Business Taxes are Dependent upon Business Structure – Part 3

 We will discuss the last two of the five business structures recognized by the Internal Revenue Service (IRS) (Business Structures | Internal Revenue Service (irs.gov)) in this blog. Corporations (Forming a Corporation | Internal Revenue Service (irs.gov)) and S-Corporations (S Corporations | Internal Revenue Service (irs.gov)) involve shareholders rather than owners that the first three business structures have. 

Corporations

Prospective shareholders exchange money, property, or both for the corporation’s capital stock. Usually, a corporation takes the same deductions that a sole proprietorship takes in calculating its taxable income. A corporation can also take special deductions. A C corporation is recognized by the Internal Revenue Service (IRS) as a separate taxpaying entity for federal income tax purposes. Corporations can conduct business, pay taxes, realize net income or loss, and distribute profits to its shareholders. These calculations can be very complicated so it is best to consult a tax professional for help with employment tax.

Profits of corporations are taxed once to the corporation when earned and once to the shareholders when distributed as dividends. This creates a double tax on the profits. Corporations cannot deduct any taxes when it distributes dividends to its shareholders and shareholders cannot deduct any losses incurred by the corporation. 

Corporations are liable for income tax, estimated tax, employment taxes (federal income tax withholding, social security and Medicare tax, and federal unemployment tax) and excise taxes. There are many different forms to use to report and file these taxes, making the process complicated. It is best to have help with payroll tax from a tax professional than attempting to calculate and report these taxes on your own. 

S Corporations

For federal tax purposes, S corporations elect to pass income, deductions, losses, and credits through to their shareholders. Similar to partnerships, shareholders of S corporations report the “flow-through” of income and losses on their own personal income tax returns. They are then assessed tax at their individual income tax rates. This means that shareholders can pay different amount of taxes on their income depending upon their tax bracket. By allowing for the “flow-through” of income and losses, S corporations avoid the double taxation on the corporate income. However, S corporations are responsible for taxes on certain built-in gains and passive income at the entry level. 

A corporation must meet the following requirements to qualify for S corporation status:

• Be a domestic corporation
• Have no more than 100 shareholders
• Have only one class of stock
• Have only allowable shareholders: a) individuals, certain trusts, and estates and b) not be partnerships, other corporations, or non-resident alien shareholders
• Not be an ineligible corporation, such as certain insurance companies, financial institutions, and domestic international sales corporations

Additionally, the corporation must submit IRS Form 2553 (Election by a Small Business Corporation) signed by all shareholders. 

The American Rescue Plan 

The American Rescue Plan (ARP) Act of 2021 allows small and mid-sized employers as well as certain governmental employers to claim refundable tax credits, reimbursing them for the cost of providing paid sick and family leave to employees due to COVID-19. This includes time given to employees to receive and recover from COVID-19 vaccinations. 

The IRS recognizes that COVID has placed a burden on all businesses and individuals. Before closing a business, it is best to consult a tax professional. The IRS has tax credits and COVID relief resources for those affected by the virus. Contact Bullseye Tax Relief today!

A Tax Lien Withdrawal Releases Your Property

 There is one more method of negating a tax lien against a property. A Tax Lien Withdrawal removes the Public Notice of Federal Tax Lien from an asset. This makes it easier to sell or refinance a property or asset. Remember that the Internal Revenue Service (IRS) places a tax lien on property and/or assets when you fail to pay your taxes. This means that you cannot refinance or sell the property to which a tax lien has been attached. The IRS can place a tax lien on personal property for a tax debt owed by your business. Attaching a tax lien to personal property is one tool the IRS uses to impose a Trust Fund Recovery Penalty and collect a tax debt. However, if you enter into a direct debit installment agreement with the IRS regarding this tax debt, you may be eligible for a Tax Lien Withdrawal.

There are two options for eligibility for a Tax Lien Withdrawal:

For Option 1: The lien has been paid off and the property released from the tax lien so that the IRS is no longer prioritized regarding it. Criteria is as follows:

1. All tax returns for the past three years have been filed including individual, business and information returns.
2. All estimated tax payments and deposits are current.
3. Your tax liability has been released.

