Employment Taxes Amid COVID – Part 3

 Parts 1 and 2 of previous blogs on this topic discussed the deferral of employment tax deposits and payments for the year 2020 and the effects that this deferral may have on the employer (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). Part 3 will continue this discussion. Determining the amounts for credits and deferral can be tricky. It is best to consult a tax professional for help with employment taxes as they relate to COVID and The Coronavirus, Aid, Relief and Economic Security Act (CARES Act). 

Employers may defer the payment and deposit of their share of Social Security tax prior to determining whether they are entitled to employment retention credits, the Families First Coronavirus Response Act (FFCRA) paid leave credits, the Research Payroll Tax Credit, the advance payments of these credits, the amount of any refunds with respect to these credits and the amount already deposited that may be retained because of those credits (Employer Tax Credits | Internal Revenue Service (irs.gov)). These credits may actually trigger an overpayment on the employer’s part for which a refund must be requested. However, if a payment is due and the amounts are not paid, the employer’s deferred deposits will lose their deferred status and may be subject to failure to deposit penalties or Trust Fund Recovery Penalty (TFRP). The employer may also be subject to pay penalties accruing from the deferred due date for payment.

For deferred deposits to be treated as timely and therefore avoid a failure to deposit penalty, the employer’s share of Social Security tax must be deposited by the following dates which are referred to as the “applicable dates”:

• On December 31, 2021: 50 percent of the eligible deferred amount
• On December 31, 2022: the remaining amount

Any amounts paid prior to the first date will be first applied to that date to reduce the employer’s liability. Any remaining amounts then will be applied to the amounts due by the second date.

The Internal Revenue Service (IRS) intends to send reminder notices to employers before each applicable due date. That means for employers who pay four quarterly payment per year they will receive four reminder notices even though the due dates for all four quarters is the same date (see dates above). 

Self-employed individuals may defer the payment of 50 percent of the Social Security tax imposed. The amount due is determined after income and deductions are calculated. There will be no penalty for failure to pay estimated tax payments by deferring the 50 percent of the Social Security tax. The applicable dates listed above also apply for self-employed individuals. A household employer that files a Schedule H with his or her individual income tax return may defer the employer’s part of the Social Security tax on the wages paid during the payroll tax deferral period. Not subject to the deposit requirements, these taxes are paid annually and are treated as a tax to which the estimated tax payment penalty provisions apply. 

As you can see, deferring Social Security taxes can be very complicated. It is recommended that employers seek help with payroll taxes from a knowledgeable and experienced tax professional, such as those found at Bullseye Tax Relief. Business tax help is just a phone call away! or click here to contact us.

Bullseye Tax Relief

16933 Parthenia St #202, Northridge, CA 91343, United States

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Employment Taxes Amid COVID – Part 2

 Part 1 discussed the deferral of employment tax deposits and payments for the year 2020 (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows the employer to defer the employer’s share of the social security tax for the first quarter of 2020. What would have been the full amount of the employment tax liability due for that quarter, including the liability for which deposits would have been due on or after March 27, 2020, did not have to be paid. However, this presents a bookkeeping problem. There is now a discrepancy for the first quarter between the amount of the liability reported and the amount of deposits and payments for that liability. The Internal Revenue Service (IRS) will send a notice to these employers identifying the difference as an unresolved amount. This notice will also include additional information instructing the employer how to inform the IRS that it had deferred payment or deposit of the employer’s portion of the social security tax due after March 27, 2020, for the first quarter of that year under section 2302 of the CARES Act.

This deferral applies to all businesses including those that deposit employment taxes annually. As long as the deposit amount relates to the tax imposed on wages paid on or after December 31, 2020, during the payroll tax deferral period, then the employer may defer this amount. If an employer had already deposited the amount with the IRS for employment taxes, he or she may receive a refund of Social Security tax already deposited. This is a result of paying the amount due but then receiving tax credits, such as the Research Payroll Tax Credit, the Families First Coronavirus Response Act (FFCRA) paid leave credits, and the employee retention credit (Employer Tax Credits | Internal Revenue Service (irs.gov)). Since this can be complicated in reporting, it is best to consult a tax professional for help with payroll taxes. 

