) Thanks to the new tax laws With 100 percent bonus depreciation and increased Section 179 expensing in 2018, you can make significant purchases of equipment, machinery, and furniture and write off 100 percent of the value. Make sure you place the assets in service on or before December 31, 2018, to get the deduction this year.

4.) Charges to your credit cards can create deductions on the day of the charge. This is absolutely true if you are a sole proprietor or you operate as a corporation and the credit card is in the name of the corporation. But if you operate as a corporation and the credit card is in your personal name, your corporation needs to reimburse you before December 31 to create the 2018 deduction at the corporate level.

5.) And finally, claim all your legitimate deductions. Don’t think you have too many, and don’t try to guess which of your too-many deductions could be a red flag. First, it’s unlikely you could have enough deductions to create a red flag. Second, no one knows what those red flags are. Third, if the deduction is legitimate, it doesn’t matter if the IRS audits it—you’ll win.

As you can see from the five strategies above, there’s much you can do to control your tax bite. 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.

Never miss another tip again! Join our newsletter, to receive tax reduction/wealth building tips delivered right to your inbox!

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