Tuesday, July 28, 2020

Accountable vs. Nonacountable plans. Which is best?

Employee business expense reimbursements

Reimbursing an employee for business-related expenses is advantageous to all involved. Reimbursing such expenses not only helps the company meet operational goals and objectives, but may allow employees to use certain company assets in a de minimis, non-taxable way.  A system which allows for the payment of advances and charges for your employees' business expenses is called a reimbursement or allowance arrangement.  Having an accountable or a non-accountable plan determines how you report a reimbursement or allowance. You must specify the amount of the reimbursement when a single payment includes both wages and an expense reimbursement.

These rules apply to all allowable ordinary and necessary employee business expenses.  Now here is the breakdown of accountable and non-accountable plans:

 

Accountable plan

An employer’s reimbursement/allowance arrangement must require its employees to meet all three of the following rules in order to be considered an accountable plan:

1.      The employee must have paid or incurred allowable expenses while performing his or her duties as the taxpayer’s employee. The reimbursement or advance must be payment for the expenses and not paid to the employee as wages.

2.    The employee must provide documentary evidence of the expenses to his or her employer within a reasonable timeframe.

3.    The employee must return any funds in excess of substantiated expenses to their employer within a reasonable period of time.

Accountable plan payments aren't wages and, as such, income tax, social security, Medicare, and FUTA taxes do not apply.

Payments made may be treated as under a non-accountable plan if the expenses covered by this arrangement aren't substantiated or any amounts in excess of substantiated expenses aren't returned within a reasonable period of time Income tax, social security, Medicare, and FUTA taxes will apply to any accountable plan amounts re-characterized as non-accountable plan payout in the pay period following the reasonable period of time that was allowed.

Specific facts and circumstances will drive what constitutes a “reasonable period of time”. However, it is considered reasonable if the employee gets an advance within 30 days of the time they pay or incur the expenses. They would then be expected to adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the funds were disbursed. Another option that would be considered reasonable is providing employees a (no greater than) quarterly periodic statement that requires the employee to either return or adequately account for outstanding amounts within 120 days of the disbursement of funds.

 

Non-accountable plan

Non-accountable plan payments to your employee for travel and other necessary expenses of your business are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Non-accountable plan payments are treated as such if the following rules apply:

  • Your staff-member isn't required to or doesn't provide supporting documentation, 
  • Advances are made to an employee for business expenses but he or she isn't required to or doesn't (timely) return any amount he or she doesn't use for business expenses,
  • You advance or pay an amount to your employee but you have no reasonable expectation the employee will use such funds for expenses related to your business, or
  • You pay the employee an amount as a reimbursement that you would have otherwise paid as wages.


Employers should consider the many advantages of having an accountable plan versus a non-accountable plan. Employers would be wise to implement an accountable plan even just as a tool to attract and retain quality employees. If you are an owner/employee of the business, implementing a tax-advantaged accountable plan that could potentially defray thousands of dollars in income and payroll taxes on advances and reimbursements made for business expenses is pretty awesome. Contact your tax planner for more information and if you don’t have one, feel free to contact me for recommendations.

 

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892.


Thursday, July 23, 2020

Section 199A: Rental Real Estate

Just based on the people I know (especially in our urban centers), many Americans thrive off passive income. Now there are several sources of passive income but one common passive income stream-especially in places like NYC-is rental income. You know: you buy a two-family house somewhere in Brooklyn’s Bed-Stuy section, pay an arm & a leg, and then rent one of the units for an arm and a leg to pay your astronomical mortgage. For income tax purposes, these rental activities are considered "passive" activities, and a loss on a passive activity is not deductible against non-passive income, such as wages. But, a special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. Furthermore, you may deduct more than $25,000 if you can show that you materially participated as a real estate professional. Maybe you are asking, what does this have to do with Section 199A, anyway (and we’ll soon get to that too)? And, what happens when you don’t have a loss?

So one of the first requirements to take the 20% 199A deduction is that you must have what is called a Section 162 business. Meaning, your business must have a profit motive, i.e., you must be in it to make money; not a hobby or something casual or the like.

It is important to have that established because if you do not have a loss on the rental real estate, I am sure you'd want to be able to get the 20% deduction to lower your tax bill. The issue with rental real estate is that it's generally passive in nature and thus may contravene what constitutes a section 162 business. The good news is that for most rental real estate activities, there is a safe harbor rule that positively umbrellas most rental real properties under section 162. 

