Tax Facts

Information to help individuals and small business navigate our complex Tax Laws. Not to be construed as tax advice. Contact your hired tax advisor for your specific tax situation and advice.

S Corporation Officer - Employee

Small business owners who have elected to be taxed as an S corporation should be aware of and understand the law regarding corporate officers who perform services. By law, officers of corporations are employees for employment tax purposes and their compensation is considered wages. An S corporation with a single member is clearly an employee, since in order for the corporation to exist, some work had to be performed and it would be provided by that single member.

Regarding the law itself, the Internal Revenue Code does establish that a corporate officer is an employee of the corporation for federal employment tax purposes. IRC section 3121(d)(1), which is a chapter of the code on Employees, specifically states "For purposes of this chapter, the term 'employee' means any officer of a corporation..." Additionally, Code Sections 3306(i) and 3401(c) specifically define officers of corporations as employees for FICA (Social Security and Medicare), FUTA (Unemployment), and federal income tax withholding purposes.

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Paying Your Caregiver and Payroll Taxes

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Do you have a caregiver - someone who helps you cook, clean and run errands? When a family hires a caregiver to provide these types of services in or around your home, they are likely to be considered a household employee and you are considered an employer. The IRS considers this worker an employee of the family in almost every audit case.

Be sure that you are not misclassifying this service provider as an independent contractor and paying them on a 1099. This can be seen as tax evasion.  As an employer, you have tax responsibilities that you must be aware of and comply with. The main obligations are:

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Stay Out of the Penalty Box!

If you follow ice hockey, the penalty box just comes with the territory. But when it comes to tax returns, you really do want to stay out of the penalty box. And you do that by filing on time and paying on time. That includes filing an extension on time.

Filing a tax return extension gives you extra time to file your tax return, but not extra time to pay your taxes if you owe. The IRS requires that you either file on time or file for an extension, but you must pay by the original due date of your tax return - April 15th for individuals and March 15th for businesses (unless you file on a Schedule C).

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Plan Now for Next Year's Taxes

You may want to forget all about your taxes now that the lazy days of Summer are here and you've filed your tax return. Don't give in! If you start planning now - or at least visiting your tax matters now - you may avoid some tax surprises in the new year.

Call your tax preparer/Enrolled Agent if you have gotten married, divorced or a child has gone off to college. Life events impact taxes and you may need to change the amount of tax you have withheld on your W-2. If you own a business, you may need to pay in Estimated taxes.

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What If You Disagree With The IRS?

What if you disagree with the IRS about a tax decision? The IRS Office of Appeals offers taxpayers an opportunity to resolve their tax disputes without going to court. Appeals is an independent function within the IRS that provides an impartial review of your tax dispute.

Appeals also offers mediation services through Fast Track Settlement and other programs. These mediation programs are designed to help you resolve your dispute at the earliest possible stage in the audit or collection process.

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Payment Plans with the IRS

If you had a larger tax liability than you had expected this year, you can make monthly payments through an installment agreement with the IRS if you're not financially able to pay your tax debt immediately. To reduce or eliminate the amount of penalties and interest you pay and to avoid the associated fee for setting up a payment plan, you should pay your tax bill in full.

Make sure you file all require tax returns, consider any other source of financial assistance to pay your tax debt, determine the largest amount you can pay up front and then the maximum you can afford each month to pay and then know that any future refunds will be applied to your tax debt until it is paid in full.

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Need More Time to File?

If you cannot get all your records together in time for the April 15th filing due date, we can file an extension for you.  An extension will provide you with the extra time you need to gather all the information and ensure your tax return is accurate.  The extended filing date is October 15, 2015.  That's six months of time.

Remember, this is an extension of time to file; not pay.  If you owe taxes for 2014, you still have to pay that amount by the April 15th filing date or incur penalties and interest on the amount due.

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Ponzi Scheme Losses

Have you been a victim of a Ponzi Scheme?  If so, an investor loss from a Ponzi-type investment scheme is considered a theft loss.  There are specific rules that must be followed to claim the loss on your tax return.  They include considering such facts as, when the indictment occurred, the amount you invested in the account, amounts that were withdrawn, and amounts expected to be recovered.

There is more than one way to claim the loss and it depends on the facts and circumstances in each case.  For example, the IRS has provided for a safe harbor computation of the investor's loss, but specific conditions must be met and specific conditions must be agreed to on the tax return.  Special forms are required to be filed.  A qualified tax adviser is in order if you have been such a victim.

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Buying Time

Running late with your tax information this season?  Didn't yet receive all of your tax paperwork from your mutual fund account holders?  If you need time, the IRS will grant you 6 months extra, but you have to ask for it.  A special form must be filed by the deadline and if you need help with that, we are glad to take care of that for you.  Keep in mind that the extension to file does not include an extension to pay any tax liability you may have for your 2014 tax year. That still has to be paid by the April 15th, 2015 deadline or you will incur failure to pay penalties and any interest on the amount of tax due.

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Temporary Pause in E-Filing State Tax Returns

We are only two weeks into the tax filing season and the number of suspicious returns in some states has already hit 16,000.  Minnesota, Alabama and Utah have issued warnings and are following up with government investigative units and other state agencies to address the problem. As of Thursday this past week, Intuit has halted the transmission of all state e-filing of tax returns.

