Uncle Sam Wants You... to Pay Your Taxes

Anna Skinner, Senior Accountant

I was reminded the other day that our Federal income tax and most State income taxes are pay-as-you-go taxes. That means you must pay the tax as you earn or receive income during the year. Individuals pay two ways: with payroll tax withholdings and by making estimated tax payments. If you are an employee, then your withholdings are sent to the IRS and your employer’s State by your employer. You do not have to do anything except have the taxes withheld from your paycheck. If you are not an employee, chances are you make estimated tax payments and remit them to the IRS and your State throughout the year. Sometimes employed individuals also make estimated payments.

I am discussing the estimated payments. If you have been making them, then I am encouraging you to continue to make them timely. It is necessary to avoid penalties for underpaying your tax liability. Estimated payments from individuals are due four times a year; April 15th, June 15th, September 15th, and January 15th. They are paid with a payment coupon. Anyone can make an estimated payment; Uncle Sam and your State never refuse any funds; however, some individuals must make estimated payments to avoid penalty and interest.

It has been my experience that most of the individuals who have to make estimated payments do not like to do so. They feel that it is an inconvenience and they can never remember when the funds are due, even though they have preprinted coupons with the date due on them. Most of the coupons are left in the folder with the prior year’s return. When you get your tax return package, you usually file the returns and put the estimated coupons somewhere safe to be used later on. Then you forget later in the year to look for them or you have stored them so well you cannot find them.

I am challenging you to take a pro active approach for 2010. Take your coupons and put them in with your other bills to be paid, or add them to your tickler file, or even put the due dates on your calendar. Maybe there is even an app for that! Please remember to make your payments. It is also a good idea to keep a running list of how much and when you make your payments so that you can give it to your accountant next year when preparing your return.
If you know that you are scheduled to make estimated payments and cannot find your coupons, give us a call and we can provide them to you.

The first payment for 2010 is due April 15, 2010.

Planning for Retirement

Donna Flatau, CPA, Supevisor

I'm sure you have seen the headlines stating that 2010 is the perfect time to convert your Individual Retirement Accounts (IRA) to a Roth IRA. So you start wondering why now? What changed? Well here is the story.

Beginning in 2010, the $100,000 income limitation for converting traditional IRA's to Roth IRA's has been lifted. Conversions that occur in 2010 will be able to have half of the converted amount taxed in 2011, and the other half in 2012. With the recent downturn in the economy, many small business owners who are experiencing losses are electing to take advantage of the Roth conversion during years of low income, and paying little or no tax on the conversion. But, this strategy requires careful planning with your tax advisor, so don't forget to call us.

Okay, so you don't have an IRA that needs to be converted because you are a small business owner and have not been ready to implement a formal retirement plan. Don't let that stop you from planning for your own retirement. Setting up an Individual Retirement Account (IRA) may be just the thing to get you started.

Contact us for further information regarding Roth IRA's, Self Employed Pension Plans, and other retirement plans for small business owners.

Employment Tax Audits

Debra J. Kern, CPA, Supervisor

In mid February 2010, the IRS began a 3 year, 6000 planned employee tax audit program called the National Research Project.

The key aspects of the audits will be independent contractor status, officer compensation, fringe benefits, and reimbursement of expenses to employees.

The purpose of the planned audits is not only to generate revenue by enforcing employment tax compliance, but also to generate statistical analysis to better estimate the amount of revenue lost due to non compliance of employment taxes. Payroll taxes account for over 70% of federal tax revenue.

The auditors will look at 2007-2008 forms, but the IRS is not limited in its ability to expand the scope of the audit either backwards or forwards into other open employment tax years. The random audits will be conducted among all types and sizes of businesses including tax exempt not-for-profits, but the bulk of the audits will affect smaller businesses.

The best advice for these small businesses is to become familiar with tax laws concerning worker classification, fringe benefits, officer compensation, and reimbursed expenses. If not already in compliance, immediately set up policies and procedures to become compliant. If you need assistance with becoming compliant or have been selected for an audit, seek professional assistance from a qualified lawyer, accountant, or consultant. The auditor will definitely look favorably at the business that can demonstrate that they are trying to become compliant.

It's That Time Again

Bill Carroll, Staff Accountant

The late night telephone calls and e-mails from your friendly neighborhood accountant have started. Why? Because, you’re reminded, it is that dreaded time of year, tax season. If you are a corporate filer, that time of year is now as the due date for filing your federal corporate return is March 15th. Now panic sets in as you are not ready, so what do you do? Well, that’s what I’m here to discuss.

First of all, don’t worry; you’re not alone. Uncle Sam has made provisions for these situations. Ask your accountant to file an extension for you. This will give you an additional six months to get your information together to file an accurate return. But remember, this extension only gives you an extension to file, NOT to pay any tax that may be due.

Another reason why you may want to extend the return is to extend the due date of any pension or profit sharing contribution. This can help with managing cash flow as you will have 6 months to make the payments.

Even though an extension gives you six additional months to file, I recommend that you start working on getting this information together and not wait until the last minute.