Another situation that may require help with employment taxes is the forgiving of a loan that an employer received from the Small Business Administration for payroll. The Paycheck Protection Program (PPP) provide monies for wages for employees so that the employer could afford to keep employees rather than laying them off. At first, these payroll taxes could not be deferred; however, the CARES Act was amended so that employers could defer the payment and deposit of the employer’s share of Social Security tax after the employer received notice that the PPP loan was forgiven by the lender. 

In anticipation of the FFCRA paid leave credits and employee retention credits, an employer was permitted to defer payment of employee taxes, including taxes withheld from employees. However, employers who reduced the amount of their deposits in excess of the deferral, the allowable FFCRA paid leave credits and the employee retention credits may be liable for a failure to deposit penalty for the excess reduction. This may trigger a Trust Fund Recovery Penalty (TFRP). Since this is a serious matter, it is best to have a tax professional handle it. Call Bullseye Tax Relief now before the matter gets worse!

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!

Penalty Abatement Relief

Sometimes life just gets the best of you. Your taxes are withheld from every paycheck, but you do not file your tax returns. Sometimes you forget to pay your taxes on time as a self-employed worker. Sometimes you withhold payroll taxes but forget to deposit these monies with the Internal Revenue Service (IRS) on time … or you “borrowed” from those monies to pay important business expenses. It is not that you are deliberately “dogging” your tax obligation. It is just … life gets in the way.

The IRS can add interest and penalties to your tax obligation, making life a little rougher. The above situations are real life but can cause a lot of tax problems. Fortunately, the IRS has some helpful solutions. One such tax resolution is Penalty Abatement Relief. In the case of businesses, it is called Trust Fund Recovery Penalty Abatement or TFRP Abatement. The IRS offers this concession when life gets in the way of fulfilling tax obligations. They allow the penalties to be waived using three different types of penalty relief: 

1. Reasonable Cause
2. First-Time Penalty Abatement
3. Statutory Exception

So, what are these relief options and how do they help with payroll tax and/or my tax debt? Let us discuss them one by one.

First, there is reasonable cause. As defined by the IRS, reasonable cause is based on circumstances and facts particular to your situation. You must establish that you followed all procedures to meet your tax obligations but were unable to meet them due to certain circumstances. According to the IRS, financial hardship does not make you eligible for a reasonable cause waiver; however, the circumstances leading to that financial hardship may. Some examples are natural disaster, fire, death, the inability to obtain records, serious illness or an unavoidable absence of a taxpayer or immediate family member.

Second, First-Time Penalty Abatement (FTA) rewards those who have typically met their tax obligations in the past but for whatever reason did not meet their tax obligations this time around. This type of abatement relief is offered to those who did not meet their tax obligation on a single return. The only other criteria are that you must not have received a penalty within the past three years on a specific type of tax return. So, to recap the eligibility for First-Time Abatement:

• You have filed all current tax returns or have filed an extension of time to file a tax return.
• You did not previously have to file a return.
• You have arranged to pay all taxes due.
• You have no penalties for the three tax years prior to the tax return in question that you received a penalty for.

Third, a statutory exception places the fault of your dilemma on the IRS itself. You asked the IRS advice and your received incorrect information which you acted upon and thereby received a penalty. You will have to prove this so have the following information at the ready:

• Your written correspondence from the IRS for advice
• The incorrect advice the IRS gave you.
• The report of the penalty along with items related to this incorrect advice.

If indeed you are eligible for any of these waivers, the IRS will reduce or remove the penalties and therefore the interest charged will be reduced.

