I often advise my business clients who are sole proprietors to consider hiring their child who are under the age of 18. If your business is a proprietorship, you pay no payroll taxes on your (under 18 year old) child's wages. Moreover, if your child files as a single taxpayer status, and earns less than $5,700.00 during tax year 2010, your child will pay zero income taxes.
I strongly suggest you pay your child the minimum wage for your state. Also, make sure to keep accurate time sheets reflecting the hours worked as well as copies of the paychecks issued to your child. Should you ever be audited by the IRS, these records will be necessary to prove that you paid your child appropriately and these records will save you a great deal of potential grief.
Friday, July 30, 2010
Tuesday, July 27, 2010
Hiring Incentives to Restore Employment Act (HIRE)
A number of my corporate clients have used this to their benefit. If you are an employer, think about taking advantage of this new law, by hiring new workers this year.
Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire workers after February 3, 2010 and before January 1, 2011. The employer may qualify for a 6.2 percent payroll tax incentive, in affect, exempting them from their share of Social Security taxes on wages paid to those workers after March 18, 2010. This reduced tax witholding will have no effect on the employee's future social security benefits. The employers would still need to withold the employee's 6.2 percent share of Social Security taxes, as well as other income taxes.
Additionally, for each new worker retained for at least one year, the employer may claim an addtional general business tax credit of up to $1,000 per worker, when they file their 2011 federal income tax returns.
Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire workers after February 3, 2010 and before January 1, 2011. The employer may qualify for a 6.2 percent payroll tax incentive, in affect, exempting them from their share of Social Security taxes on wages paid to those workers after March 18, 2010. This reduced tax witholding will have no effect on the employee's future social security benefits. The employers would still need to withold the employee's 6.2 percent share of Social Security taxes, as well as other income taxes.
Additionally, for each new worker retained for at least one year, the employer may claim an addtional general business tax credit of up to $1,000 per worker, when they file their 2011 federal income tax returns.
Monday, July 26, 2010
What Can The IRS Really Seize?
from EA Journal: www.NAEA.org
If the IRS is in a position to levy or seize, it is important to know what is at risk. No matter what the IRS may tell you or your representative or what you may have heard, it is very unlikely the IRS will levy on a house, car, furniture, or equipment. The assets that you may be the most concerned about-your "stuff" are the items the IRS is least likely to take. This is important to know in negotiating with the IRS.
In 2009, the IRS made 581 seizures of "hard" assets such as houses, cars and other personal property. By comparison, in the same year the IRS sent out almost 3,500,000 levies on "soft" assets, such as bank accounts and wages.
IRS attempts to seize "hard" assets are serious, make no mistake about it. But the IRS is clearly more intent on tying up cash.
The reason for the focus on cash, not personal property, are in the Internal Revenue Code (IRC) and the Internal Revenue Manual. Both provide that if an asset-for instance a house- lacks equity, the IRS is prevented from seizing it. This eliminates a vast majority of potential seizures. Even if an asset has equity, it cannot be taken if it is listed as exempt in the IRC and is protected from the IRS as a matter of public policy.
If the IRS is in a position to levy or seize, it is important to know what is at risk. No matter what the IRS may tell you or your representative or what you may have heard, it is very unlikely the IRS will levy on a house, car, furniture, or equipment. The assets that you may be the most concerned about-your "stuff" are the items the IRS is least likely to take. This is important to know in negotiating with the IRS.
In 2009, the IRS made 581 seizures of "hard" assets such as houses, cars and other personal property. By comparison, in the same year the IRS sent out almost 3,500,000 levies on "soft" assets, such as bank accounts and wages.
IRS attempts to seize "hard" assets are serious, make no mistake about it. But the IRS is clearly more intent on tying up cash.
The reason for the focus on cash, not personal property, are in the Internal Revenue Code (IRC) and the Internal Revenue Manual. Both provide that if an asset-for instance a house- lacks equity, the IRS is prevented from seizing it. This eliminates a vast majority of potential seizures. Even if an asset has equity, it cannot be taken if it is listed as exempt in the IRC and is protected from the IRS as a matter of public policy.
Friday, July 23, 2010
IRS Whistleblower Reward Program
Whistleblower - Informant Reward
The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay tax. If the IRS uses information provided by the whistleblower, it may award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects from the non-compliant taxpayer.
Who qualifies for the reward?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the non-compliant taxpayer.
What are the rules for receiving a reward?
There are two types of rewards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million (and a few additional qualifications are met), the IRS may pay 15 to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code (IRC) Section 7623(b) - Whistleblower Rules.
The IRS also has an reward program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The reward through this program are less, with a maximum reward of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at IRC Section 7623(a) - Informant Claims Program.
If you decide to submit information and seek a reward, use IRS Form 211. The same form is used for both award programs. -- Source - www.irs.gov
The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay tax. If the IRS uses information provided by the whistleblower, it may award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects from the non-compliant taxpayer.
Who qualifies for the reward?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the non-compliant taxpayer.
