Tag Archive for: Federal taxes

If you’ve missed the official deadline to pay your taxes, don’t stress. Getting back on track with your taxes is, in many cases, simpler than most people think.

Whether you owe individual taxes or taxes for your small business, the easiest solution is to pay your taxes as soon as you can. At Milikowsky Tax Law, we realize it’s not always that simple — and we’re here to help you navigate your late taxes.

When creating a plan to pay taxes owed after missing a deadline, it’s important to consider the ramifications of what might happen if you don’t meet your payment obligations. In addition to interest building up on what you owe, your social security benefits, ability to secure a loan, and tax refund can be impacted.

Read on to learn what to do to start resolving your tax debt as soon as you can.

Due Dates

Before we discuss what to do if you’ve missed a deadline, make sure you know for certain when your taxes are due.

For businesses in California, the deadline to file your state taxes will depend on when your fiscal year begins. Most business returns are due by the 15th day of the third month of a company’s fiscal year — so for example, if your fiscal year begins on January 1, your California state taxes will be due on March 15. Dates for tax extensions vary depending on the business. Check the state’s tax website for more details.

What to Do If You Missed the Due Date

If you’ve missed your deadline, it’s important to take action right away to get back on track. As mentioned earlier, the best thing you can do is to pay your taxes as soon as you can. Before you do that, it’s important to take a few basic steps.First, gather all of your tax and income documents. Find your past W-2s, W-9s, 1099s, or other tax statements and filings. The IRS or your employer will be able to provide you with copies of any missing statements.

Next, meet with an experienced tax attorney to discuss your repayment options. Though you may be eager to pay back your taxes as soon as possible, it benefits you to take the time to go over your tax situation with an attorney, who can offer counsel and help fill any missing gaps in your documentation. A tax attorney will advocate for you to the IRS, in order to help secure your best repayment plan.

There are a few different options for settling your tax debt, depending on your situation. If you don’t want to (or can’t afford to) pay your entire amount owed all at once, the IRS allows for payment arrangements for a maximum of 72 months and $50,000 or less owed. This can be done through the IRS Form 9465. If you owe less than $10,000, your request will likely be approved automatically.

If you owe more than you can pay, you may qualify for an offer in compromise, which allows the taxpayer to settle with the IRS by paying less than what is due. The IRS will look at your ability to pay, income, taxes owed, and the value of your assets to determine whether you qualify and what your settlement and payments will be.

For more challenging situations, you might consider the IRS’ “Currently Not Collectible” program — if you qualify for this, the IRS will wait one year before coming to collect your debt. This can give you and your tax attorney more time to make a case to file an appeal. In worst-case scenarios, bankruptcy may be an option for you; be sure to discuss with your tax attorney to determine whether you qualify.

Possible Penalties

If you do not pay or fail to meet payment obligations you agreed on, the IRS will charge you a failure-to-pay penalty and interest on your taxes owed. This will only drive up your total amount owed, potentially by a significant amount.

Your delinquent tax status will also be reported to financial institutions, making them less likely to loan you cash for a home, car, or your business. In extreme cases, liens and levies can be filed against you.

For those who are self-employed, it may also impact your Social Security benefits. If you fail to pay your taxes, your self-employment income will not be reported to the Social Security Administration, meaning you will not receive any money toward retirement or disability benefits.

If you fail to pay your business’ taxes, you may have your seller’s permit revoked, making illegal to operate your business — if you were to continue operating your business without this permit, you’d face a fine of as much as $5,000 and up to a year in prison.

The penalties can be serious, especially for a business owner, but you can minimize your risks by working with a legal professional who can advocate on your behalf. It’s always your best choice to consult a dedicated tax attorney when you’ve missed your tax deadline, to help you make your case to the IRS and get the best possible results for resolving your debts.

IRS has extended the deadline for personal tax filings from April 15 to July 15. It has also extended the deadline for contributing to your 2019 IRA. So, if you haven’t contributed, you still have time.

Trying to decide whether or not to contribute to your IRA?

Consider how much of an impact the economic shutdown has already had on your finances.

If you are among those who lost their primary source of income—whether from a job or a business—this may not be the time. Instead, it’s time to focus your energy and your resources on taking care of yourself and your family. You need to bridge the gap until you know how you’ll stabilize your income and start to rebuild.

But if you still have financial stability, from a job or a business, think about maintaining the momentum of regularly contributing to your IRA. It’s a pillar of a secure retirement.

If you have questions about filing taxes for your business, please contact a representative at Milikowsky Tax Law today!

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tax deferrals

As we, the team at Milikowsky Tax Law, have reviewed the newly released CARES Act and Paycheck Protection Program, several places in need of further clarification in order to make them as effective as possible for small businesses have arisen. On April 10, the IRS answered a few frequently asked questions in regard to the CARES Act Tax Deferrals and the PPP.

Among these questions, the IRS clarified that employers who have taken out a PPP loan are eligible to defer payments of the employer’s portion of Social Security tax through the date that the lender issued for the forgiveness of the loan. 

