Tag Archives: IRS

indiana tax attorney

Tax Considerations for the Self-Employed

When you’re self-employed, all your income goes straight into your own bank account. It doesn’t mean you’re off the hook for paying taxes to the Internal Revenue Service (IRS). Taxes apply to you, just like any other member of the workforce – and if you don’t play by the tax rules, the IRS could assign stiff penalties that could destroy your business.

How Does the IRS Define Self-Employment?

Whether you define yourself as a freelancer, a sole proprietor, a one-person corporation owner or another kind of worker, you’re one of the 15 million Americans who is self-employed. Maybe you don’t have a brick-and-mortar storefront or business cards or even an official business name – but it doesn’t matter. If you are accepting payment for services rendered, it’s a business according to the IRS. Because no employer is withholding taxes on your behalf, you’ll owe taxes to the IRS and should file as self-employed.

What Taxes Do Self-Employed Workers Pay?

You’ll owe both income tax and self-employed, or SE, tax. The SE tax is essentially the same thing as the tax any other worker would pay for Social Security and Medicare.

How Do I Determine How Much I Owe?

Start by figuring your net profit/loss during the tax year, which is your business income minus business expenses. If it’s more than $400, you’ll owe money to the IRS – but even if it’s under $400 or a net loss, you may need to file because you meet other requirements set by the IRS.

How Do I Pay What I Owe?

Use IRS tax Form 1040 to report your earnings, with Schedule SE for the self-employed. Schedule C or Schedule C-EZ will help you figure what you owe for Medicare and Social Security. Pay the IRS the total due, and keep in mind that they require any business that estimates it will owe more than $1,000 annually to make estimated tax payments every quarter using Form 1040 ES each time.

What About Credits and Deductions?

There are many credits and deductions that apply to self-employed workers, just like any other business. Take advantage of credits like the health coverage credit and the earned-income credit. Many expenses of running a business can also be deducted, as long as the IRS defines them as “necessary and ordinary” costs, like office supplies and using your vehicle for business.

What if I’ve Fallen Behind on Taxes?
If you owe back taxes, penalties will accrue and be applied retroactively when they realize you have delinquent unpaid taxes. This means you should start paying taxes immediately, even if you have never done so before. Otherwise the penalties will grow steeper and steeper. Call us for help and we can assist in laying out your options and helping you set up a payment plan.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

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Estimated Taxes – New IRS Late Penalty Waiver

IRS tax estimates

If you’re a freelancer or self-employed paying estimated taxes late, the IRS has good news for you. They’re waiving estimated tax payment penalties, even if you don’t meet the threshold for “safe harbor” protection. Normally, you would owe the IRS for paying late, but not for your 2018 taxes if the waiver applies to you. Here’s a closer look at the IRS announcement and what it means for freelancers.

Why Did the IRS Issue the Waiver?

Under IRS rules, freelancers and other self-employed individuals must pay the bulk of their taxes throughout the year by estimating their taxes and making prepayments. However, new changes to the law makes this a tricky task for taxpayers. When the IRS first released the tax withholding tables in early 2018, the table did not yet reflect adjustments from newly-introduced tax laws. This affected taxpayers’ ability to correctly calculate estimated tax payments. The waiver provides some relief.

What Does the Waiver Mean for People Who Pay Estimated Taxes?

They must still make estimated tax payments and file their taxes in accordance with IRS rules. Because the details of the waiver can be confusing, consult with a tax attorney to be sure you’re estimating your tax payments and filing your taxes correctly. In general, if you prepaid at least 85% of your estimated tax due, the waiver may apply to you; if you haven’t paid at least 85%, you will most likely not be eligible. For a freelancer who is also receives a W-2, the tax for that part of their income should still be withheld from each paycheck.

What is Safe Harbor?

A safe harbor rule shields you from a penalty or other consequence, as long as you qualify under its boundaries. In this case, the applicable safe harbor rule requires that your tax payments are equal to a percentage of your tax liability for a given year. The waiver means you may still avoid paying a penalty even if you don’t qualify for safe harbor.

How Do I Know if I Should Use the Waiver?

The best thing to do is to talk to your tax attorney. You can be prepared for that meeting by asking yourself a few questions: Did you adjust your estimated tax payments or your tax withholding in 2018? If not, you may need the waiver. Will you have a payment due when you file your taxes? If so, this waiver may allow you to breathe a sigh of relief. Of course, this comes with the caution that just because the IRS issued this waiver for the 2018 tax year, they won’t necessarily extend it into 2019. You may also need to adjust your withholding and estimated tax payments to qualify for safe harbor next year and avoid possible penalties in the future.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

small business taxes

The Right Way for Corporations to Reimburse Home Office Expenses

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If your company has people working from home offices, many of their business expenses are reimbursable. However, a corporation must reimburse these expenses the right way, or the IRS could consider the reimbursements improper and trigger an audit with financial penalties. Let’s look at the two main methods of seeking home office reimbursements – the actual expense method and the safe harbor method. For a corporation, one option is clearly better than the other.