Additionally, when there is "self-rental", i.e., entity A rents space from B but both have common ownership, then lessor entity is considered a "de facto" sec 162 business. However, certain rental real estate activities will not be covered under the safe harbor rules. Personal use of property for more than 14 days, for example, will not qualify for the safe harbor rule. Any property or grouping of properties rented using "triple net leases" do not qualify for safe harbor protection. Triple net leases are leases that require the tenant be responsible for paying the real estate taxes, insurance and maintenance expenses on the property. Notwithstanding, the IRS has indicated that it in certain cases it will look at the specific facts and circumstances when determining whether a business meets section 162 requirements.

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892.

 


Family Employees & Payroll Taxes

There are certainly a plethora of reasons to hire your child, spouse, or a parent. The tax advantages are undeniable but one must be very careful to ensure compliance with the various IRS regulatory complexities that pertain to these situations. Here I have laid out some of the things you need to be aware of with respect to hiring your family.

Child employed by his or her parents.

A child that is under age 18 who works for his or her parent in a trade or business isn't subject to social security and Medicare taxes provided the business is a sole proprietorship or a partnership in which each partner is a parent.  Furthermore, if the child performs domestic work in the parent's private home, payments made are not subject to social security and Medicare taxes until the child reaches age 21Payments for the services of a child under age 21 who works for his or her parent aren't subject to Federal Unemployment Tax Act (FUTA). Generally, income tax withholding will apply to a child's earnings with some exceptions, such as, for payments for domestic work in the parent's home, or for work other than in a trade or business and are less than $50 in the quarter or the child isn't regularly employed to do such work.

Covered services of a child or spouse.

The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:

  • A corporation, even if it is controlled by the child's parent or the individual's spouse;
  • A partnership, even if the child's parent is a partner, unless each partner is a parent of the child;
  • A partnership, even if the individual's spouse is a partner; or
  • An estate, even if it is the estate of a deceased parent.

In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you.

Parent employed by son or daughter.

When the employer is a son or daughter employing his or her parent, the following rules apply:

  • Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes.
  • Payments for the services of a parent not in the son’s or daughter’s (the employer) trade or business are generally not subject to social security and Medicare taxes.

Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply.

  • The parent is employed by his or her son or daughter.
  • The son or daughter (the employer) has a child or stepchild (including an adopted child) living in the home.
  • The son or daughter (the employer) is a widow or widower, divorced and not remarried, or living with a spouse who, because of a mental or physical condition, can't care for the child or stepchild for at least 4 continuous weeks in the calendar quarter in which the service is performed.
  • The child or stepchild is either under age 18 or, due to a mental or physical condition requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter in which the service is performed.

Payments made to a parent employed by his or her child aren't subject to FUTA

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892.

Wednesday, July 15, 2020

Considering Bankruptcy to Get Rid Of Your Back Taxes? 3 Alternatives to Explore Before You File


If you are drowning in debt and working harder and harder to make ends meet, you may think a bankruptcy filing is the only way out, but that is not necessarily the case. Filing for bankruptcy is one solution, but it is a drastic step that should only be taken as a last resort.

This is especially true if you owe back taxes to the IRS or state. Depending on what type of taxes you owe, you might not be able to wipe out your back taxes in bankruptcy proceedings.

It’s important to weigh all your options and get a clear picture of your financial situation, so in this article, we share with you 3 smart steps to take before declaring bankruptcy.

Depending on how much you owe, who your creditors are, and how the rest of your financial life looks, you may be able to dig yourself out of the hole and take back control without having to declare bankruptcy. Here are three smart alternatives to consider before calling a bankruptcy attorney.



3 Alternatives to Explore Before You File

1. Contact A Tax Relief Firm

Most bankruptcy attorneys aren’t familiar with the complex tax laws so they won’t accurately be able to assess your tax situation.

A tax relief firm like ours can help you assess your back tax situation and often help you settle your back tax debt with the IRS. If you owe a substantial amount of back taxes, this may be a good way to reduce your overall debt burden. This can also be a good first step to getting back on track with your finances.

2. Request a Lower Interest Rate On Other Debts

When you are paying 18% or more in interest, it can be hard to keep up with the charges, let alone make any headway on the outstanding balance. Credit card interest rates are among the highest around, and those outrageous rates have trapped many consumers in a spiral of ever increasing debt.

How different would your finances look if your interest rate was cut in half? Would you finally be able to get ahead of the interest charges and start paying down your balance? If so, it is time to get your credit card issuer on the line.

Even if you do not think your credit card issuer will be receptive, it never hurts to ask. And when the credit card company finds out that you are thinking about filing bankruptcy, they may be more willing to negotiate than you think.

For tax debt, the IRS can sometimes remove penalties and interest from your tax debt, so it’s important to reach out to our firm to see what your options may be.

