Employment Taxes Amid COVID – Part 1

 It is not necessary to say that this past year has been a particularly trying one. COVID has upended the entire world, especially the business one. Businesses long established as the foundation of the American economy have found themselves to being greatly diminished or have disappeared forever, such as Sears, Fry’s Electronics, and Soup!antation eatery. Likewise, many other small businesses have been forced to permanently close. The Federal and State governments tried to help with tax credits, but sometimes even that did not help. So now the focus is trying to get back to “normal” or to a new version of “normal”. 

COVID changed the way we do business, but like the saying goes: there is no escaping death and taxes. Both Federal and State Taxes (and local taxes) are still due, but perhaps in a diminished form. Congress passed the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) to help with the economic havoc wrought by COVID (Deferral of employment tax deposits and payments through December 31, 2020 | Internal Revenue Service (irs.gov)). With the help of this Act, businesses were able to continue to pay their employees and stay in business. However, this Act also brought a different set of accounting for payroll taxes with it. A tax professional, such as the ones at Bullseye Tax Relief, can help you navigate these uncharted waters.

Normally, businesses deposit employment taxes with the Internal Revenue Service (IRS) quarterly. These employment taxes include federal income tax, social security and Medicare tax, unemployment tax (FUTA) and self-employment tax (SE), if applicable. The CARES Act allowed businesses to defer the deposit and payment of the employer’s portion of the Social Security Taxes. There will be no penalties for not depositing these taxes with the IRS on time. However, this grace period does not last forever. The “payroll tax deferral period” began on March 27, 2020, and ends December 31, 2020. After that time frame, employers must collect and deposit those taxes with the IRS as they had prior to COVID.

Since the payments and the deposits are deferred until the end of December 2020, this applies to the monies collected that relate to the last quarter of 2020. These monies do not have to be deposited with the IRS at this time. Furthermore, employers may also be entitled to tax credits (Employer Tax Credits | Internal Revenue Service (irs.gov)) that can offset these deposit amounts. Refundable tax credits include credits for paid leave under the Families First Coronavirus Response Act (FFCRA) or for qualified wages under the employee retention credit. In addition to the deferral, these credits can reduce the employer’s deposits required for the IRS. Employers DO NOT make a special election to defer payments and deposits of these employment taxes. They should report the deferred taxes on the appropriate line on their employment tax return. Employers needing help with employment taxes should consult a tax professional so that they receive the maximum amount of credit possible.

Employers should also ask for help with payroll taxes since they have been complicated with COVID this past year. Unfortunately, IRS Form 941 (Employer’s Quarterly Federal Tax Return) was not revised until the second quarter of the year. It does not reflect the deferred deposits otherwise due on or after March 27, 2020, for that quarter or the deferred wages paid between March 27, 2020, to March 31, 2020. However, the form has been revised to reflect the employer’s deferral of the employer’s share of the Social Security tax for the second, third and fourth quarters. 

As you can see, COVID has complicated the tax process. Your best option is to seek business tax help to avoid any mistakes that may negatively affect your payment of employment taxes. Call us today!

Business Taxes are Dependent upon Business Structure – Part I

 All businesses must pay taxes. However, not all business taxes are the same for every business. The type, amount and form used in paying taxes is dependent upon the type of business entity. When someone starts a business, he or she must decide what business structure the business is to have. There are five business structures (Business Structures | Internal Revenue Service (irs.gov)), each with advantages and disadvantages. They are:

• Partnerships (Partnerships | Internal Revenue Service (irs.gov))
• Limited Liability Company (LLC) (Limited Liability Company (LLC) | Internal Revenue Service (irs.gov))
• Sole Proprietorships (Sole Proprietorships | Internal Revenue Service (irs.gov))
• Corporations (Forming a Corporation | Internal Revenue Service (irs.gov))
• S Corporations (S Corporations | Internal Revenue Service (irs.gov))

Partnerships

A Partnership is formed when two or more people join together to do a trade or business. Each partner contributes money, skill, labor or property to the partnership. Each partner shares in the profit or loss of that partnership. The unusual feature of a partnership is that the partnership itself does not pay income taxes. All other business structures do. Instead, a partnership must file an information return to report any income, deductions, gains, losses, etc. from the operation of that partnership. Profits and losses are “passed through” to the partners themselves. Each partner reports their share of profits or losses of the partnership on their own personal income tax return, hence the term “pass through”. Since partners are not employees, they do not receive a W-2 form indicating their income. Instead, the partnership furnishes a copy of Schedule K-1 (IRS Form 1065).

A partnership is a complex business structure. Mistakes in reporting income can be costly. Partnerships do not afford protections of personal assets and properties that other business structures provide. Therefore, it is important to hire a knowledgeable tax professional that can help navigate through the legal and tax features of the business. Remember, if you need help with payroll tax, it is best to consult a tax professional at Bullseye Tax Relief. 

Limited Liability Company (LLC)

Since a Limited Liability Company (LLC) is allowed by each state, it is best to check with your state for its regulations for this business structure since regulations differ for each state. Owners of LLC are called members. Since most states do not restrict ownership, owners can be individuals, other LLCs, corporations or even foreign entities. Most states permit “single-member” LLCs whereby there is only one owner; however, there is no maximum number for membership. Depending upon the number of members and the elections of that LLC, the Internal Revenue Service (IRS) will treat the LLC as a corporation, filing IRS Form 8832 or as a “disregarded entity”. 

Remember that any tax mistakes may be assigned to the business owner. For instance, if the business does not pay the correct tax amount, the IRS can place a lien, levy or seizure action against the owner of the business for these unpaid taxes. The IRS may assess a Trust Fund Recovery Penalty (TFRP) against the owner of a business that has not paid its tax obligation. To avoid this hassle, individuals should consult a tax professional, such as those at Bullseye Tax Relief for assistance. Our next blog will discuss sole proprietorships and employment taxes, including self-employment taxes.

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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