From the IRS: Tax Tips for Starting a Business

Tax Tips for Starting a Business

When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.

1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file.

2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

3. Employer Identification Number. You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can
apply for it online.

4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.
The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees. Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

Get all the tax basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

Additional IRS Resources:
• IRS Tax Calendar for Businesses and Self-Employed
• Publication 505, Tax Withholding and Estimated Tax
• Publication 334, Tax Guide for Small Business
• Publication 225, Farmers Tax guide
• Publication 535, Business Expenses
• Publication 587, Business Use of Your Home
• Publication 510, Excise Taxes
• Publication 538, Accounting Periods and Methods

IRS YouTube Videos:
• Small Business Health Care Tax Credit – English | Spanish | ASL
• IRS Online Tax Calendar – English | Spanish | ASL
• Simplified Home Office Deduction – English | Spanish | ASL

IRS Podcasts:
• Small Business Health Care Tax Credit – English | Spanish
• IRS Online Tax Calendar – English | Spanish
• Simplified Home Office Deduction – English | Spanish

Advertisements

From the IRS: Federal Tax Help for Landscapers and Gardeners is Just a Click Away

Federal Tax Help for Landscapers and Gardeners is Just a Click Away

If you are a self-employed landscaper or gardener, visit IRS.gov for all your federal tax needs. Be sure to view the IRS webinar “Business Taxes for the Self-Employed: The Basics.” Here are some topics included in the webinar or on IRS.gov that you should know:

• Accounting Method. An accounting method is a set of rules about when to report income and expenses. Many small businesses use the cash method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Find out more in IRS Publication 538, Accounting Periods and Methods.

• Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. You may have to pay self-employment tax as well as income tax if you make a profit. Self-employment tax, or SE tax, includes Social Security and Medicare taxes. You may need to pay your taxes by making estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

• Tax Forms. There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. Use Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.

• Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the gardening or landscaping industry. A necessary expense is one that is helpful and proper for your trade or business. View the webinar “Small Business Owners: Get All the Tax Benefits You Deserve” to learn more.

• Business Use of a Vehicle. If you use your car or truck for your business, you may be able to deduct the costs to operate the vehicle for the business use. Refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses for details.
Follow the IRS on Twitter! The IRS has three key accounts: @IRSnews, @IRStaxpros and @IRSenEspanol.

Additional IRS References:
• Small Business and Self-Employed Tax Center
• IRS Video Portal
• Online Learning and Educational Products
• e-News for Small Businesses
• Publication 583, Starting a Business and Keeping Records
• Publication 505, Tax Withholding and Estimated Tax
• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses

IRS YouTube Videos:
• Estimated Tax Payments – English | Spanish | ASL
• IRS Tax Payment Options – English | Spanish | ASL
• Record Keeping – English | Spanish | ASL
• IRS Online Tax Calendar – English | Spanish | ASL
IRS Podcasts:
• Estimated Tax Payments – English | Spanish
• IRS Tax Payment Options – English | Spanish
• IRS Online Tax Calendar – English | Spanish

Ten Social Security Tax Questions

Ten Social Security Tax Questions

There were several programs established by the Social Security Act to ensure individuals with disabilities and people who retire have supplemental income. It also established a program for survivors to receive a death benefit. Supplemental income from Social Security keeps more than 40 percent of the elderly population out of poverty. With all of the changes and amendments made since 1935, the tax implications are complicated for individuals and employers. The following are 10 common tax questions related to Social Security.

1. Are Social Security benefits taxed? In some cases, benefits may be subject to federal income tax. If the benefits are a person’s only source of income, they are not likely to be taxed. However, people who have additional income will usually be subject to the federal income tax.

2. Are there base amounts for benefits? The base amounts are determined by a person’s filing status. The base amount for a married couple filing jointly is $32,000. For married couples filing separately who live together, it is $0. The base amount is $25,000 for all other taxpayers.

3. What percentage of benefits is subject to income tax? If an individual adds his or her income to half of the total received benefits and it exceeds more than the base amount, up to 50 percent of that individual’s benefit will be counted as gross income. The base amounts are the same as those listed in the previous paragraph. However, if the person’s income exceeds $40,000 for married filing jointly status, $0 for married filing separately status or $25,000 for all other taxpayers, up to 85 percent of the total amount of benefits must be counted as gross income.

4. Are workers’ compensation benefits counted as Social Security on tax forms? Yes, workers’ compensation benefits are counted as Social Security since they cause a reduction in the tier I category for disability benefits.

5. Why does adjusted gross income include nontaxable interest? This is done to limit the chances of manipulation on tax liability benefits.

6. What are the reporting requirements from the Social Security Administration? Information must be sent to each beneficiary every year that shows any repayments from the beneficiary and any reductions of benefits.

7. How are lump-sum retroactive benefits and over-payments taxed? Any benefits paid to an individual are reduced by over-payments that are repaid. Retroactive lump-sum payments are treated as payable during the year when they were received. Any benefits received before 1984 are not taxable.