3. Refinance Your Debt

Even if your credit card issuers and lenders are not willing to budge on the interest rates, you could still save money and avoid bankruptcy. Refinancing your existing debt through a home equity line of credit, a personal loan or other means could lower your interest rate substantially and slash your monthly payments.

If you do decide on this strategy, it pays to shop around. The more you can lower your interest rate, the more money you can save - and the faster you will be able to pay off your debts.

But it’s incredibly hard to refinance your debts if you have an IRS tax lien or wage levy. Our firm can get these released and help you get on financial track.

A bankruptcy filing can provide a fresh start for those in dire financial circumstances, helping them recover and rebuild their shattered monetary lives.

Even so, bankruptcy is not the only way out, and it is important for those considering this solution to research the alternatives first. The three bankruptcy alternatives listed above can also give you the fresh start you need, without the stigma or long-lasting impacts of a bankruptcy filing.

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892.

Tuesday, July 7, 2020

FILE BEFORE JULY 15th


Before we talk about any tax relief options, you must first get into compliance. That means being current on all your tax return filings, including your 2019 tax return.

If you missed the deadline, you must still file as soon as possible before you begin exploring tax relief options. If you have multiple years of unfiled tax returns, reach out to our firm for help today.

PENALTIES AND INTEREST

Any time you don’t pay your taxes, the IRS first hits you with a club called penalties and interest. Under normal circumstances, these penalties start accruing from day 1 after the tax deadline. Because of COVID19, The IRS is providing additional time to respond before interest or penalties apply. 

If your tax bill already has penalties, our firm might be able to help remove some of the penalties by negotiating with the IRS on your behalf.

OFFER IN COMPROMISE

You might have heard advertisements about settling with the IRS, or the IRS Fresh Start program. Not everyone qualifies for it, but if your income or business was drastically affected by COVID19, there’s a good chance you can qualify now. This means the IRS will reduce your tax debt to a fraction of what you owe.

It’s important to hire a tax relief firm like ours to walk you through this process and properly represent you before the IRS. Talking to the IRS before talking to us would be like going to court without a lawyer.

DON’T TALK TO THE IRS IF YOU OWE $10k OR MORE.

Even though things are tough right now, the IRS’s main job is still to collect the taxes it thinks you owe them. That by nature pits them against you. Often talking to the IRS can be a treacherous path and you risk the chance of saying something self-incriminating. Save yourself the headache, time, and money by reaching out to our tax relief firm today. You wouldn’t go to court without a lawyer and you definitely don’t want to approach the IRS without expert representation.

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892



IRS Collections Is Starting Back Up. What To Do If You Owe Back Taxes

2020 threw a huge wrench into everything and the IRS collections proceedings are no exception.  With the tax deadline pushed until July 15th and a lot of the IRS closed under shelter at home orders due to COVID19, to the IRS being tasked with sending millions of Americans their stimulus checks, the IRS collections proceedings took a backseat.

If you owe back taxes you might just assume you got some breathing room. However, things are starting to pick back up.

According to the Taxpayer Advocate, as of late June 2020, the IRS generated more than 20 million notices, yet these notices were not mailed to anyone. It seems now that the IRS is once again starting to send threatening notices to taxpayers who owe back taxes.

In this article, we share a few things you must do in order to get out of tax trouble and settle your back tax debt.


IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892

Friday, July 3, 2020

Are Your Investments Down? Use It To Reduce The Amount You Owe

It is easy to feel depressed when the stock market is tumbling and reaching new lows every day, but there could be a silver lining to that financial cloud. Engaging in strategic tax loss harvesting now could reduce your tax bill substantially when filing season rolls around. Tax-loss harvesting is when you sell investments at a loss in order to reduce your tax liability.

If you have investments that have not worked out like you hoped, selling them now and locking in the loss can be a great way to offset capital gains and lower your taxable income. This strategy is not the right choice for everyone, but it can be effective in certain circumstances.

Whether the world is in the midst of a global pandemic, the stock market is in free fall or real estate is suddenly on sale, the economic crises that are triggered can make tax time even more difficult.

If you want to stay financially solvent and avoid penalties, interest and other serious consequences, the strategies listed above can help you do it.

IMPORTANT: Our firm specializes in tax resolution. We also serve clients virtually so don’t hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Click to make an appointment! Or call Toll-free 1-855-254-1892


Thursday, July 2, 2020

How to Handle Your Taxes During an Economic Crisis

Whether it is a global pandemic shutting the economy down for months on end, a stock market crash that leaves formerly giddy investors frightened and nervous or a housing crisis that makes real estate a risky bet, living through tough economic times is never easy.

Even so, how you handle yourself and your money during the crisis could make all the difference in the world, and if you do it right, you could emerge stronger, wiser and richer on the other side.

