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Tax

Congress Passes Payroll Tax Liability Cut and Unemployment Benefits Extension

Congress Passes Payroll Tax Liability Cut and Unemployment Benefits Extension

Congress passed legislation Friday extending the payroll tax liability cut, unemployment benefits, and the “doc fix” for Medicare physician reimbursements through the remainder of the year. This will create a $100B deficit in payroll tax liability.

The House approved the measure by a vote of 239-132, while the Senate quickly passed the legislation by a 60-36 vote, ahead of a congressional recess that starts this weekend. Accounting services Miami notes that President Obama is expected to sign it into law before the current two-month extension expires at the end of this month.

The bill, known as the Middle Class Tax Relief & Job Creation Act, extends the 2 percentage point cut in past due payroll taxes to 4.2 percent. It also extends unemployment benefits through the rest of the year, although the 99-week maximum benefit in some states will be gradually scaled back to 73 weeks. This does not affect them employer’s portion of the payroll tax liability.

Democratic and Republican negotiators in a congressional conference committee agreed this week to pay for the extension in part through auctions of wireless spectrum, a 2.3 percent increase in pension contributions by new government employees, and health care offsets that fix technical errors and reduce spending on providers and corporations to ensure Medicare patients continue to have access to their doctors, according to Accounting services Miami VieraCPA.

The agreement includes some reforms to the payroll tax liability and unemployment insurance program pushed for by Republicans, allowing states to promote the re-employment of unemployed workers through demonstration projects, and to require drug tests, but only for people who were fired for unlawful use of controlled substances. It also creates a national job search standard, covering benefits from beginning to end, and requires the unemployed to look for a job if they receive unemployment benefits, while expanding work-sharing programs to help avoid layoffs and greater payroll tax liability in the first place.

“Perhaps one aspect of this agreement that is most noteworthy is what is not included—there are no tax increases and no budget gimmicks,” said Accounting services Miami VieraCPA. “Despite countless attempts to pay for these past due payroll taxes with job-killing tax increases, this agreement does not raise taxes on families or employers. It also doesn’t rely on budget gimmickry that would saddle future generations with even greater payroll tax liability.”

However, the compromise bill drops some of the Republican-backed proposals for mandatory drug testing of unemployment insurance recipients and requirements that the unemployed be enrolled in a Graduate Equivalency Degree program. “To say to people, you don’t get a check if you’re not in a GED program when there are 160,000 people in this country who are on waiting lists, that’s out of here because it deserved to be out of here,” said Accounting services Miami VieraCPA. “And in terms of the Republican effort to test people for drugs, the agreement is very limited. So it is really masking the reality to call this major reform.”

The legislation extends the 4.2 percent withholding rate on past due payroll taxes through the end of the year. Last December, Republicans and Democrats could only agree on how to pay for a two-month extension through the end of February before leaving for a holiday recess. The new agreement extends the payroll tax liability through the rest of the year, although Republicans agreed to drop a demand for the tax cut to be fully offset by spending cuts. Democrats in turn dropped a demand for the tax cut to be offset by a tax increase on taxpayers with adjusted gross income over $1 million.

Under current law, the employee-side Social Security tax equals 6.2 percent of the first $110,100 of wages, and the self-employment side equals 12.4 percent of such self-employment income. In December 2010, however, Congress reduced these tax rates by two percentage points during 2011. This meant that employees paid only 4.2 percent on wages and self-employed individuals paid only 10.4 percent on self-employment income, according to Accounting services Miami VieraCPA.

The recently enacted Temporary Payroll Tax Liability Cut Continuation Act of 2011 extended this holiday through February 2012. It capped the amount of compensation eligible for the holiday at $18,350 so that high-income workers were not able to claim the tax cut on all of their taxable wages, while other workers were not. This cap is not necessary if the payroll tax holiday is extended through the entire year. The conference committee agreement in the new legislation extends the payroll tax liability holiday through the end of 2012 and repeals the $18,350 cap.

 

Categories
Tax

How to Reduce Tax Liability

How to reduce tax liability

Income tax preparers know costs and expenses are crucial part of Income tax planning, and one of the most difficult. How to reduce tax liability is contingent on what deductions you can claim.