For Option 2: Direct debit installment agreement allows for the filing of a tax lien withdrawal. This includes converting a regular installment agreement into a direct debt installment agreement in which installment payments are directly paid from your bank account. Criteria is as follows:

1. Qualifying taxpayer: individual, business with income tax liability only and/or out of business entities with any type of tax debt. The IRS can place a tax lien on your business.
2. A tax debt of $25,000 or less is owed. If more than $25,000 is owed, a taxpayer may pay the amount down to $25,000 before requesting a Tax Lien Withdrawal.
3. Other filing and payment requirements are in full compliance.
4. Three consecutive direct debit payments have already been made.
5. There has been no default on current or previous Direct Deposit Installment Agreements.
6. The Direct Debit Installment Agreement must be paid in full within 60 months or before the collection statute expires, whichever is earlier.

There are other considerations for eligibility for a tax lien withdrawal:

1. The tax debt is less than $25,000.
2. Withdrawal of the tax lien is in the best interest of the government and the taxpayer.
3. It would be easier to repay the tax debt is the tax lien was withdrawn.
4. The taxpayer enters into an installment agreement to pay off the past due tax lien.
5. Evidence exists that the tax lien was not in accordance with IRS procedures or was filed prematurely.

The most important eligibility requirement for any Tax lien Withdrawal is entering into a Direct Debit Installment Agreement since installment payments are paid directly from your bank account. You can simply set this up online through the IRS website. You must also provide documentation to support your application for a tax lien withdrawal. Furthermore, you must list the financial institutions you would like notified of the withdrawal of the tax lien.

Applying for a tax lien withdrawal may be the best option for you if are wanting to sell your property and there is a public notice of federal tax lien on your assets, which renders them undesirable to buyers or creditors. Give us a call today to consult with a tax professional about your situation as to whether a Tax Lien Withdrawal is advantageous for you.

Federal Tax Liens Ensure Collection of Tax Debt

 So, you owe the Internal Revenue Service (IRS) money for taxes. You do not have the money so you decide not to pay any amount toward the debt. After all, it you do not have money, the IRS cannot collect, right? WRONG! The IRS has the power to place a Federal Tax Lien against all of your assets and properties, whether they are financial, personal, business and/or real estate. This is the government’s way of protecting their interest in the event you fail to pay your tax debt in a timely manner. 

Federal tax liens vary depending upon each individual case and situation. If you fail to pay the IRS timely, a lien will be attached to all of your current and future assets until the offending tax issue is resolved. Furthermore, if you do not address a tax debt in a timely manner, the lien can develop into a levy which empowers the IRS to seize any of your assets to pay your tax debt. Assets include cars, personal properties, real estate properties, stocks, bonds, cash, monies in your bank accounts, even bitcoin. 

Since April 2018 all three credit reporting bureaus (Equifax, Experian and TransUnion) stopped reporting liens on their credit reports. This means that Federal Tax Liens should not affect your credit scores regardless of whether or not the lien has been satisfied. However, this does not mean that no one can determine if you have any liens against you. There are other consumer reports on which tax liens may appear since liens are public records. Moreover, the IRS must follow a procedure for collections of a tax debt before mailing out a notice informing you that a tax lien has been filed against you. They will: 1) assess the amount of taxes owed by examining a filed tax return and 2) send a tax bill to your last known address. If you do not respond to the bill notice, the IRS will send out a lien notice. 

The best way to avoid a federal tax lien is to pay your amount of taxes in full. If you have trouble paying the entire amount due to financial stress, the IRS offers a multitude of payment options to avoid liens, levies, and other forms of collections. Some options are:

• File an Offer In Compromise (OIC).
• File for Currently Non-Collectable (CNC).
• Apply for an Installment Agreement (IA).
• Apply for a Partial Payment Installment Agreement (PPIA).

However, if you have already received a Notice for imposing a Federal Tax Lien against you from the IRS, do not panic. Aside from paying the entire tax debt to the IRS, there are other options:

• Apply for an Installment Agreement (IA).
• Apply for a Partial Payment Installment Agreement (PPIA).
• Apply for Lien Discharge if you pay the tax debt in full.
• Apply for Lien Subordination.
• Request a Lien Withdrawal.

Whether you have already received a Lien Notice from the IRS or you believe you may receive one shortly, DO NOT IGNORE IT! Call us immediately to review your options before a bad situation becomes worse. Continue to visit our website to learn more about tax problem resolutions.