What is the Actual Expense Method?

The actual expense method directly reflects the amount of business expenses a home-based worker is experiencing. The employee would submit receipts and other proof for reimbursement from the company. If the expense comes from a house-wide cost, its reimbursement will be calculated as a percentage of the total household cost. This percentage is usually found by determining how many square feet of the home is used for business use only, then using that percentage as the guide. So, if their home office is 15% of the total home space, they should never be requesting reimbursement for any amount above 15% of an expense that applies to the entire home.

What is the Safe Harbor Method?

The safe harbor method is also for work-from-home taxpayers who have business expenses. It gives them a certain level of safety in claiming business expenses up to a threshold amount. However, there are still many limitations and requirements to consider. In general, the maximum amount a taxpayer can deduct annually under the safe harbor method is $1,500. Consult a tax attorney to ensure you qualify for safe harbor before using it.

Why Does the Safe Harbor Method Exist?

The IRS introduced the safe harbor method to help taxpayers affected by changing laws. Lawmakers working on the 2010 economic stimulus package inadvertently penalized taxpayers who were simply trying to claim legitimate business deductions. In response, the IRS introduced the safe harbor method, also called the safe harbor escape, to give these taxpayers another choice. If people feel too uneasy about claiming business deductions for fear of triggering an IRS audit, they could seek the safe harbor option.

Can a Corporation Use the Safe Harbor Method?

No. Corporations should not use the safe harbor method. A corporation should use the actual expense method for reimbursements. This means that any request for reimbursement coming from an employee or employee-shareholder should be based on their actual expense, with proof in the form of receipts and other paperwork. For more information about handling reimbursements properly, reach out to your corporation’s tax attorney.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

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Tax Implications for Small Businesses After a Natural Disaster

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After a natural disaster like a hurricane, flood or wildfire, small businesses struggle to cope with the fallout. Even if your company isn’t directly in the path of the destruction, your employees or customers could suffer losses that create major chaos for the company. But don’t let a natural disaster become an even bigger financial disaster. Here’s how to handle costly penalties from the IRS.

How Does a Natural Disaster Cause Concerns About Taxes?

In the wake of a catastrophe, businesses must focus on solving a wide range of urgent issues, like structural damage, data recovery, security risks, inventory loss and employee absences. Routine financial matters often take a back seat to these immediate challenges. Unfortunately, the IRS is not aware of any difficulties you’re facing because of a natural disaster. A missed tax filing deadline is still a serious matter.

Doesn’t the IRS Care That We are Dealing with the Aftermath of a Natural Disaster?

The IRS tries to show mercy and offers you an opportunity to claim reasonable cause for your failure to file on time. Official examples of reasonable causes include death or serious illness, fire, natural disasters and inability to obtain necessary documentation due to extreme situations. Consult with your tax attorney about how to describe your reasonable cause to the IRS, because word phrasing is important. The Supreme Court has ruled that certain rationales, such as “I didn’t know what was going on,” or “It was my tax preparer’s fault” aren’t viable, because the ultimate responsibility to file taxes on time is yours.

What if We Just Realized We Have a Tax Problem?

The first step is to get good advice from a tax attorney. Don’t ignore the problem or let it get worse; act as soon as you realize the missed deadline or other error. Every month brings additional costly penalties. Gather your documents, contact the IRS to confirm your options due to reasonable cause and work with your tax attorney to resolve the issue.

Is There Anything We Can Do About a Missed Deadline?

In a word: Yes. The IRS does offer some options if you’ve already missed an all-important tax filing deadline due to a natural disaster. If it’s the first time it’s ever happened, they may give you a one-time forgiveness called an abate without penalty. For partnerships, you can also ask the IRS about something called partnership relief, which is another non-penalty route. But don’t count on these penalty-free options. The IRS may apply a late penalty at their discretion.

If We Have to Pay a Penalty, What Could It Cost?

