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TaxMama’s TaxQuips Unused LLCs and Corps

2017-05-26 by Eva Rosenberg

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Today TaxMama® hears from several people who have questions about tax returns for entities they created – but never used. This recent question from Debbie, on behalf of one her clients, is far too common.

 

 

 

 

Dear Friends and Family,

STOP IT! Just flat out STOP IT!

Why do you keep forming LLCs, partnerships or any kind of corporation when you’re not really ready to do business?

Then, you have these legal entities, with stringent tax filing responsibilities – and you do nothing.

Or you start them and operate the business for a while – but don’t file tax returns – because you don’t really know how. And you just simply flounder around trying to deal with it yourself, instead of doing the logical thing – taking the whole to thing to competent tax professional.

Instead, you rack up non-filing penalties, like those for partnerships and S corporations. Did you know?

“The penalty is $195 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due.”

And
“For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed for each Schedule K-1 for which a failure occurs, with a maximum penalty of $3,193,000.”

And let’s not forget state penalties.

If you’re not going to use the entity you created, you’re done with it, remember to dissolve it or shut it down. That’s so important.

Better yet, wait to incorporate or to set up your LLC until after you have your business plan and financing in place. Then establish your business entity and open a separate bank account for it. Yeah, stop operating it out of your own personal account or back pocket. Uh huh. Another brilliant thing tax pros like me are having to fix, when you’re audited.

A lot of businesses fail because of sloppy, indifferent and irresponsible practices.

Ahhhh….but the ones that succeed! Those start out doing it right in the beginning. With the current economic and administration climate, it’s like the Wild West. This is a GREAT time to start a business and get rich – but you must do some smart planning and then act on your plans.

Sure, we have no idea what the tax climate is. But if your business depends purely on the way the tax wind blows – you won’t succeed in the long run, anyway. Instead, find your vertical, target market. Learn how to reach them and how much time and money it will take to be profitable – and lay the groundwork properly.

There are so many thing people overlook, that I could write a book about the things you should be doing.

Heck! I did. Read it before you start your next business – or to improve your current one. Small Business Taxes Made Easy will help you avoid a lot mistakes and hundreds (or thousands) of dollars in penalties. And it will save you a fortune in taxes.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about forming entities and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

Please post all Comments and Replies to this post in the TaxQuips Forum.

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TaxMama’s TaxQuips False Social Security Numbers

2017-05-02 by Eva Rosenberg

mask, disguise photoToday TaxMama® hears from Lue with a question that is more common than you may realize.” A friend who’s been doing work for my husband regularly for the past two years knowingly gave him a false Social Security Number. We were just notified of this by the IRS. He won’t provide us with a real Social Security Number, which I think is so messed up, considering he’s supposed to be a good friend. What can we do so we don’t suffer the repercussions of this?”

 

Dear Friends and Family and Lue,

Frankly, while I know how you feel, it’s not your problem. The IRS sent your husband a notice. It tells your husband to withhold 28% of all money that is paid this contractor.

He MUST do this if this man continues to work for him.

One of the problems with this withholding is – without a Social Security number, that money won’t get credited to your friend’s income tax account as his tax payment.
And if he never files a tax return, HE is throwing this money away.

Your husband has no choice in the matter, if this person continues to work for him. If your husband tries to be a good guy and does not withhold the money and send it to the IRS, your husband (and you) will have to pay the friend’s taxes.

So suggest to your husband that HE has two choices.
1) Continue to hire his friend and withhold the money.

or

2) Stop hiring his friend and get out of this conflict that your husband never created.

Good luck with this. I see a fight coming – and perhaps at least 1 broken relationship.

I hope it’s not yours.

Please drop by MarketWatch.com and the TaxWatch columns for more tips.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about IRS notices and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the TaxQuips Forum.

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TaxMama’s TaxQuips End of Tax Season Payments and Tips

2017-04-17 by Eva Rosenberg

Today TaxMama® wants to talk about Extensions, Payments and End of Tax Season stuff.

Dear Friends and Family,

Today is April 17th. Don’t panic! Tax season isn’t quite over yet. You have until tomorrow to file your tax return or extension.  Here are some last minute tips.

But before I do, let me remind you (and pass this on those friends – you know who they are) that tomorrow is the absolute deadline to file the 2013 tax return and still collect a refund from the IRS. There’s a BILLION dollars sitting there, unclaimed.

OK – this year’s tips. (You may have heard or read them before.)

Do not file your tax return if you’re not totally ready with all the information. Get an extension. It’s free…sort of. Don’t just skip it until you’re ready. The penalty for filing late is 5% per month, up to 25%. The extension makes those penalties disappear.

To get an extension – use Form 4868 for personal extensions. Use Form 7004 to extend gift tax returns and trust or estate tax returns. Most states will accept the IRS extension. But make sure your state complies.

When you expect to owe money, but cannot pay it all, don’t lie on Form 4868. Enter the approximate balance you expect to owe. Pay at least $25 or $50 with the extension. (Never lie on the extension or it will be invalid.)

If you owe money, you need to pay it with the extension. You can use your credit card – and pay a fee.  Or you can pay online directly from your checking account with no fee using IRS’ Direct Pay. Make sure to select Form 4868 as the form and 2016 as the year you are paying.

If you absolutely cannot pay at this time because of a hardship, the IRS has a special form. Use Form 1127 to request an extension of time to pay for up to 18 months. There’s no guarantee they will accept it. But if they do accept this, you will avoid the late payment penalties. You will still owe the interest.