8. Are income taxes withheld from Social Security benefits? Withholding is allowed but it is voluntary. Benefit recipients can submit a Form W-4 if they wish to have federal income taxes taken directly out of their benefits. Withholding can be chosen at several different percentage rates up to 25 percent of the total benefit payment.

9. How are Social Security taxes reported for domestic help? The 2015 threshold for coverage of a domestic worker was $1,900 in 2015. Always check current rules for updated threshold amounts. Any wages paid to domestic workers under the age of 18 are exempt from Social Security taxes. Being a student is classified as an occupation.

10. If a person receives wages as an employee but is also self-employed, how much income is subject to self-employment income tax? The difference between the base of maximum earnings and the wages earned as an employee is the amount that is subject to taxation as self-employment income. If the net earnings from self-employment income are more than $434, no self-employment tax is due. However, the amount that is considered taxable may be less than $400 in some cases.

There are many other common concerns related to Social Security taxes and benefits. To learn more or for answers to other questions, discuss concerns with an agent.

From the IRS: Find out how ACA affects Employers with 50 or more Employees

Find out how ACA affects Employers with 50 or more Employees

Some of the provisions of the Affordable Care Act, or health care law, apply only to large employers, which are generally those with 50 or more full-time equivalent employees. These employers are considered applicable large employers – also known as ALEs – and are subject to the employer shared responsibility provisions and the annual employer information return provisions. For example, in 2016 applicable large employers will have annual reporting responsibilities concerning whether and what health insurance they offered in 2015 to their full-time employees.

All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015.

Effective for calendar year 2015, ALEs with 100 or more full-time or full-time equivalent employees will be subject to the employer shared responsibility provision and therefore may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

Employers with more than 50 cannot purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace. However, Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

From the IRS: Small Business Retirement Plan Penalty Relief Expires Soon

Small Business Retirement Plan Penalty Relief Expires Soon

You still have time to file retirement plan tax returns for your small business. Under the IRS special penalty relief program, you can avoid stiff penalties for filing late. However, you must act soon. Here are some key points you should know about this program:

• Late Filing Penalties. Plan administrators and sponsors who fail to file required forms can face penalties of up to $15,000 per return. The plan usually must file Form 5500-EZ each year.

• Penalty Relief Deadline. A special program provides penalty relief for late filers. Those who are eligible can avoid these penalties by filing late returns by June 2, 2015.

• Relief to Certain Plans. In general, this program is open to certain small business plans. These include owner-spouse plans, plans of business partnerships (together, “one-participant plans”) and certain foreign plans.

• Penalty Already Assessed. If you have already been assessed a penalty for late filings you are not eligible for this program.

• One-Year Pilot. The IRS launched this program on June 2, 2014, as a one-year pilot. It can help small businesses that may have been unaware of their plan’s filing requirements. So far, the IRS has received about 6,000 late returns under the program.

• Multiple Late Returns. You may apply for relief for multiple late returns in a single submission under this program.

• No Fee Required. The IRS does not charge a filing fee or require a payment to apply for this relief.

Additional IRS Resources:
• Revenue Procedure 2014-32
• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan

IRS Youtube Video:
• Form 5500-EZ Pilot Penalty Relief Program – English

From the IRS: Top 10 Tips to Know if You Get a Letter from the IRS

Top 10 Tips to Know if You Get a Letter from the IRS

The IRS mails millions of notices and letters to taxpayers each year. There are a variety of reasons why we might send you a notice. Here are the top 10 tips to know in case you get one.

1. Don’t panic. You often can take care of a notice simply by responding to it.

2. An IRS notice typically will be about your federal tax return or tax account. It will be about a specific issue, such as changes to your account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.

3. Each notice has specific instructions, so read it carefully. It will tell you what you need to do.

4. You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6. If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. You won’t need to call the IRS or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8. Always keep copies of any notices you receive with your other tax records.

9. Be alert for tax scams. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.

10. For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.

Additional IRS Resources:
• Tax Topic 651 – Notices – What to Do
• Tax Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
• Understanding Your CP2000 Notice
IRS YouTube Videos:
• Received a Letter from the IRS? – English | Spanish | ASL

From the IRS: What to Know about Late Filing and Late Paying Penalties

What to Know about Late Filing and Late Paying Penalties

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

1. Two penalties may apply. If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

Additional IRS Resources:
• IRS Direct Pay
• Make a Payment – payment options
• Tax Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
• Q&A about interest and penalties for filing and paying late
• Publication 594, The IRS Collection Process
• Filing Your Taxes
• IRS Tax Map
IRS YouTube Videos:
• IRS Tax Payment Options – English | Spanish | ASL
• Online Payment Agreement – English | Spanish | ASL
IRS Podcasts:
• IRS Tax Payment Options – English | Spanish
• Online Payment Agreement – English | Spanish