Tag: Taxes

Don’t Shoot the CPA! Something New This April If You Can’t Pay Your Taxes

Rick_E_Norris_An_Accountancy_Corporation_Don't_Shoot_The_CPA_Something_New_This_April_If_You_Can't_Pay_Your_TaxesYou’ve worked hard, but got laid off.  Then on April 15th the following year, your CPA tells you that you owe taxes, but you don’t have the money.  What are you going to do?  Check out what our “compassionate” IRS has to say:

The Internal Revenue Service today announced a major expansion
of its “Fresh Start” initiative to help struggling taxpayers by taking steps to
provide new penalty relief to the unemployed and making Installment Agreements
available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the
IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer
will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling
the dollar threshold for taxpayers eligible for Installment Agreements to help
more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends
meet,” said IRS Commissioner Doug Shulman. ”This new approach makes sense for
taxpayers and for the nation’s tax system, and it’s part of a wider effort we
have underway to help struggling taxpayers.”

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on
failure-to-pay penalties, which are one of the biggest factors a financially
distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay
penalties will be made available to certain wage earners and self-employed
individuals. The request for an extension of time to pay will result in relief
from the failure to pay penalty for tax year 2011 only if the tax, interest and
any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

  • Wage earners who have been unemployed at least
    30 consecutive days during 2011 or in 2012 up to the April 17 deadline for
    filing a federal tax return this year.
  • Self-employed individuals who experienced a 25
    percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not
exceed $200,000 if he or she files as married filing jointly or not exceed
$100,000 if he or she files as single or head of household. This penalty relief
is also restricted to taxpayers whose calendar year 2011 balance due does not
exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to
seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an
upper limit of 25 percent. Under this new relief, taxpayers can avoid that
penalty until Oct. 15, 2012, which is six months beyond this year’s filing
deadline. However, the IRS is still legally required to charge interest on
unpaid back taxes and does not have the authority to waive this charge, which is
currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly
encourages taxpayers to file their returns on time by April 17 or file for an
extension. Failure-to-file penalties applied to unpaid taxes remain in effect
and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the
ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using
an installment agreement without having to supply the IRS with a financial
statement has been raised from $25,000 to $50,000. This is a significant
reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into
a streamlined agreement with the IRS that stretches the payment out over a
series of months or years. The maximum term for streamlined installment
agreements has also been raised to 72 months from the current 60-month
maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to
supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F).
Taxpayers may also pay down their balance due to $50,000 or less to take
advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire
tax bills by the due date. Penalties are reduced, although interest continues to
accrue on the outstanding balance. In order to qualify for the new expanded
streamlined installment agreement, a taxpayer must agree to monthly direct debit
payments.

Taxpayers can set up an installment agreement with the IRS by going to the
On-line Payment Agreement (OPA) page on IRS.gov and following the
instructions.
These changes supplement a number of efforts to help struggling
taxpayers, including the “Fresh Start” program announced last year. The
initiative includes a variety of changes to help individuals and businesses pay
back taxes more easily and with less burden, including the issuance of fewer tax
liens.

Generally, an offer will not be accepted if the IRS believes that the
liability can be paid in full as a lump sum or through a payment agreement. The
IRS looks at the taxpayer’s income and assets to make a determination regarding
the taxpayer’s ability to pay.

So don’t shoot your CPA who informs you of bad news.  We’re here to help.  Always discuss your situation with a tax professional before making any decision.

Source: IRS Site

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

IRS Mercy? To Err is Human, to Forgive is Divine

Rick_E_Norris_An_Accountancy_Corporation_IRS_Mercy_To_Err_Is_Human_To_Forgive_Is_DivineWell, as a CPA for the last thirty years,  I thought I’d see the tin man get a real heart before the IRS show any heart at all.  The IRS has released some sort of an amnesty program designed to offer mercy to businesses that have misclassified workers as independent contractors instead of employees. IRS Announcment 201-64 states out the conditions that an employer must meet in order to minimize the penalties for misclassifying workers.  It is called the Voluntary Classification Settlement Program (VCSP).

For those of you that are unaware of this tax controversy, when employers classify employees as independent contractors, they escape the obligation of paying payroll taxes on those employees like social security and medicare.  The criteria of classifying workers is complex because it covers tax law, national labor laws, and state laws.  Your CPA can calculate the costs you may be avoiding.

If a taxpayer voluntary invokes this option (without being under audit), then they will only have to “pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent year…”  They will not be liable for any interest and penalties and not subject to any prior year’s audits.

So, as an employer, what does this mean?  If you are classifying workers properly, it means nothing.  However, as a CPA, I have seen substantial misclassification by new clients that I have helped correct.  Yes, they end up paying more taxes, but the client sleeps better at night.

The downside of ignoring proper classification are heavy penalties, interest, and possibly jail time.  Sometimes employers are exposed when a worker files for unemployment compensation, worker’s compensation, or social security.  The worker is surprised that nothing had been paid in by his “employer” over the last ten years he had worked.  Thus, an investigation may materialize which will require you to hire a CPA and/or an attorney.  You will have to pay them and the taxes if you lose.

Various departments and levels of the federal government are mobilizing not only to uncover worker misclassification, but also a CPA who is improperly advising a client to do so.  Even the Obama administration is increasing efforts to uncover workers misclassification in the September 2011  release of his plan “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction.”

If you feel you want to embrace this amnesty, talk to your CPA about your exposure and the additional requirements to qualify.  As a business owner, you should clear your mind of such anxiety and concentrate on your business strategy.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.