Employment Taxes

Employment Taxes for Employers and Self Employed Individuals

When a new client comes into our offices one thing we stress (ok…read the riot act) that withholding needs to be done for wages paid. Whether you are an employer or self-employed, you are responsible for paying federal, state and local taxes. As an employer with employees, you must withhold certain taxes from your employees' paychecks.

Employment taxes include income taxes, Social Security and Medicare taxes, and the federal unemployment tax (FUTA).

If you are self-employed, you are responsible for paying a self-employment tax that is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

Some clients prefer to perform all the required withholdings, tax deposits and filing of tax returns themselves. Though I don’t have personal experience with Intuits payroll services I have had several clients use this service with good results. There are several nationally franchised payroll services such as ADP or Paychex which can be extremely helpful. There are also local services and accountants which provide this service. A service we have done a lot of work with locally is Primpay.

Below are several links to the IRS website reviewing withholding requirements. You may notice that it can be complicated. Additionally, there are numerous costly penalties when the rules are not followed.

All states have their own rules. For limited list of state tax requirements see State Tax Guide.

For Self-Employed Individuals

If you are self employed or an independent contractor you will be responsible for the employees and employers share of FICA and Medicare taxes. Many taxpayers are not aware of this when they start a business and are not prepared for an additional tax of approximately 15% of earned income. Please see Self Employment Tax and Self-Employed Individuals and Independent Contractors for more guidance.

For Employers

·                  Please see Employment Taxes for Businesses which provides an overview of the federal taxes required for employers. This guide includes information on required forms (such as Form 941 and 944), filing requirements and deadlines, e-file options, and contact information for getting tax help.

·                  Please see W-4: Income Tax Withholding Q&A which

lists answers to frequently asked questions about Form W-4.

·                  Please see W-2: Social Security Taxes Filing Instructions & Information which outlines an employer's responsibilities for filing Social Security taxes.


You should always consult with your tax advisor prior to using any of the strategies mentioned in this article. If you are in need of help just call Bannon and Associates PC at 1-877-792-3812  for a free consultation.

Small Business Expenses and Tax Deductions

Guidance for the Self-Employed and Sole Proprietors

If you are starting a new business knowing how to categorize an expense is important. There are two basic tax concepts new business owners need to add to their vocabulary: business expenses and capital expenses.

Business expenses

Business expenses are the cost of conducting a trade or business. These expenses are common costs of doing business, and are usually tax deductible if your business is for-profit. For example, costs of renting a storefront, business travel and paying employees are all deductible business expenses.

Capital expenses

Capital expenses are the costs of purchasing specific assets, such as property or equipment that usually have a life of one year or more and increase the quality and quantity of products and services you can provide. For example, if you own a landscaping business and you purchase mowers and excavating equipment, these costs are capital expenses and do not qualify as deductible business expenses. However, you can recover the money you spent on capital expenses through depreciation, amortization, or depletion. These recovery methods allow you to deduct part of your cost each year so that you are able to recover your capital expenses over time.

The following information provides a brief overview of expenses that qualify as tax deductions, with links to resources that provide clear guidance on deducting and capitalizing your expenses.

Deducting Business Expenses

To be deductible, a business expense must be both "ordinary" and "necessary." An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.

Personal Versus Business Expenses

Generally, you cannot deduct personal, living or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal portions. You can deduct the business portion.

Home Office Deduction

Are you a home based business? If you are using part of your home for business, you may be able to deduct some expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation There are two basic requirements for your home to qualify as a deduction:

1.    Regular and Exclusive Use. 

2.    Principal Place of Your Business..

Visit the IRS page on Home Office Deductions for a full explanation of tax deductions for your home office.

Travel, Meals, Entertainment and Gifts

As you know, most companies expense items such as travel costs associated with business, in addition to meals, entertainment and gifts. However, there are rules to follow for these deductions.

Generally, you can deduct all of your travel expenses if your trip was entirely business-related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination, including tips, cab fare, and other "life on the road" expenses such as dry cleaning. Meals are the only exception. You can deduct only 50 percent of your meals while traveling.

For a full explanation of tax deductions for business travel, entertainment and gifts refer toTravel, Entertainment, Gifts and Car Expenses (IRS Publication 463).