Before contacting the IRS on your own, consult a tax professional. A tax professional will determine what option applies to your situation and how to approach it. Our following blogs will continue to discuss tax resolutions. Stay tuned!

What is Currently Non-Collectable?

 As stated in previous blogs, there are several tax resolutions options available to taxpayers that are unable to pay an outstanding tax debt. Besides an Offer in Compromise discussed earlier, there is another tool to help alleviate the stress in resolving a tax debt that is being pursued by the Internal Revenue Service (IRS). It is called “currently non-collectable” or CNC. Just what is a currently non-collectable and how does it help me? 

Well, first of all, there are two requirements:

• You agree that you owe the IRS money
• Your financial situation makes it impossible to pay this money to the IRS without causing financial hardship or paying the tax debt results in your inability to pay for the basic living expenses

What are the benefits of having “currently non-collectable” status?

• The IRS cannot collect on tax debts against you
• The IRS cannot impose liens on your property to collect the tax monies owed
• All communications from the IRS by phone or letter stop

This does NOT mean that the IRS will not assess the account with interest and penalties or withhold any refunds. Those actions continue. If the IRS determines that at any point from 10 years to the date that your account was assessed as Currently Non-Collectable and that your financial situation had improved, then the IRS can collect that tax debt. However, if your financial situation never improved within those 10 years, then the IRS will likely write off the tax debt, interest, and penalties. 

So, who is eligible for Currently Non-Collectable status? Any taxpayer that can demonstrate that he or she is unable to pay off his/her tax debt without causing either financial hardship or resulting in the inability to cover basic living expenses will qualify for Currently Non-Collectable status. Proof must be given through bank statements or other documentation that wages and/or assets cannot be collected without triggering financial hardships. Basic living expenses include healthcare, housing, transportation, utilities, food and clothing. 

Furthermore, the IRS must determine eligibility for CNC status using the following criteria:

• All tax returns, including those for past years, must be filed, otherwise the IRS will require you to do so
• Your wages cover no more than your basic living expenses
• You have no assets worth levying
• The IRS will calculate your basic living expenses and subtract them from your wages. If there is nothing left over or if the amount left over will not sustain you or will place you at a financial disadvantage so that you cannot cover basic living expense, then the IRS will consider your account as Currently Non-Collectable. 

The Currently Non-Collectable status is one of the tools that the IRS uses to help those with tax problems for which no other option, such as an Installment Agreement, is available. Once on a Currently Non-Collectable status, taxpayers must continue being up-to-date with their tax filings, otherwise they will lose their CNC status. This will result in a bad situation becoming worse. Filing tax returns and paying any amounts owed on time is extremely important. Do not hesitate calling us for assistance with your tax resolution problems. We are happy to help!

Eligibility for an Offer in Compromise

It sounds great. Make an offer to the Internal Revenue Service (IRS) to erase your entire tax bill! It is not that simple. If you can afford to pay the tax debt, you will be required to do so. By not paying the tax bill, you can incur a larger tax bill: one that includes penalties and interest! Not to mention, the IRS can place a tax lien or levy on any or all of your properties or bank accounts to collect the entire tax bill.

So, why would the IRS accept an offer that is less than the taxes owed? In a previous blog, we discussed that eligibility for an Offer in Compromise is determined by being able to pay the tax bill, with or without placing a financial hardship on the taxpayer. There is also the question of doubt of whether the taxpayer owes the tax bill. There might have been an error on the IRS part, or an error in reporting income, or …?

Before you can apply for an Offer in Compromise, you must meet a certain set of IRS requirements. You must make sure that all your tax documents have been filed on time in addition to these requirements. Furthermore, you should not have any past due penalties remaining on any previous tax debt.

Here are some additional requirements that must be met or your application for an Offer in Compromise will be denied:

- All tax returns you are legally required to file have been filed. (Your Offer in Compromise will be immediately rejected otherwise.)

- All required estimated tax payments have been made for the current year.

