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Stop Paying all that Self-Employment Tax!

Don’t you just hate seeing a percentage of your paycheck disappear, only to pad good ol’ Uncle Sam’s bank account? After withholding it from your gross earnings, the IRS deposits its portion of your hard-earned money according to FICA (Federal Insurance Contributions Act), which in turn supplements the Social Security and Medicare programs. Equal to your tax contribution, each payday your employer must also remit matching business tax funds to the IRS.

Self-employed? The IRS requires anyone making $400 or more in self-employment earnings to pay self-employment taxes, which equal twice the amount an employee pays to FICA. Another example of the government picking on small business? Not really; when you own a business, you’re considered an employer and an employee, so your tax contribution represents both payments to Social Security and Medicare.

According to the IRS, any earned income for which you receive a Form 1099, or don’t receive any tax forms at all, is considered self-employment income. This can include:

  • Income from a home-based business;
  • Income from a business you own, unless payroll taxes have already been deducted;
  • Income from freelance work;
  • Income earned as an independent contractor;
  • Any other untaxed earned income.

A percentage of your net income from self-employment activities stands subject to self-employment tax. After subtracting allowable business deductions, your net self-employment income remains subject to self-employment tax, however to reduce your exposure:

  • Establish your company as an S Corporation.

If you register your business as a corporation or LLC, you may apply to the IRS to request S Corporation status. With an S Corporation, you may pay your own wages and claim additional income as a distribution. Provided that the IRS deems your total income as fair, the distribution portion of your salary will be exempt from self-employment tax, however you must still pay income tax. 

  • Take every available business deduction on your Schedule C form.

On a tax return, use schedule C to report income or loss from a business you operate or a profession you practice as a sole proprietor. By taking all allowable deductions, your net profit will decrease accordingly. After expenses are subtracted, schedule SE calculates the amount of self-employment tax you owe. A lower net profit number will result in a lower self-employment tax obligation.

Since IRS income tax rules and regulations often appear daunting when preparing your business tax return, learn more about self-employment calculations and deductions at: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes.

If you need a proven tax accounting firm to assist with your individual or business tax preparation, or financial planning, our team is available to assist you. Contact us at Office@CPAsite.com or 904-396-5400.

Don’t Let the Extra Tax Deadline Extension Create Other Challenges

If you filed for the automatic tax return deadline extension back in April and didn’t make the new deadline of last week’s Oct. 16, and you were impacted by the recent hurricanes, you likely know the IRS granted you even more time to file. Our experience shows, however, you could be in for some additional challenges if you don’t file soon.

First, some background: If you are a victim of hurricanes Harvey, Irma, or Maria, the IRS granted an additional extension to file individual income tax returns and business tax returns until January 31, 2018.

The tax relief affects any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance in Texas, Florida, Georgia, and Puerto Rico.  Of course, any tax payments were due with your original extension form back in April.

Important facts regarding the extended filing date:

  • If your address of record is located within the disaster area, you’re automatically eligible for this relief.
  • If you receive a late filing or late payment penalty notice from the IRS, noting a payment or deposit due date falling within the postponement period, call the number on the notice to get the penalty abated.
  • If you live outside the disaster area but your tax records are located within the designated FEMA zone, the IRS will also grant relief options if you contact them at 866-562-5227.
  • Volunteers affiliated with a recognized government or philanthropic organization assisting with relief efforts may also qualify for an extension, but you must call the IRS for individual eligibility requirements.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For further information on disaster recovery, visit https://www.disasterassistance.gov/.

The challenge comes in two parts. First, your year-end tax planning for 2017 should get underway within the next few weeks, yet you could still be dealing with 2016 tax issues if you take too much advantage of this extra time. Simply stated, now’s the time to wrap up any 2016 tax return issues.

Moreover, the IRS’ e-filing system goes down in December for yearly updates so if you don’t file soon, you could be stuck until the updates are completed, delaying any refund.

Most importantly, we pray you, your family and friends made it through the aftermath of all the hurricanes and storms, as we continue to work together to make our communities whole again.

If you need a proven tax accounting firm to assist you with disaster planning, individual or business tax services, or financial planning, our team is available to assist you. Please contact us at Office@CPAsite.com or 904-396-5400.

Stay Prepared: Peace-of-Mind Forecasting for Hurricane Season

If you’re an experienced Florida business owner, you probably don’t flinch at the mention of hurricane season. No matter how many natural disasters you weathered, you’ve learned to simultaneously keep one eye on your financial forecast and budget planning while vigilantly monitoring the hurricane’s eye and dreaded storm track maps.

Adding peace-of-mind to your own “seven day outlook” comes once you develop thorough personal and business disaster strategies:

  • Update emergency plans. Because a disaster can strike any time, be sure to review emergency plans annually. Personal and business situations change over time, as do preparedness needs. Make plans ahead of time and be fully equipped and organized.
  • Create electronic versions of documents. One of the easiest tasks to keep documents safe during any natural disaster is making an electronic back up. Transfer your tax returns and accompanying records, bank statements and insurance policies to a flash drive, CD, external drive, or cloud service and keep your original documents and copies stored separately in waterproof containers.
  • Itemize your valuables. If you must evacuate your home or business, you can’t possibly take everything with you. Good documentation of your possessions, such as receipts or video records, helps prove the value of your lost or damaged items if the worst happens. This documentation is very helpful when filing insurance claims or casualty loss deductions on your return. Need help deciding what to film or photograph? IRS Publication 584 can help.
  • Is payroll covered? If you use a payroll service provider, confirm it offers a fiduciary bond to protect you in the event of default on the part of the provider. In a disaster situation, your employees will appreciate you ensured the regular delivery of their paychecks.