What are the rules for receiving a reward?
There are two types of rewards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million (and a few additional qualifications are met), the IRS may pay 15 to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code (IRC) Section 7623(b) - Whistleblower Rules.
The IRS also has an reward program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The reward through this program are less, with a maximum reward of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at IRC Section 7623(a) - Informant Claims Program.
If you decide to submit information and seek a reward, use IRS Form 211. The same form is used for both award programs. -- Source - www.irs.gov
Five Tax Scams to Avoid this Summer
Five Tax Scams to Avoid this Summer
The Internal Revenue Service issues a list of the top 12 tax scams each year – known as the Dirty Dozen. The scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. These scams don’t just happen during the tax filing season, they can happen anytime during the year. Here are five scams from the 2010 Dirty Dozen list.
1. Phishing. Phishing (contra fishing) is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
2. Return Preparer Fraud. Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
3. Hiding Income Offshore. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
4. Abuse of Charitable Organizations and Deductions. The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
5. Frivolous Arguments. Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.
The Internal Revenue Service issues a list of the top 12 tax scams each year – known as the Dirty Dozen. The scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. These scams don’t just happen during the tax filing season, they can happen anytime during the year. Here are five scams from the 2010 Dirty Dozen list.
1. Phishing. Phishing (contra fishing) is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
2. Return Preparer Fraud. Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
3. Hiding Income Offshore. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
4. Abuse of Charitable Organizations and Deductions. The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
5. Frivolous Arguments. Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.
Thursday, July 24, 2008
McCain and Obama tax plans are criticized
from www.latimes.com
McCain and Obama tax plans are criticized
The nonpartisan Tax Policy Center says that both candidates' proposals would increase the national debt by trillions and may make the system more complex.
By Stephen Braun, Los Angeles Times Staff Writer July 24, 2008
WASHINGTON -- The competing tax plans laid out by Sens. Barack Obama and John McCain would both add trillions of dollars to the national debt and could add to the tax system's complexity, a nonpartisan tax research group concluded Wednesday in a newly released report.Both campaigns assert that their plans to continue many Bush-era tax cuts and offer new reductions would aid the economy without massive new spending. But the Washington-based Tax Policy Center warned that under either candidate, "the debt would likely continue to rise as it has over the past eight years."Obama's plan -- cuts targeted to middle- and low-income Americans and increases for the wealthy -- would increase the national debt by an estimated $3.4 trillion in the next decade, the center said. Under a similar analysis, McCain's plan -- largely a continuation of Bush's tax reductions -- would add $5 trillion. The deficit is now $9.5 trillion.Both candidates would maintain the Bush tax cuts for the working poor and middle-income taxpayers. But they differ drastically on how to target the richest Americans. The report estimated that under McCain's plan, Americans who make between $38,000 and $66,000 a year would see average tax cuts of as much as $1,400 in 2012. But the Arizona Republican would aid the wealthiest 1% -- those who make more than $603,000 per year -- with annual tax reductions averaging $127,000.Under Obama's plan, the tax center said, middle-income taxpayers would have tax cuts averaging $2,100 in 2012. But the top 1% of taxpayers would see steep increases -- $38,000 a year, on average -- under the Illinois Democrat's plan.Leonard E. Burman, a Tax Policy Center senior fellow who was on the team that reviewed the candidates' plans, said in an interview that important portions of both plans had yet to be fleshed out.Both proposals are filled with "soft numbers" and sometimes play "fast and loose with their figures," Burman added."We had to make a lot of assumptions because there are big parts of their proposals that are still being fine-tuned," he said.Burman also said that although both candidates' plans attempt to streamline the tax system, they create potential new complexities. Both Obama and McCain would continue the alternative minimum tax, or AMT, long criticized for adding to the tax bite and complexity for middle-class and many upper-middle-class taxpayers.McCain would allow taxpayers to circumvent the AMT with an "optional alternative tax system" that could cause new chaos."If the new alternative tax system does not offer significant tax cuts, having to figure taxes under two systems and estimate which one would be better would add complexity, not reduce it," the center cautions.And although Obama seeks to aid low-income taxpayers by having the government prepare tax returns that the taxpayers would then approve, he has only committed vaguely to "fiscally responsible" reform of the AMT, the center notes.Another concern, Burman noted, is that Obama and McCain have presented "somewhat differing" versions of their plans on the campaign trail than what they have issued on the Web and in position papers."Sen. McCain's proposals on the stump are often far more sweeping than the more measured options outlined by his campaign," the center said. At the same time, "Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists."stephen.braun@latimes.com
McCain and Obama tax plans are criticized
The nonpartisan Tax Policy Center says that both candidates' proposals would increase the national debt by trillions and may make the system more complex.