- You must have received a bill for at least one tax debt that you include in your Offer in Compromise.

- If you are a business owner with employees, all required federal tax deposits for the current quarter have been made.

- You must not be able to pay the full tax debt through a payment installment plan with any current or future assets.

- You must not have any open bankruptcy cases.

Before the Process:

1. To apply for an Offer in Compromise, you will complete IRS Form 656.

2. It is important to consider your “reasonable collecting potential” when setting up an offer. Do not overestimate or underestimate the offer.

3. For the IRS, “reasonable collecting potential” means your offer must be at least equivalent to not only your current assets but your anticipated assets and income with your basic living expenses deducted from that amount.

The Process Itself:

1. Both the IRS and you must agree that there is no possible way that you can pay the tax debt amount in full without potentially experiencing financial hardship.

2. Even if the amount offered is significantly less than the full amount owed, you must offer the maximum amount you can afford without experiencing financial hardship.

3. The IRS accepts the offer as the most you can reasonably pay without incurring financial hardship.

4. You must decide whether you want to pay the full amount at once or make payment installments.

5. The debt is considered “paid in full” once you pay the entire amount agreed to with the IRS.

Advice:

Although anyone can apply for an Offer in Compromise, the question is: should they? The application process is complicated, involving a lot of math and completing forms, not to mention corresponding with the IRS. This is best left to an expert. Call us today. We can advise you as to whether an Offer in Compromise is in your best interests. There may be a better option that fit your needs. Call us now. https://www.bullseyetaxrelief.com/eligibility-for-an-offer-in-compromise/

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What is an Offer in Compromise?

 Scenario: you receive a tax bill from the Internal Revenue Service (IRS) for a staggering amount. You think to yourself: how am I ever going to be able to pay this AND all my other bills? Do I have to sell my car … my house …?

Several people have had to tackle this struggle. You are not the only one. That may bring some comfort … for a moment at least. Fortunately, there are some other alternatives available for people in your situation. These are known as tax resolution options. This is what Bullseye Tax Relief specializes in. We will discuss each of them, one at a time. The first one we will discuss in an Offer in Compromise. So, what is it?

An Offer in Compromise (also known as OIC) allows you the option to settle your tax debt for less than the amount you owe the IRS. It was created for those taxpayers who could not pay their tax debt in full without experiencing a resulting financial hardship. Depending upon your financial situation, it may be impossible for you to pay your tax debt in full, even with the aid of an installment plan or other tax resolution option. An Offer in Compromise is extremely helpful to those with the severe inability to pay off a tax debt. You can pay your tax debt off completely by negotiating an amount with the IRS. This amount can be exponentially smaller, and your slate is “wiped clean” by the IRS, giving you a fresh start. 

To qualify for an Offer in Compromise, you must first submit the proper forms to the IRS. The amount you offer them must meet their specific set of rules and considerations. There are three different situations that make you eligible for an Offer in Compromise:

1. Doubt as to Collectability: This is the most commonly used OIC. The full amount of the tax debt may not be collectable for people whose assets and income are less than the amount of tax debt owed to the IRS. For this reason, these taxpayers can settle their account for an amount that is less than the full amount due. The IRS must approve any offer first.
2. Doubt as to Liability: Here, taxpayers are questioning the amount of tax debt in part or in full. Perhaps, they feel that an error is to blame for the larger amount. 
3. Effective Tax Administration: With this type, the full amount of the tax debt is not in question. They owe the amount, period. They can also pay the full amount. However, by paying the full amount of the tax debt, a financial hardship results for the taxpayer.

As you can see, an Offer in Compromise is definitely a tax resolution tool. This tool can be used for employment tax resolution for businesses. If you receive a tax bill that you cannot afford, please contact us immediately so that we can help with your tax problem. Consultation is free!

Our following blogs will discuss the eligibility and process of an Offer in Compromise so please visit us again.

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