April 18th is also the last day to fund an IRA contribution for 2016.

And you need to make estimated tax payments for 2017, if you are self-employed or have investments. (Use the same payment links I gave you for the extension – just select Form 1040ES as the form – and use 2017 as the year.)

So you have a lot of demands on your money this week. What is the best strategy for allocating your dollars if your financial resources are limited? Read my 2012 Marketwatch column for guidance. The concepts and strategies are all still very valid. But use the links in today’s TaxQuip.

Please drop by MarketWatch.com and the TaxWatch columns for more tips.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about tax payments and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the TaxQuips Forum.

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Getting Your Tax Return Done - in These Crazy Times

2017-03-13 by Eva Rosenberg

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Today TaxMama® wants to talk to you about getting your tax returns done – and where to get help.

 

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Dear Friends and Family,

It’s the height of tax season. And this year, there is a lot of confusion about a variety of issues. More than ever, you may need the help of a tax professional. Where can you get help preparing your tax returns?

Did you know that only 3 states actually have testing, licensing and continuing education requirements for tax professionals? Yup! Only California, Maryland and Oregon. The other 47 states, DC, and US territories have nothing. In fact, there are over 400,000 tax preparers registered to file tax returns electronically who are unregulated (over 57% of all preparers).

So how can you ensure that your tax professional IS a professional and is up-to-date on current tax laws, especially in states without licensing?

First, start with a credentialed tax professional – there are three: Enrolled Agents, Certified Public Accountants, and Tax Attorneys. Then there are the licensed tax pros in CA, MD and OR.

To encourage the uncredentialed tax pros to take classes and to stay up-to-date, the IRS established a voluntary program. After completing 16-18 hours of courses, and for some candidates, a 100-question annual examination, they can get an Annual Filing Season Program (AFSP) Record of Completion. Only 50,951 tax pros out of the 400,000 tax pros without credentials have taken the courses. That means, over half the tax pros in the country have no license, and might not have bothered to keep up with changing tax laws.

The IRS’s directory of tax professionals will help you look up your tax pro. You will be able to see if their license, credential or AFSP is in good standing. You will be able to locate them by name or ZIP code. But you will not find and address or contact information for them. (The 350,000+ unlicensed and un-AFSP’d tax pros are not in the directory.) https://irs.treasury.gov/rpo/rpo.jsf

How do you find the right person to help you? And which is right for you?

Enrolled agents (EAs) are tax specialists licensed to represent taxpayers before the IRS. The EA credential allows them to work anywhere in the nation. For tax planning and tax debt issues, bookkeeping and payroll, this is your best choice. You can find them at the National Association of Enrolled Agents (NAEA), http://taxexpert.naea.org/

Certified public accountants (CPAs) are authorized to perform certified audits and issue financial statements. If you have a complex business and need much more than just tax returns – work with a CPA. You can find them the American Institute of Certified Public Accountants (AICPA), http://www.aicpa.org/feedback/shortfb.htm

Tax Attorneys are excellent choices if you need to create trusts, set up contracts and minutes, or deal with courts or criminal issues. They are usually too expensive for routine tax returns. You can find them at the American Bar Association http://www.americanbar.org

To decide if you’re better off preparing your own tax return, or working with a tax pro, read chapters 3 and 4 of Deduct Everything! http://deducteverythingbook.com/

If you’re in business, you will find more details about building an advisory team in chapter 1 of Small Business Taxes Made Easy. http://yourbusinessbible.com/

Please drop by MarketWatch.com and the TaxWatch columns for more tips.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about tax filing and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the TaxQuips Forum.

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Eight Tax Questions to Ask Before You Get Married

2017-02-20 by Eva Rosenberg

Form 4506T request with the IRS for each of you. Request a copy of Form 1040 on line six, check all the boxes on the form, and enter the last four years on line nine (i.e., 2015, 2014, 2013, 2012).
Or, you can log into the the IRS’s Get Transcript system with your fiance’(e) and get the information on the spot.

When you send the form back to the IRS, the agency will send you the tax forms for the years you requested, and you’ll know if your future spouse has filed tax returns in the last four years. You’ll also learn whether he or she owes the IRS any money. If you fear that your soon-to-be spouse may owe outstanding balances for more than the past four years, you can request the last 10 years’ data.

Each order your own Equifax credit report to share with the other. Consider opting for a report that gives you information from all three nationwide credit reporting agencies. Doing so will alert you to liens, levies, a poor credit history, and more.

Once you have these reports in hand, it will be easier to start the money conversation. Thoroughly read the information in the reports and ask questions about anything you don’t understand, but don’t be hostile or accusing.

Ask the right questions. It’s important to be on the same page with your partner before you tie the knot. If your answers to the following questions differ, discuss your points of view rationally.

  1. What is your attitude towards money? Are you frugal, stingy, wasteful, or balanced?
  2. Do you gamble? How? Do you gamble online or in casinos? Do you make bets with friends?
  3. Do you owe any gambling debts?
  4. Are you willing to live on a budget?
  5. What big purchases are you itching to make in the next few years, and how do you plan to pay for them?
  6. Do you have child or spousal support obligations? Do you meet these obligations on time?
  7. How are your relationships with your ex and your children? How will those relationships impact our lives, financially and emotionally?
  8. Is there any reason why we might have to keep our finances separated, at least in the beginning?


These are just some questions to bring up. Sit and think about things that matter to you and make a list that works for your situation. That way, you’ll be prepared to have a calm and rational conversation. I do hope it works out!

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