Should you be a victim of a natural disaster and in need of disaster-related tax accounting help, the IRS can assist. You can reach its disaster hotline to speak with an IRS specialist trained to handle disaster-related issues at 1-866-562-5227.

The IRS provides a copy of your previous year’s tax return, by filing Form 4506 or by calling 1-800-908-9946 to request one. Copies are generally available for the current year and the past six years. Depending on the format you request, certain charges may apply.

At Patrick & Robinson CPAs, we always keep digital copies of our clients’ previous three years’ tax returns. It’s one of the many accounting services we offer.

With the height of hurricane season upon us, careful planning and preparedness can prove extremely beneficial before, during and after the storm.

If you need an accountant to assist you with disaster planning or other CPA services, contact our tax accounting team at Office@CPAsite.com or 904-396-5400.

Most importantly, stay safe!

Letter from the IRS: to Worry or Not to Worry

Receiving one of the millions of letters generated each year by the IRS can be a nerve-racking ordeal, however not all correspondence regarding your individual income tax return warrants worry. 

If you happen to be one of those recipients on Uncle Sam’s mailing list, when and how you respond makes a big difference. Consider these tips:

  1. A simple response is often all that’s needed for most types of notices or letters. Unless you’ve been ignoring these letters, an immediate issue usually doesn’t exist, and the inquiry can probably be resolved with communication.
  2. Don’t ignore IRS notices; most letters reference specific federal tax-related issues and include instructions for a resolution.
  3. Make sure you respond timely and definitely by the requested date. Notices may reference changes to your account, a request for payment on taxes owed, additional data regarding your income tax return, or information about a larger refund. A timely reply could minimize interest and/or penalty charges.
  4. If a notice indicates a changed or corrected tax return that you agree with, note the corrections for your records. Unless a payment or reply is specifically requested, no additional action is necessary.
  5. Taxpayers must respond to a notice they don’t agree with. Mail a letter explaining why you disagree to the address on the contact stub at the bottom of the notice. Include information and documents for the IRS to consider and allow at least 30 days for a response.
  6. You don’t need to call the IRS or make an appointment for most notices. If a call seems necessary, use the phone number in the upper right-hand corner of the notice. Keep a copy of the related tax return and notice on hand for verification purposes when calling.
  7. Always make copies of any notice you receive and store with the relevant tax records.
  8. While the IRS and its authorized collection agency will send letters and notices by mail, they won’t request payment in a specific way. Beware of a notice demanding a certain type of payment; this could be a scam.

For more information on this subject visit: Respond to a Notice.

We hope this information helps relieve some of your stress from IRS notices and letters. Our tax accounting team at Patrick & Robinson CPAs is in the business of reducing tax stress. Contact us at Office@CPAsite.com or (904) 396-5400.

Avoid the IRS Imposter Agent Scam

With the ubiquitous phone and in-person scams, determining whether the Internal Revenue Service agent at your door is a fraud or an official representative of the agency can be challenging. The IRS does in fact make house calls during tax audits, often unexpected ones. We’ll help you differentiate the official from the imposter.

An IRS agent visits as part of his or her routine casework. You should know the reason for the visit and if the person knocking at your door is, in fact, an IRS representative.

Typically IRS visits fall under three categories:

  • To discuss taxes owed or tax returns due. A revenue officer’s duties include education, investigation, and, when called for, enforcement. While an agent may want you to pay, he or she will never request a payment to anyone other than the U.S. Treasury.
  • To discuss a tax audit. These visits are never unannounced. In this instance, you would have already been notified and set an appointment with the revenue agent. So if someone shows up claiming you need to be audited and you never made an appointment or received a notice, you know this person is a fraud.
  • To visit a taxpayer during a criminal investigation. These visits are often impromptu. They’re made by federal law enforcement agents, and these agents will never demand a payment. If an IRS representative investigating you asks for any sort of payment, this claim should serve as a red flag.

Taxpayers who owe taxes or believe they owe taxes should be alert for these types of scams—which happen year round, not just during tax season.

Know your rights. As a taxpayer, you hold a fundamental set of rights that must be adhered to: the Taxpayer Bill of Rights. Read and explore these rights so you’re prepared and will notice when someone might be trying to scam you.

In addition, here are some helpful links to help you be prepared and knowledgeable, and avoid the hassle of being scammed:

How to know it’s really the IRS calling or knocking on your door

Tax Scams and Consumer Alerts

Security Summit Identity Theft Tips Overview VideoEnglish

Tax Scam Videos – English | Spanish | ASL

At Patrick & Robinson CPAs, we’re the real deal: tax, assurance, and business planning and financial forecasting services. Contact us at Office@CPAsite.com or 904-396-5400.

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