Employers who have received a loan under the SBA PPP Act may not defer the deposit and payment of the employer’s share of social security tax on or after the date the PPP loan is forgiven (Section 1102 CARES Act).

Any employer that has received a PPP loan that has not yet been forgiven, are able to defer deposit and payment of the employer’s share of social security tax through the date the lender decides to forgive the loan without incurring any failure to pay penalties (Section 1106 CARES Act)

After the employer receives that decision from their lender that their PPP loan is forgiven, they are no longer able to defer deposit and payment of the employer’s share of social security tax due after that date. On December 31st, 2021, 50% of the deferred amount is due. The remaining amount is then due on December 31st, 2022.

Understanding the tax intricacies of the CARES Act and the PPP loan can be complicated. The team at Milikowsky Tax Law is here to make it simple for you. Contact us for more information on how to reduce your risk of tax misconduct during these challenging times.

Check Your Account Balance

April 15th Takes on New Meaning in 2020

For most Americans, April 15th is no day for celebration.  We pay our taxes, dutifully (if somewhat begrudgingly from time to time) and get on with the business of, well, business. 

Today, many of the same Americans who, April 15th after April 15th have SENT money to the IRS, have received money from that same government agency. 

If you have not done so already, check your bank account and, if you filed your 2018 taxes and attached a bank account for direct refunds, you may find $1,200 + $500 per child has just appeared in your account. 

The process of applying for the EIDL, the SBA PPP Loan and the Main Street Loans are arduous, requiring the sorting through and retrieving of years of payroll records, Benefits payments as well as business financial statements, bank statements and filling out long and complex loan applications.  

The process of receiving the IRS stimulus money is a s simple as checking your bank. If you do not have a check go to : https://www.irs.gov/coronavirus/get-my-payment to begin the process of tracking down your money. 

Most people don’t have to do anything to get their stimulus checks. IRS is using direct deposit information from people’s 2018 and 2019 taxes to send out payments. In late April, they will send out a second wave to Social Security recipients who didn’t file taxes but do get their benefits via direct deposit. After that, the IRS will send out paper checks.  Recipients will be those taxpayers who made between $20K and $150K in 2018.

Tax fraud
In the eyes of the federal government, there is a vast difference between a criminal tax fraud offense and a civil fraud offense. These differences focus primarily on the different burdens of proofs, penalties, statues of limitations, and defenses available to the taxpayer. 

For several reasons, often the IRS will first pursue a criminal tax fraud suit before pursuing a civil tax fraud suit. According to the IRS’s own Tax Crimes Handbook, a criminal tax fraud conviction “carries the most severe penalty of the criminal tax offenses.”

Civil tax fraud and criminal tax fraud have different burdens of proof. The IRS carries a “clear and convincing” evidentiary standard for civil tax fraud. (This is otherwise known as a “preponderance of the evidence” standard). By contrast, criminal tax evasion requires proof “beyond a reasonable doubt”—which is a higher evidentiary standard. In other words, the government must prove “more” to show criminal tax fraud than civil fraud.

Civil tax fraud and criminal tax fraud also have different associated penalties. There are several categories of civil tax fraud—for example, there is the fraudulent failure to file a return, accuracy-related penalties under IRC, spousal liability under IRC, and the fraudulent tax return for, e.g., failing to report income on your return and failing to pay tax. Each of these has different associated penalties. For instance, the penalty for fraudulently failing to file a tax return is 15% of the net tax due for each month (up to five months), with a maximum penalty of 75% of the unpaid tax. Similarly, the penalty for filing a fraudulent tax return (e.g. failing to report income) is 75% of the underpayment amount.

The penalties for criminal tax evasion are steeper. Under code 7201, a taxpayer found guilty of willfully attempting to evade tax (or its payment) could face a fine of $100,000 ($500,000 for a corporation) plus five years of imprisonment. Similarly, if a taxpayer is found to have willfully failed to pay tax, file a return, keep sufficient records, etc. he or she may face a penalty of $25,000 ($100,000 for a corporation) plus one year in prison.

Moreover, civil tax fraud and criminal tax fraud have different statute of limitations. For civil tax fraud, there is no statute of limitations, and the tax may be assessed at any time. By contrast, there is a criminal statute of limitations, but it applies only to the prosecution of the crime—the actual tax evasion—not the assessment of the tax owed. Typically, the statute is three years after the taxpayer commits the offense. But there are certain, specified carved out offenses for which a six-year statute of limitations applies.

Finally, different defenses are available for civil tax fraud and criminal tax fraud. When a civil suit for tax fraud follows a criminal proceeding for tax fraud, the doctrine of “collateral estoppel” may apply. Under this legal theory, provided certain technical requirements are met, once an issue is decided in one proceeding, it may not be retried again in a second proceeding.

This doctrine may be helpful to either the government or the taxpayer, depending upon the order of the civil/criminal proceeding and the outcome of the first case.

Consider first a criminal proceeding followed by a civil proceeding. If the government wins the criminal tax evasion suit, the taxpayer generally is “collaterally estopped” in the second (civil) proceeding from contesting that he committed fraud. Why? Because the government already proved fraud “beyond a reasonable doubt” and for the civil suit it needs even less evidence than that (requiring only “clear and convincing” evidence).