If you have already filed your state tax return using Intuit's software during the temporary halt, you will simply have to wait until they begin processing the returns. There is nothing you can do at this point. It will not help matters (and actually only make things more delayed) if you resubmit your state tax return electronically because it will be submitted twice and this not a good thing.

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Do You Employ Your Housekeeper?

Do you have a nanny, housekeeper, or other person you pay to do household work?  If so, you will have to determine if you are actually considered an employer of that person.  For 2014, if you paid that person $1,900 or more for the year OR $1,000 or more in any one quarter of the year, according to tax law, you must pay that person on a W-2 and you are considered their employer.

This means you must also pay the employer portion of Medicare and Social Security taxes and any Federal unemployment tax.  It doesn't end there.  You must also withhold the employee's federal income tax, their portion of FICA, and pay in the full 2.7% of Florida State Unemployment tax (now called Re-employement Tax).

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Reporting Your Dividends and Capital Gains

Now that the October 15th extended deadline has passed, it's time to settle in, be thankful for all this year has brought forth and prepare for a new beginning in 2015. With that comes my favorite time of the year: tax season. I look forward to helping people understand their taxes and preparing their tax returns.

In doing so, I remind clients about reporting of the 1099-DIV. If the total of your ordinary dividends (recorded in Box 1a of the 1099-DIV) exceeds $1,500, you must list each source of your ordinary dividend income on Schedule B of Form 1040.

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S Corporation Compensation and Healthcare Insurance Deductions

Health and accident insurance premiums that are paid for the greater than 2% shareholder-employees of S Corporations are deductible by the S Corp but they are also reportable as wages on the shareholder-employees' W-2s.  So, they are reported in Box 1 of the W-2 and are therefore subject to federal income tax withholding for the shareholder-employee.  However, they are not subject to the FICA taxes or FUTA tax and therefore should not be included in Boxes 3 and 5 of the shareholder-employee's W-2.

 There are some key issues that your tax advisor should be looking out for:

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Education Credits

Education Credits

If you’re a college student or parent of a college student, you may be eligible for an education credit. Most students receive a Form 1098-T, Tuition Statement, from their educational institution. These credits help offset your out-of-pocket expenses for tuition and fees, books and equipment.

Your educational institution is required to file a Form 1098-T with the IRS and provide a copy to you when payments are received or when refunds are made for tuition and related expenses. The form should also give you other information such as the amount of scholarships or grants, reimbursements, or refunds, and whether you were enrolled at least half time or were a graduate student.

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959 Hits

Foreign Earned Income Exclusion

Are you, or your spouse a U.S. citizen, living and working abroad?  If so, you are most likely familiar with the foreign earned income exclusion.  That's great.  But do you know the requirements for taking such an exclusion?

There are two tests to determine if you meet the minimum requirements for taking the exclusion.  One is the bona fide residence test and the other is the physical presence test.

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1120 Hits

Offshore Income

Do you have money in a foreign bank account?  Are you a U.S. citizen, resident alien, or nonresident alien?  If so, you are required to report to the IRS worldwide income from all sources, and yes, that includes foreign financial accounts.  You also have to pay taxes on income from those accounts.

There are particular forms to fill out and attach to your tax return, if you have such foreign accounts.  Part of what you are required to report is the country in which each account is located.  Additionally, if the aggregate value of all the foreign accounts exceeds $10,000 at any time during the year, you are required to report that information on a special form called the Report of Foreign Bank and Financial Accounts form, also known as the FBAR.

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Keeping Track

MILEBUG APP

If you're like me, you don't relish the idea of keeping a detailed mileage log for your business miles driven.  But it is required for taking deductions on your tax returns, so anything that can make it easier to do, is a plus in my book.  Recently, I downloaded an App for my iPhone and iPad called MileBug and it not only does the job well, but makes it very convenient to use.  You may want to check it out.  MileBug gives you the ability to not only easily enter odometer readings and parking fees or tolls, but it lets you store information about frequent trips so all you have to do is select a trip you stored in the past as a "favorite" and MileBug populates all the necessary fields.  It even has a GPS tracking device you can turn on or off, so that it will calculate the exact mileage driven for each trip you make.  Best of all, it only costs a few dollars and works on iOS or Android phones and tablets.

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Summer Day Camp Expenses

Summer day camp expenses may qualify for a tax credit

Along with the lazy, hazy days of summer come some extra expenses, including summer day camp. But, the IRS has some good news for parents: those added expenses may help you qualify for a tax credit.

Many parents who work, or are looking for work, must arrange for care of their children under 13 years of age during the school vacation.

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Tax Treaties

The United States has tax treaties with over 40 different countries.  Under the provisions of these treaties, citizens and resident aliens who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions and reductions in the rate of taxes of those foreign countries.

What Are The Benefits?

The benefits depend on each person's specific situation and on the exact text of the Tax Treaty.  Be sure you talk to a tax professional - such as an Enrolled Agent - to help you understand exactly what the tax treaty provisions are and how they apply to your particular circumstances.  For example, there may be tax benefits to investment income, such as interest and dividends, that you receive from sources in a treaty country.  Several treaties provide exemption for capital gains if certain requirements are met.

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1546 Hits

Where's My Tax Refund?

If you received a tax refund from the IRS this year, and especially if it was a large one, before celebrating too much, you might want to take a look at how much your employer is taking out of your paycheck.  The fact is, if you get a refund, you paid in too much.  Yes, that’s right…this is money you overpaid the IRS.  It is not money the IRS is paying you at the end of the tax year.

 

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