How to reduce tax liability as allowable deductions as incurred and paid. These are not mutually exclusive.  Income tax preparers when trying to answer the age old question “How to reduce tax liability” and during the Income tax planning phase must consider what was spent for the purpose business deduction, and most importantly, what was not spent but incurred. How to reduce tax liability questions must be asked and answered during the Income tax planning period.

How to reduce tax liability via Income tax planning

To be allowable, it must not be excluded by regulations (see beneath).

The decision maker ought to often consider every single product of cost independently.

Income tax preparers Expenditures Check List

These are:

a) Funds expenditure

b) Repayments of cash on financial loans taken out for company reasons

c) Depreciation of capital assets

d) Sums utilized, or supposed to be employed, in setting up or growing a organization

e) Losses incurred prior to the start of the evaluation period

f)   Costs incurred in providing organization enjoyment.

These are the unofficial guidelines recommended by Income tax preparers during Income tax planning on how to reduce tax liability. It is totally important that you communicate to your Income tax preparers just before you allow or disallow any enterprise bills.

As lengthy as the ailments in the first paragraph are fulfilled, these are the day-to-day bills of a business you can deduct:

Accountancy costs

Marketing

Cleansing of organization premises

Big difference between opening and closing stock (on accounts)

Workers wages just before any deductions are made, including any wages payable to the domestic companion

Employer’s contributions to employees’ pension scheme

Employer’s (secondary) Class 1 SS contributions

Heating and lighting

Hire or rental costs (but not any cash or purchase elements)

Curiosity payable under a credit sale, a consumer credit score arrangement or a retain the services of obtain arrangement (but not the cash aspect of payments)

Authorized expenses connected with the enterprise

Payment in variety for perform carried out for the enterprise – the financial worth is allowable

Rent and Rates

Stationery

Stock purchases

Sundries, sometimes known as miscellaneous things, which are modest in relation to complete allowable costs provided that the decision make is content that no non-allowable expenses, for case in point for company enjoyment, are incorporated

Telephone, telex, fax etc (Only the proportion that is used for enterprise, i.e. if you use your telephone thirty% for company, 70% for private, then you can declare 30% of the costs as an allowable expense)

Transportation excluding any home-to-operate costs

VAT allowable (two)

Clearly, expenditures is a large area of tax far too huge to cover in a solitary web site publish, so if you need to know much more about expenditures, just take us up on our Cost-free one Hour Consultation.

Categories
Tax

The IRS is very aggressive on delinquent payroll tax liability

The IRS is Very Aggressive on Delinquent Payroll Tax Liability

The IRS is very aggressive in their collection attempts for past due payroll tax liability. The penalties assessed on delinquent payroll tax liability or filings can dramatically increase the total amount owed in a matter of months. We believe that it is critical to have a CPA, Attorney, or Enrolled Agent represent taxpayers in how to reduce your payroll tax liability in these types of situations. How you answer the first five questions asked by the IRS may determine whether you stay in business or are liquidated by the IRS. You should avoid meeting with any IRS representatives regarding past due payroll tax liability or any tax until you have met with an accountant to discuss your options.

IRS Payroll Tax Liability Liens

The IRS can make your life miserable by filing federal tax liens so you need a CPA who knows how to reduce your payroll tax liability. Past due payroll taxes often trigger Federal Tax Liens which are public record that indicate you have a payroll tax liability. They are filed with the County Clerk in the county from which you or your business operates. Because they are public records they will show up on your credit report. This often makes it difficult for a taxpayer to obtain any financing on an automobile or a home. Federal Tax Liens also can tie up your personal property and real estate. Once a Federal Tax Lien is filed against your property you cannot sell or transfer the property without a clear title. Often taxpayers find themselves in a Catch-22 where they have property that they would like to borrow against, but because of the Federal Tax Lien, they cannot get a loan. Consult a CPA on how to reduce tax liability and remove the tax liens.

