JK Harris and Company, Creating Lifetime Clients

From the New York Times

By JENNIFER STEINHAUER and JACKIE CALMES

Have you recently started your own business? Maybe you are considering opening a small business in the new year? There are differing tax consequences depending on how you set up your business, so it is important to do your research. Here is a list of six important tax tips from the IRS’ website.

1. First, decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

2. The type of business you operate determines you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax, and excise tax.

3. An Employer Identification Number (EIN) is used to identify a business entity. Generally,  businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can apply for an EIN online at IRS.gov.

4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly accounting methods are the cash method and the accrual method. Under the the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you accrue them.

The IRS website offers  a lot of great information for business owners. IRS Publication 583, Starting a Business and Keeping Records is a great resource to download.

For many Americans, the Great Recession has been one financially devastating blow after another. Many of you may owe back taxes to your state, the IRS, or both. This is an open letter to anyone who finds themselves burdened with a tax liability. I’d like to share some information with you about what your options are.

As you are probably well aware, tax problems do not go away on their own. And when ignored, they only grow larger due to penalties and interest. The worst thing you can do is ignore notices from the IRS. Eventually, the IRS will try to collect from you, through whatever means possible.

The good news is that you have options. The IRS offers several methods for paying off your tax liability or postponing payment until you are able to pay. While each person’s situation is different and not everyone qualifies for the same programs, here is an overview of what your options may be.

Currently Not Collectible Status – Status 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Currently Not Collectible status allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income and allows the taxpayer to continue to provide for themselves and their family.

Installment Agreement – Basically, this is an agreement between the IRS and a taxpayer to allow the taxpayer to pay their delinquent debt over a specified period of time. Depending on the amount of back taxes owed, these can be simple – or much more complex to apply for.

Offer in Compromise - Code Section 7122 authorized the Commissioner or his delegate the authority to compromise most tax liabilities. An OIC is an agreement between the IRS and taxpayer that allows the taxpayers delinquent tax debt to be compromise for less than the amount owed. The offered dollar amount is based on the taxpayers net worth plus their future income potential.

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax debt. The IRS has the authority to settle, or “compromise,” federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:

• Doubt as to Liability – Doubt exists that the assessed tax is correct.
• Doubt as to Collectibility – Doubt exists that you could ever pay the full amount of tax owed.

Effective Tax Administration – There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer’s OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. The objective of the OIC program is to accept a compromise when it is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.

Typically there is an application fee of $150.00 for the offer in compromise. The IRS will accept an Offer in Compromise (OIC) when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. The ultimate goal is a compromise that is in the best interest of the taxpayer and the IRS. Acceptance of an adequate offer will also result in creating, for the taxpayer, an expectation of a fresh start toward complying with all future filing and payment requirements. The OIC process is based on a debt-to-asset formula devised by the IRS.

The Process – The OIC process is complex and time-consuming and can take up to 24 months to resolve. JK Harris relies on the client to provide detailed financial information required by the IRS. The IRS will not consider an OIC if the client-submitted documents are more than three months old. In addition, the client must be in compliance (all taxes must be filed and quarterly estimated payments, if applicable, have to be current).

Owing back taxes is not easy – but doing nothing will only make the problem worse. Resolve to do something about your back taxes, investigate your options and if you need help, call on JK Harris to assist you.

This blog is reposted with permission from our friends at www.NannyPro.com.

Unless you’re a CPA, chances are you don’t relish the prospect of additional work at tax time. So you’ll want to take some steps to avoid nanny tax problems before they arise. We’ve put together a list of ten tips you can use to avoid problems with you nanny’s taxes.

