Thursday, June 9, 2011

If you are being Audited

One of the quickest ways your day can be ruined is by receiving notice of audit in the mail. An examination is an unplanned event that can inject chaos into your life. After getting over the initial shock you'll have to decide whether to represent yourself or to obtain outside assistance.

Depending on your circumstances, an audit can be confusing and lengthy. Generally, an auditor will review your income versus your deposits or request proof of expenses. Defining how the examination is going to be run and defining issues will help the audit go smoother. Hiring someone who has experience in audits will greatly increase your chances of success.

Don't speak to the Government.

It is advisable that you do not speak to anyone at the Government, mail any correspondence, complete any forms, or sign any documents no matter how simple or straightforward they may seem. Your statements or actions could have legal significance at a later time.

Who to hire.

The big question is who to hire. Many factors go into this decision but it comes down to hiring an attorney, accountant or an enrolled agent. I believe that either a CPA or an attorney will give you your best chance at success. Keep in mind that your communications with an accountant are also not subject to the same privilege as those with your attorney. That means that in some cases your accountant can be forced to testify about things you told him in private. Tax attorneys have received advanced training in interpreting the law and generally will provide the best representation when it comes to gray areas of the law.

Speak only to an attorney.

If you want to discuss the facts relating to the audit with tax specialists then it is best to first contact a tax attorney. If you follow this rule your communications with your attorney will remain privileged. You can speak to him or her freely about the facts of your case. Your communication will remain privileged even if you don't end up hiring that attorney.

Act quickly.

If you receive an audit notice, act reasonably quickly so that you can respond by any dates provided in the notice. You can lose important rights if you don't act on time.

Control over tax returns.

The preparation of any tax returns that become due during a pending audit should be placed under the control of the attorney handling your audit. This will help your attorney close your exam and will minimize the risk that an audit or other investigation expands to the current year.

You should always consult a tax adviser before implementing any strategy stated in this article. 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.

Friday, May 13, 2011

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 Guys