In terms of a missed filing deadline, for an individual or C corporation return, you’ll pay a 5% penalty on tax owed per month the return is left unfiled, up to 25%. For a partnership or S corporation, the penalty is $2,000 per shareholder per month, with a maximum of 12 months. There could also be other penalties depending on your exact tax situation. Most post-disaster tax problems can be cleared up quickly, as long as you have access to your company data and documents.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

tax surprises

How Retirees Can Avoid a Surprise Tax Bill from the IRS

tax surprises

Are you in for a big surprise at tax time? If you’re about to retire or are newly-retired without a plan for IRS withholding, you could receive a shockingly high tax bill. Although retirement should be a peaceful and relaxing time in your life, a tax issue can really shake things up. Let’s take a look at the most common questions about retirement-related tax issues, so you can be prepared.

Why are Taxes an Issue at Retirement?

Tax issues come up at retirement because your household income is changing. You may have an abrupt decline in income or you may do other things that affect your tax burden, like cash out a 401K or change your investments. If you’re due to receive a pension or annuity check, the IRS will want to ensure that they’re receiving the proper amount in taxes. Many people don’t take the time to think through all these financial factors and calculate exactly how it will affect what they owe the IRS.

What Can I Do to Prevent a Problem?

The IRS doesn’t want to leave taxpayers high and dry on this issue. They want to make sure you pay your taxes. That’s why they offer tools like the IRS Withholding Calculator to assist you with the math it takes to make a correct payment. However, it’s not as simple as doing a single calculation. You may need to pay estimated tax earlier in the year than usual, and you may need to provide the IRS with documentation related to a pension or annuity, which is viewed as income.

Is There Still Time This Year to Avoid a Big Tax Bill?

Timing is everything with taxes. As a tax year comes to a close, you might not have time to withhold enough to prevent a large tax bill. But don’t throw up your hands and assume everything will work out next year. This could cause you to incur penalties that increase what you owe significantly. One option is to make an estimated payment to the IRS that helps protect you from a massive tax bill later. Making an estimated payment also shows the IRS that you are dutifully trying to manage your tax burden so you stay in their good graces.

What if I Receive Unexpected Income, Like Capital Gains?

Unexpected income can further complicate your tax picture. Around retirement, unexpected income usually arrives as cash retirement gifts, capital gains on stock, mutual fund dividends, or the sudden sale of a property. You may even have new income from the sharing economy, like opening your home to Airbnb travelers. You’ll owe taxes on all income, even if it’s unexpected. For a complex financial situation like this, you’ll need the advice of a tax attorney to ensure you’ve covered all your bases.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

indianapolils tax attorney

Business Taxpayers: Deduct Tax Program Payments as Business Expenses

indianapolils tax attorney

Do you know payments your business makes under state and local tax credit programs may be tax deductible? The Internal Revenue Service (IRS) has issued a clarification to help business taxpayers understand when and how to deduct these payments on their federal tax returns. Your company could be taking advantage of this money-saving deduction immediately. Learn more about the IRS clarification.

What is the IRS Clarification?

The IRS received many inquiries about this issue and felt it needed more clarity. The clarification doesn’t change any IRS rules – it just provides an explanation, in case businesses are misunderstanding or are unaware of the rules. They explain that the availability of a charitable contribution deduction for contributions to state and local tax credit programs is not affected by a taxpayer’s ability to claim deductions for payments to charities and government entities.

What Does This Mean in Plain Language?

Still confused? Sometimes IRS statements are a bit difficult to comprehend for the average taxpayer, even when they’re trying to provide clarification. In plain language, the clarification means if your business is making payments to organizations – like charities or the government – and receiving tax credits, the payments are likely deductible on your taxes. But it depends on your overall financial situation. To be sure, consult a tax attorney.

Who Qualifies for This Deduction?

Individual taxpayers do not qualify; however, people who run businesses do. And virtually any type of business can qualify, including sole proprietorships, small businesses, big businesses, partnerships and corporations. As long as the expense qualifies under the IRS definition of an “ordinary and necessary business expense,” it can be deducted from your federal taxes.

What Are the Exceptions?

The main exception, which the IRS will always caution taxpayers about, is that you may not qualify for certain deductions if you have failed to pay taxes in the past or your tax payments are overdue. It depends on your exact tax situation. For this reason, it’s crucial to work with a tax attorney who can examine the big picture of your tax status and advise you on whether to claim the deduction.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

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How to Handle Small Business Payroll Tax Problems

employee payroll

Is your small business processing payroll taxes correctly? It’s important to be sure. Making a mistake can be costly and get you into hot water with the IRS. Payroll tax problems can trigger an audit and, in some cases, even cause your business to be shut down. There have been numerous cases where the IRS has launched a federal investigation, resulting in jail time for small business owners. Avoid these worst-case outcomes by informing yourself about payroll tax regulations.

What’s Defined as Payroll Taxes?