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to the following resources for more information about using your vehicle for business:

·                  The Car Expenses Section in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

·                  For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Deductible Business Expenses

There are numerous other costs of doing business that qualify as deductions. These include, but are not limited, to the following:

·                  Employees' Pay 

·                  Interest 

·                  Retirement Plans.

·                  Rent Expense 

·                  Taxes – Payroll, State and Local

·                  Insurance 

·                  Advertising

·                  Supplies

·                  Professional fees

·                  Business-Related Education 

For a clear and complete explanation of business expense deductions, refer to Business Expenses (IRS Publication 535).

Deducting Capital Expenses

There are two ways to deduct capital expenses. You can "depreciate" them by deducting a portion of the total cost each year over the useful life of an asset, or you might be able to deduct the cost in one year as a Section 179 deduction. Over the past few year accelerated depreciation has been used to stimulate the economy. These tools are similar to a 179 deduction but are specific to the facts.

Depreciation

You must spread the cost over more than one tax year and deduct part of it each year. This method of deducting the cost of business property is called depreciation.


You should always consult with your tax advisor prior to using any of the strategies mentioned in this article. If you are in need of help just call Bannon and Associates PC at 1-877-792-3812  for a free consultation.

Tax Attorneys vs CPA vs Enrolled Agent

Hiring a Tax Attorney 

Hiring the right tax attorney for your personal or business tax issues is critical. Finding an experienced tax attorney can translate into money for your bottom line. Your goal should be to form a long-term relationship with your tax attorney so you have someone to call in a time of need. Using a tax attorney for tax preparation allows the attorney to keep informed about what is happening in your business or family life so they can better advise you when issues arise. A tax attorney is very important to your future and can help avoid tax issues prior to them becoming a problem. Be sure to take the time to learn about the different types of tax attorneys and professionals and how their particular expertise can help you. 

What are the Different Types of Tax Attorneys and Professionals? 

Anyone can claim to be a tax adviser and anyone who prepares your tax returns does not necessarily have to be licensed by the IRS to do it, so be careful when choosing a tax resolution or tax services firm. 

Verify if Your Tax Attorney or Tax Service is one of the Following: 

1. Enrolled Agent. An EA is licensed by the IRS. Enrolled agents are the most affordable in the tax industry and are usually employed by the individual taxpayer. They are not tax attorneys or CPA’s and will not have the same training needed for representing you on more complex issues in the event of an audit. 

2. Certified Public Accountants. CPA is the statutory title of an accountant in the U.S. who has passed the Uniform Certified Public Accountant Exam and has met certain state licensing guidelines. Unlike Attorneys or enrolled agents a CPA can certify financial records of larger companies to assure that they were done under generally accepted accounting principles. They are excellent at accounting and business tax preparation. When an issue of legal interpretation of the tax law exists the CPA tends to think in black and white, whereas a tax attorneys training allows a more fluid interpretation of the law as it applies to the particular facts. Larger businesses usually use CPA’s in addition to tax attorneys.

3. Tax Attorneys are lawyers who have received advanced training in the area of taxation. They will have a broader understanding of different areas of taxation which will include personal, business, retirement and estate planning tax issues. Many tax attorneys have received masters in taxation. The privacy afforded because of the attorney-client privilege is the strongest professional privilege recognized by law. Many issues with the IRS may require either an appeal to a higher level in the IRS or a legal proceeding in court which requires an attorney. Because of their training an attorneys writing skills, as well as noticing the minor nuances of the law, are better than other tax professionals. This will greatly improve your chances of obtaining a favorable outcome. 

Many tax issues can affect other areas of the law. Outside of the tax area a CPA must consult with an attorney. Advising and drafting documents relating to the formation of business entities, estate planning or other contractual matter should solely be done by an attorney. For example deciding whether to elect to form an S-corporation will involve tax issues as well as liability protection and business management issues. Other than the issues related to tax the CPA should not provide service.

Because many issues involving taxation will involve other areas of law or the courts, an attorney will often be the best professional to protect your interests. If you are in need of help just call Bannon and Associates PC at 1-877-792-3812  for a free consultation.