Thursday, February 26, 2009

New Interest Rates For 2009

The Internal Revenue Service today announced in Revenue Ruling 2008-54 that interest rates for the calendar quarter beginning Jan. 1, 2009 will drop by one percentage point. The new rates will be:
*Five (5) percent for overpayments [four (4) percent in the case of a corporation];
*Five (5) percent for underpayments;
*Seven (7) percent for large corporate underpayments; and

Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding

Qualifying For CNC

I had a conversation with a client the other day about whether he would qualify for a Currently Non Collectible when he was dissatissfied with the Offer In Compromise amount to settle his tax debt. Eventhough you get denied an offer amount does not mean you can't settle on another resolution with the IRS.
However, with this taxpayer he was told he would qualify for Currently Non Collectible (from a not so reputable company) and he will unfortunately will not due to having too much liquidable assets. The IRS will not agree to CNC, Status 53 of you have (in this taxpayer's case) remaining left over money from a settlement prevents him from qualifying for CNC.
When you have assets, that can be liquidated, CNC is impossible to get accepted. Monies, in the bank, IRA's,401 k's,equity in homes and vehicles can all cause you to not get into Currently Non Collectible. If the Internal Revenue Service forsees that you can borrow against your home, and liquidate assets, they will ask this of you before just deeming you as CNC and sustaining any collection activity for over a year.

Currently Non Collectible means that your expenses outway your income; a full financial disclosure of your income, expenses and assets will be thoroughly reviewed.

Wednesday, February 18, 2009

Employment Taxes for Household Employers

Did you know that if you pay someone to come in your home and care for your dependents or spouse, you may be a household employer. If you are a household employer, you will need an EIN (employer identification number) and you may have to pay employment taxes. If the indivuduals who work in yout home are self-employed, you may have to pay employmentsw taxes. If the individuals that work in your home are self-employed, you are not liable for any of the taxes, discussed in this section. Self-employed persons who are in the business fot themselves are not household employees. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business.

If you use a placement agency that is in control of what work is done and how it will be done by a babysitter, then this person is not your employee (in the household). But, if an agency merely gives you a list of sitters and you hire one from that list, the sitter may be your employee.

If you have a household employee you may be subject to:
1.Social security and Medicare taxes
2.Federal unemployment tax,
3.Federal income tax withholding

Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Federal income tax withheld from the employee's total pay if the employee asks you to do so and you agree.

Sunday, February 15, 2009

Estimate Payment Update

As the result of legislation enacted last year, there is a new California estimate payment requirement beginning on or after January 1, 2009. This new law changed the percentage amount for estimated tax installment payments from four equal installments of 25 percent of the required annual amount to installments of 30 percent of the required annual amount for each of the first two installments and 20 percent of the required annual amount for the last two installments. The new law did not change withholding requirements, therefore, wage earners do not need to change their withholding to address the change to the percentage amount for estimated tax installment payments, so long as the total amount of tax owed with the return for 2009 or 2008, after being reduced by credits and taxes withheld for the applicable year, is less than $500 ($250 in the case of a married individual filing separately). This $500 threshold was increased this year. In previous years the threshold was $200.
Unlike an estimated tax installment payment, which must be paid in an amount required by the law to avoid an underpayment penalty for a particular installment, taxes on wages do not need to meet the percentages for estimated tax installment payments to avoid the penalty for underpayment of estimated taxes. Taxes withheld on wages can vary substantially over the year and withholding can be increased at anytime during the year to meet the less-than-$500-owed threshold and avoid the penalty. If, however, taxes withheld for a taxable year and credits for a taxable year do not reduce taxes owed to less than $500 for the current year or the prior year, then a taxpayer may need to make estimate payments, paid in the required installments, to avoid the penalty for underpayment of estimated tax.

Thursday, February 12, 2009

Educational Tax Deductions

If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments, and academic or vocational courses.

You repair televisions,radios, and stereo systems for XYZ Store. To keep up with the latest changes, you take special courses in radio and stereo service. Those courses maintain and improve skills required in your work.

The following are examples of educational expenses that were deductible because the courses maintained or improved skills:

*A tax attorney attended an out-of-town tax forum. The course was valuable for her in maintaining current knowledge of the tax laws.
*An engineering aide took night courses that improved his skills but were not required by his employer.
*A concert harpist took music lessons. The costs were deductible as she was maintaining or improving her skills.

Wednesday, February 11, 2009

Civil Trust Fund Negotiation

To encourage proment of withhrld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the TFRP. These taxes are called trust fund taxes because you actually hold the employee's money in trust until you make a federal tax deposit in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immeditately collected from the business. The buisiness does not have to have stopped operating in order for the TFRP to be asessed.

Who Can Be Responsible for the TFRP

The TFRP may be assessed against any person who:
*is responsible for collecting or paying withheld and employment taxes, or for paying collected excise taxes, and
*willfully fails to collect or pay them

A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:

*an officer or an employer of a corporation
*a member or employee of a partnership
*a corporate director or shareholder
*a member of a board of trustees of a nonprofit organization
*another person with authority and control over funds to direct their disbursement, or
*another corporation

For willfulness to exist, the responsible person:

*must have been, or should have been, aware of the outstanding taxes and
*either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).

Using available funds to pay other creditors when the buisness is unable to pay the employment taxes is an indication of willfulness.