Handling taxes can be especially difficult during times of crisis. With your income uncertain, it can be hard to predict how much you might owe the IRS or how you can make those payments. And, if you are self-employed or a gig worker, this economic uncertainty can be even greater.

So what can you do about your taxes when the economy takes a downturn? Here are some tips to make tax time less taxing when crisis strikes.

Research Filing Extensions and Be Aware of New Deadlines
When economic turmoil strikes, tax filing deadlines may be extended or otherwise relaxed, so do your homework and see how much time you really have. If you are struggling to make your tax payment, you may have some breathing room after all.

In the wake of the COVID-19 pandemic, the IRS extended the normal tax filing deadline from April 15 to July 15, and many state and local governments followed suit. The same may happen in future crises, and it never hurts to find out for sure.

File Promptly if You Are Expecting a Refund

Getting extra time to file can be a welcome relief if you owe money to the IRS, but if the tax agency owes you, it makes sense to file as quickly as possible. The processing of tax refunds is often disrupted during a crisis, with short staffing and different procedures suddenly in place. The sooner you file, the sooner you will have your tax refund money, and that cash could make a world of difference to your financial situation.

How you handle that tax refund is important as well, so think about what you will be doing with the money while you are waiting for it to arrive. If you have the extra cash to do so, contributing to an IRA or other tax shelter could reduce the amount you owe going forward, giving you even more money to work with in the years to come.

File Promptly if You Are NOT Expecting a Refund or Might Owe Back Taxes

The IRS is starting to enforce collections again, but they’re also not oblivious to the financial crisis we’re in. With almost 40 million Americans unemployed we now have the highest unemployment rate since the Great Depression.

The outlook is still uncertain and the IRS knows Americans need to get back to work and buying things to stimulate the economy. It’s tougher to do that with a huge tax bill weighing you down.

So right now, the IRS will likely consider settlements and more favorable terms to taxpayers in trouble, especially if their income drastically decreased due to COVID-19. So it’s important to file your taxes and be current in order to explore tax relief options.

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and resolving your IRS and state tax problems through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.  Click to make an appointment! Or call Toll-free 1-855-254-1892


Employee or Not?

Employees are defined based on common law or by statute. Under operation of law, some workers are considered employees while others, non-employees.


Under common law, a person who performs services for you is your employee if you can tell them what to do and how to do it. The most important concept is that you, the employee, control the details of how the services are performed. In most cases, people in business for themselves aren't employees and as a result they file a Schedule C tax return. Examples of taxpayers in this category may include: doctors, accountants, architects, and other professional trades that offer their services to the public are usually not employees. Like non-owner workers, owner-employees are considered employees of the corporation. If an employer-employee relationship exists, those persons are employees even if the employer calls them a contractor or an agent.  


Never withhold federal income tax from a worker’s pay (unless backup withholding applies) if he or she isn't an employee under the common law rules as discussed earlier. Under certain conditions, the following parties are considered employees by statute for social security and Medicare tax purposes:


• An agent or commission driver who delivers meat, vegetable, fruit, or bakery products; beverages (other than milk); laundry; or dry cleaning for someone else.

• A full-time captive life insurance agent who sells products for one company.

• A homeworker who works at home or off premises according to certain guidelines.

• Certain traveling or city salesperson (other than an agent or commission driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers.


The following are considered nonemployees by law: Direct sellers, qualified real estate agents, and certain companion sitters are usually treated as self-employed for all federal tax purposes.

Generally, if you fail to deduct Social Security and Medicare taxes for an employee, you’ll be deemed liable for any those taxes. Special rates under section 3509, which are dependent on whether you filed form 1099, can be used to determine your liability for the employee share of social security and Medicare taxes and federal income tax withholding. By using those special rates, you will not recover the employee share of above-mentioned withholding from the employee. You’re liable for the income tax withholding even if the employee paid income tax on the wages and will also owe the full employer share of social security and Medicare taxes. In this scenario, the employee remains liable for his share of social security and Medicare taxes. Section 3509 isn't available for reclassifying statutory employees.  


You may be relieved from employment tax liability if you can show reasonable cause for treating a worker as a nonemployee. To get this relief, you must be compliant with all tax filing requirements. Using the IRS’s Voluntary Compliance Settlement Program (VCSP), employers who are improperly classifying employees as nonemployees may opt to voluntarily reclassify their workers as employees for future tax periods. By doing so, the employer may save on interest and penalties.


IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and resolving your IRS and state tax problems through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.    

Click to make anappointment!  Or, call toll-free 1-855-254-1892.

“We’re the Folks That…”

  For years now, when I converse with small business owners, I’ve heard the common complaint, “we can’t make any money, and we’re busier tha...