IRS Payroll Tax Liability Levy

An IRS levy is the actual action taken by the IRS to past due payroll taxes. For example, the IRS can issue a bank levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable to satisfy the payroll tax liability. The person, company, or institution that is served the levy must comply or face their own IRS problems. The additional paperwork this person, company or institution is faced with to comply with the levy, usually causes the taxpayer’s relationship to suffer with the person being levied. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS or a CPA on how to reduce payroll tax liability.

When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount of the past due payroll taxes) and send it to the IRS in 21 days unless notified otherwise by the IRS. This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Account Levy for the payroll tax liability.

An IRS Wage Levy is different. Wage levies are filed with your employer and remain in effect until the IRS notifies the employer that the wage levy has been released. Most wage levies take so much money from the taxpayer’s paycheck that the taxpayer doesn’t have enough money to live on.

IRS  Payroll Tax Liability Audit

The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit. Typically, correspondence audits are for missing documents in your tax return that IRS computers have attempted to find. These usually include W-2’s and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation. The IRS office audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income. The IRS audit schedule for your home or office should be taken more seriously due to the fact that the IRS Auditor is a Revenue Agent. Revenue Agents receive more training and auditing techniques than a typical Tax Examiner. All IRS audits should be taken seriously because they often lead to other tax years and other tax deductions not originally stated in the audit letter. Consult an Accountant immediately on how to reduce tax liability in case of an audit.

IRS Payroll Tax Liability Seizures

The IRS has extension powers when it comes to Seizure of Assets to pay past due payroll taxes. These powers allow them to seize personal and business assets to pay off outstanding payroll tax liability. This occurs when taxpayers have been avoiding the IRS. The IRS attempts to collect amounts owed with a seizure as the ultimate act of their collection efforts. Consult an Accountant immediately on how to reduce tax liability and avoid any asset seizures.

Unfiled Payroll Tax Returns

Many taxpayers fail to file required returns and find themselves with past due payroll taxes for many reasons. The taxpayer must be aware that failure to file tax returns may be construed as a criminal act by the IRS. This type of criminal act is punishable by one year in jail for each year not filed. Needless to say, it’s one thing to have a payroll tax liability but another thing to potentially lose your freedom for failure to file past due payroll taxes. The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is the IRS’s version of an unfiled tax return. Because SFR returns are filed in the best interest of the government, the only deductions you’ll see are standard deductions and one personal exemption. You will not get credit for deductions which you may be entitled to such as exemptions for spouses, children, interest and taxes on your home, cost of any stock or real estate sales, and business expenses, etc. Regardless of what you have heard, you have the right to file your original tax return, no matter how late it’s filed.

IRS Penalties

The IRS penalizes millions of taxpayers each year. They have so many penalties that it’s hard to understand which penalty they are hitting you with.

The most common penalties are: Failure to File and Failure to Pay. Both of these penalties can substantially increase the amount you owe the IRS in a very short period of time. To make matters worse the IRS charges you interest on penalties.

Many taxpayers often find out about IRS problems many years after they have occurred. This causes the amount owed to the IRS to be substantially greater due to penalties and interest.

Some IRS penalties can be as high as 75%-100% of the original taxes owed. Often taxpayers can afford to pay the taxes owed, however the extra penalties make it impossible to pay off the entire balance.

Consult a CPA immediately on how to reduce tax liability and avoid all these serious issues.

Categories
Tax

How to Reduce Tax Liability with New IRS Penalty Relief and Installment Agreements

How to Reduce Tax Liability with New IRS Penalty Relief and Installment Agreements

Reduce tax liability — The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers to reduce tax liability 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 on how to reduce tax liability, part of a broader effort started at the IRS in 2008 which aided taxpayers to reduce tax liability, 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 to reduce tax liability with 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 to reduce tax liability.”

Reduce tax liability with Penalty Relief

The IRS announced plans for new penalty relief on how to reduce tax liability 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 to reduce tax liability, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals in order to reduce tax liability. 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.

How to reduce tax liability using 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.

Reduce tax liability using 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. Reduce tax liability 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 How to reduce tax liability 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 on reducing tax liability 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.

Reduce tax liability with 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.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

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.

Details on IRS Collection and Other Information

A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, www.irs.gov.