The IRS defines payroll taxes as the duo of Social Security and Medicare taxes, also known as FICA taxes, which are withheld from employee paychecks. People sometimes confuse payroll taxes with employment taxes, which are technically something different, and include federal taxes, unemployment tax and self-employment tax. Generally, when someone refers to payroll taxes, they mean FICA taxes.

What’s the Biggest Risk to My Business?

Paying late – or not at all – is a big problem. Past due payroll taxes are a major enforcement issue for the IRS, which actively targets small businesses for compliance. If there’s one thing you shouldn’t do, it would be to ignore payroll taxes or flagrantly pay them late. More than 40% of small businesses are fined an average of $850 per year for payroll tax issues, primarily for late payment.

What Power Does the IRS Really Have?

Make no mistake – the IRS has wide authority to track down and penalize payroll tax evaders. Not paying your payroll taxes is a federal crime. If you don’t pay, the IRS can:

  • conduct an audit
  • assign financial penalties
  • confront you at your business
  • padlock your front doors
  • seize machinery and equipment
  • contact your customers
  • prevent your business from operating
  • notify the Department of Justice
  • work with authorities to secure jail time for the business owner

What if We Already Have Past Due Payroll Taxes?

Act fast to resolve it. Just 16 days past the due date, the IRS can assign a penalty of a whopping 33%. Also, don’t waste time trying to explain it away with excuses; the IRS isn’t very flexible on this issue. Some small businesses try to justify nonpayment by saying they used payroll tax money to cover their operating expenses. This is against the law, because that money is owed to the federal government. Instead, work proactively with a tax attorney to sort things out with the IRS as quickly as possible.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

Indiana tax attorney

Get 2018 Tax Documents Ready for Filing Season Now

Indiana tax attorney

As tax season approaches, now is the perfect time to get your tax documents in order and make sure you have everything you need. One missing document could create confusion at the last minute, or even cause you to file your taxes past the deadline and pay penalties. We strongly advise our clients to get their tax documents together by December of the current year, so everything will be ready to go well before the filing deadline, usually in April of the next year for most people.

What Documents Do I Need to File My Taxes?

To file your taxes, the three most essential things you’ll need are your social security number, your tax documentation from the recent tax year and your W-2 forms from all employers you worked for this year. If filing jointly, you need all the same documentation for your spouse. Beyond that, you’ll also need the following documents, depending on your exact situation: 1099 forms for any contract work beyond $600, statements of income from any investments like stocks, bonds, dividends and interest, accounting records if you run a business or rent property, social security benefits forms and proof of any other benefits from unemployment, jury duty, gambling, prizes and medical savings accounts.

What if a Document is Missing?

If you lost last year’s return, request a free tax transcript from the IRS through the online portal and receive it in five to 10 days. By mail, it takes 30 to 75 days, depending on the level of detail you requested. If you need info as far back as six years, you may owe a $50 fee to the IRS per return requested. For other types of missing forms, it will depend on the organization involved. For a missing W-2 or 1099, contact your employer. It often takes them several weeks to generate and mail a new copy, so be prepared to wait. For proof of your investment income, contact the company that manages your investments. Prove social security benefits by contacting the Social Security Administration. For gambling and prizes, contact the company that administers the payout. If you run a business or rent property, you will be expected to provide records and may need the help of a tax attorney to sort out missing documents.

Why Does the IRS Need So Many Documents?

Tax-related documentation is used to prove your identity, prevent people from impersonating you and provide details the IRS needs to verify your tax burden. In a world that is increasingly paperless, you might find it frustrating that you’ll still need to deal with so much paperwork at tax time. However, many organizations now provide the information you need electronically, which makes things a little easier. For example, your employer may use an online vendor that can show you a picture of your W-2, even if you haven’t received it by mail. The online W-2 usually provides enough information to fill out your tax forms and proceed with filing. Also, keep in mind that the IRS recommends keeping all tax documents – whether printed or online – for seven years, and to dispose of old documents carefully by shredding.

What if Missing Documents Cause Me to Miss the Filing Deadline?

Don’t miss filing your taxes simply because you’re missing a document. If you pass the filing deadline, you could be assigned penalties and interest by the IRS. You could owe an additional 5% to 25% of your total tax due, a fee of $210 and additional escalating penalties depending on how late you file and the amount you owe. A business owner can rack up $100,000 in penalties for failure to pay on time. Instead, take the honest approach and notify the IRS about what’s going on. If you know in advance that you won’t be able to meet the deadline, file for an extension using IRS Form 4868. Or, if you later receive missing documents or realize something was omitted, file an amended tax return to keep yourself in good standing with the IRS. When in doubt, consult a tax attorney who can help you sort through your paperwork and keep things on track.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.