By Stephen Braun, Los Angeles Times Staff Writer July 24, 2008
WASHINGTON -- The competing tax plans laid out by Sens. Barack Obama and John McCain would both add trillions of dollars to the national debt and could add to the tax system's complexity, a nonpartisan tax research group concluded Wednesday in a newly released report.Both campaigns assert that their plans to continue many Bush-era tax cuts and offer new reductions would aid the economy without massive new spending. But the Washington-based Tax Policy Center warned that under either candidate, "the debt would likely continue to rise as it has over the past eight years."Obama's plan -- cuts targeted to middle- and low-income Americans and increases for the wealthy -- would increase the national debt by an estimated $3.4 trillion in the next decade, the center said. Under a similar analysis, McCain's plan -- largely a continuation of Bush's tax reductions -- would add $5 trillion. The deficit is now $9.5 trillion.Both candidates would maintain the Bush tax cuts for the working poor and middle-income taxpayers. But they differ drastically on how to target the richest Americans. The report estimated that under McCain's plan, Americans who make between $38,000 and $66,000 a year would see average tax cuts of as much as $1,400 in 2012. But the Arizona Republican would aid the wealthiest 1% -- those who make more than $603,000 per year -- with annual tax reductions averaging $127,000.Under Obama's plan, the tax center said, middle-income taxpayers would have tax cuts averaging $2,100 in 2012. But the top 1% of taxpayers would see steep increases -- $38,000 a year, on average -- under the Illinois Democrat's plan.Leonard E. Burman, a Tax Policy Center senior fellow who was on the team that reviewed the candidates' plans, said in an interview that important portions of both plans had yet to be fleshed out.Both proposals are filled with "soft numbers" and sometimes play "fast and loose with their figures," Burman added."We had to make a lot of assumptions because there are big parts of their proposals that are still being fine-tuned," he said.Burman also said that although both candidates' plans attempt to streamline the tax system, they create potential new complexities. Both Obama and McCain would continue the alternative minimum tax, or AMT, long criticized for adding to the tax bite and complexity for middle-class and many upper-middle-class taxpayers.McCain would allow taxpayers to circumvent the AMT with an "optional alternative tax system" that could cause new chaos."If the new alternative tax system does not offer significant tax cuts, having to figure taxes under two systems and estimate which one would be better would add complexity, not reduce it," the center cautions.And although Obama seeks to aid low-income taxpayers by having the government prepare tax returns that the taxpayers would then approve, he has only committed vaguely to "fiscally responsible" reform of the AMT, the center notes.Another concern, Burman noted, is that Obama and McCain have presented "somewhat differing" versions of their plans on the campaign trail than what they have issued on the Web and in position papers."Sen. McCain's proposals on the stump are often far more sweeping than the more measured options outlined by his campaign," the center said. At the same time, "Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists."stephen.braun@latimes.com
Wednesday, July 23, 2008
IRS Criminal Investigations increase
from www.yahoonews.com
Thu Jul 17, 5:37 PM ET
WASHINGTON - The IRS Criminal Investigation Division completed more than 4,200 investigations in the 2007 budget year, with about one half resulting in conviction for a crime, according to a report issued Thursday.
The Treasury Inspector General for Tax Administration said the criminal division showed improvement in a number of key areas last year despite a decline in special agents. Those included cases initiated, completed, recommended for prosecution and those concluding in convictions.
The report also noted that investigations referred to the Department of Justice for prosecution stood at an eight-year high, and that for the first time since they began keeping statistics, the division had more investigations awaiting prosecution than open criminal investigations within the division. It said time needed to manage cases being prosecuted cuts into resources available to initiate and complete investigations.
On average, it took 412 days to complete an investigation in 2007.
It said the number of field special agents had declined 3 percent in 2007 to 2,435. "We believe that the continual loss of agents will negatively affect the division's productivity in the near future," said Inspector General J. Russell George.
He also reported that refund returns verified as containing false wage information under the IRS's Questionable Refund Program increased from 84,000 in the 2005 processing year to 211,000 in 2007. The average fraudulent claim in 2007 was $6,479, compared to $3,764 the previous year.
Thu Jul 17, 5:37 PM ET
WASHINGTON - The IRS Criminal Investigation Division completed more than 4,200 investigations in the 2007 budget year, with about one half resulting in conviction for a crime, according to a report issued Thursday.
The Treasury Inspector General for Tax Administration said the criminal division showed improvement in a number of key areas last year despite a decline in special agents. Those included cases initiated, completed, recommended for prosecution and those concluding in convictions.
The report also noted that investigations referred to the Department of Justice for prosecution stood at an eight-year high, and that for the first time since they began keeping statistics, the division had more investigations awaiting prosecution than open criminal investigations within the division. It said time needed to manage cases being prosecuted cuts into resources available to initiate and complete investigations.
On average, it took 412 days to complete an investigation in 2007.
It said the number of field special agents had declined 3 percent in 2007 to 2,435. "We believe that the continual loss of agents will negatively affect the division's productivity in the near future," said Inspector General J. Russell George.
He also reported that refund returns verified as containing false wage information under the IRS's Questionable Refund Program increased from 84,000 in the 2005 processing year to 211,000 in 2007. The average fraudulent claim in 2007 was $6,479, compared to $3,764 the previous year.
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