1. Stay Above the Table – For starters, forget about any benefits you may think you would both gain from cash payments, and skirting the tax issue entirely. The risk is hardly worth the savings, and the penalties are far greater.
2. Taxpayer  Benefits – If your nanny prefers a particular take-home pay, or net salary, you will want to determine which taxes that amount will exclude. In other words, decide up front if the net salary you agree to will be before or after you pay her Social Security and Medicare, etc.
3. Know the Laws – You don’t need to be a lawyer, but it’s wise to understand the tax laws with regard to your obligations as an employer. In most cases if you hire a nanny, you are going to be responsible for collecting her Social Security and Medicare taxes. That is, deducting them from her paycheck each pay period, and issuing her a W-2 form for filing her income taxes.
4. Discuss Taxes With Nanny – Make sure that both you and your nanny are on the same page regarding what taxes need to be deducted and why, and estimate the amounts in order to avoid surprises later.
5. Know Her Legal Status – You should already have determined whether she is legally authorized to work during the hiring process. Only citizens, permanent residents or non-immigrants who possess a work visa may be legally hired for work. In any case, you will still be liable for her taxes. The difference is that she would have to file a form W-7, request for an Individual Taxpayer Identification Number (ITIN).
6. Know What Forms to File – Aside from the aforementioned W-2, you must also file an SS-4 application for an Employee Identification Number (EIN); and, if you pay her cash in excess of $1,600, a Schedule H form.
7. Know Your Deductions – Be certain about which expenses you incur by having a live-in nanny are tax-deductible. For instance, food and lodging that are provided to a live-in nanny at the convenience of the employer, are eligible for tax-exemption.
8. Working Agreement – For many reasons it’s strongly advised that you write up a working agreement between you and your nanny at the time of hire. One of the benefits of doing so is that it will include the details of her salary, overtime and other factors that will affect her income, as well as what taxes each party will be responsible for paying.
9. Disclosure – Remember that you are required to disclose on your own personal income tax return the amount of wages you paid your nanny.
10. Keep Accurate Records – maintain a log of your nanny’s work schedule. Document the hours she works, including overtime, overnight work and any duties outside her normal responsibilities as well as whatever compensation you paid her for it.

In line with other celebrities who owe back taxes is former supermodel, Christie Brinkley. It was announced yesterday that a tax lien has been placed on one of Brinkley’s properties in Long Island, NY on November 21st. Brinkley is reportedly worth more than $80 million – primarily due to real estate she owns in the Hamptons.

Brinkley’s rep reports that she is aware of the problem and has asked her team to “resolve the matter immediately.”

Christie Brinkley joins a list of other celebrities that have had tax liens placed on them in 2011.

The IRS reportedly filed a tax lien against rapper Bow Wow in the state of Florida. The 24-year-old, whose real name is Shad Gregory Moss, owes $91,105.61 in unpaid taxes from 2006. Bow Wow, claimed that the tax lien story is untrue, posting on his blog that “TMZ saying they are about to runa story on me thats once again “Not True” as im sitting in my beautiful condo as of RIGHT NOW that they said i dont have anymore.” (The rapper may not understand what a tax lien truly is. The lien will remain in place on his property until he pays his tax liability.)

According to the Detroit Tax News, Kelly Monaco is the latest Dancing with the Stars alumnus to have a tax problem made public, as the IRS filed a lien with the LA County Recorder of Deeds earlier this month against the former contestant for failing to pay $67,817 in federal taxes.

Hopefully, each of these celebrities has a competent tax professional in their corner, to help them settle their back tax problem.

NEW YORK (CNNMoney) — Tax fraudsters are getting more creative — and, in some cases, more daring. But the IRS is making it harder for them to get away with their tricks.

Late last week, a Los Angeles woman pleaded guilty to filing tax deductions for at least 20 fictitious children — which she claimed were all born on the exact same day — in order to land a $300,000 refund, according to the United States Attorney’s Office of Los Angeles.

Norma Coronel, 40, admitted to obtaining Social Security numbers for the 20 fabricated children and having the money sent to her residence and to bank accounts she controlled, according to the Attorney’s Office. She faces a maximum sentence of 18 years in prison and a maximum fine of $750,000.