Alternatively, suppose the taxpayer is acquitted of criminal tax evasion in the first suit. Does collateral estoppel help the taxpayer? Unfortunately for the taxpayer, no, it does not. The first suit showed conviction was not provable “beyond reasonable doubt.” It remains to be seen in the civil suit whether it can be established using the lower evidentiary standard of “clear and convincing evidence.”

Now consider the reverse order of the proceedings, with the government first bringing a civil suit and losing—and then tries to bring a criminal suit for tax fraud. Does collateral estoppel help the taxpayer? It may; the taxpayer may attempt to collaterally estop the government in the second (criminal) proceeding from asserting the existence of fraud. In other words, under this scenario the doctrine of collateral estoppel helps the taxpayer.

In sum, the differences between a criminal and a civil suit are huge. It is best to speak with a qualified tax attorney, like one of the partners at Milikowsky Tax Law, to help you walk through these important nuances before the situation gets out of hand. 

 

A woman working

Are you ready to launch your own business in California?

You’re in for an exciting journey. 

As of 2018, small businesses in California employ 48.8% of the employees in the state. As a business owner, you will be contributing to this thriving local economy.

To ensure that you get started on the right track, we’ve put together this list of the most important elements you will want to pay attention to during your first year as a business owner. 

Create a Feasibility Study & Business Plan

First, it is crucial to ensure that your business is equipped for success before you jump into action. A feasibility study will help you determine whether your company has the potential to succeed in the current market. With a feasibility study, you ask yourself questions around who will buy your product and why to determine your ability to be financially successful. 

Once you have completed your feasibility study, you can start working on the rest of your business plan. A plan can be as long or short as you need it to be. Therefore, these guidelines not only drive your business in the right direction; they also show any potential investors and banks that you’ve thought your venture through carefully. Your business plan may include:

  • A description of the entity
  • An operational plan
  • Your market analysis
  • Sales and marketing plans
  • Product and service overview
  • Financial projections

Your business plan is essential to your business success!

Choose Your Business Entity

Now it’s time to choose your business entity. It’s often a good idea to speak to a trusted CPA, tax advisor, or other accounting professional at this point. They can help you understand the legal and financial implications that come with each entity option. Your options include:

  • Sole Proprietorship: The primary choice for many solo entrepreneurs. If you don’t file to establish a formal entity with your business, you operate as a sole proprietorship. 
  • General Partnership (GP): A general partnership in California has two or more owners that share all the financial and legal obligations for the company. 
  • Domestic Limited Liability Company (LLC): A LLC protects the owners from financial and legal obligations.
  • Corporations: These are legal entities that exist separate from their owners. The separation of a corporation offers personal liability protection to the business owner.

Pick a Name & Register Your Business

Choosing your company’s name is a crucial part of building a brand for your enterprise. Finding the ideal name is challenging for a number of reasons. Not only do you want to choose a name that speaks to your audience, but you’ll also need to check that the name you select hasn’t already been taken by another business. 

When you’re forming a business entity like a corporation or LLC, the business name will automatically be registered, but you may still need to purchase a copyright for that title to fully protect it from being used by another entity. During this time, it’s also crucial to register your business. 

For instance, to form an LLC in California you’ll need to file a Form LLC-1 with the Secretary of State, and organize your LLC by holding an organizational meeting. If you want to incorporate in California, you’ll need to file form ARTS-GS with the secretary of state, and hold another corporate meeting to determine how much of the company each shareholder should own. You can elect S-Corporation status through the IRS using Form 2553. Your CPA will be able to help you identify which forms to submit, and ensure that you fill them out correctly.

Get Your EIN and Business Bank Account

Now you’re ready to get your Employer Identification Number (EIN). This is like a social security number to identify your company. All corporations and LLCs require an EIN, but it’s optional if you’ve chosen to register as a DBA (Doing Business As) name. If you don’t have an EIN as a DBA, then you’ll need to use your social security number on official documents. 

Aside from your EIN, it’s also important to set up your business bank account at this time. To keep your personal and company expenses separate, you’ll need a business account dedicated to your company. A business bank account is also an excellent way to build a credit profile for your organization using the credit cards available to your company. 

Obtain Permits and Establish Tax Accounts

Finally, most companies in California will require some county, state, or federal business license, as well as tax registration. It’s best to consult with your CPA or another trusted adviser about the permissions you may need. For instance, you might want:

  • A general business license: An annual permit to operate legally in your area.
  • Professional license: Some professionals, like contractors and accountants, require this license. 
  • Seller’s permit: Required for those selling taxable goods or services.
  • Use tax account: A use tax account for those without seller’s permits and certificates of registration.
  • Home occupation permit: Required for home-based businesses.

Understand Your Legal Responsibilities Before You Hire Anyone

You may be a one-person business at the moment, but if you plan to hire any workers in the future, it’s crucial that you understand your obligations and requirements under the California Employment Development Department (EDD)

The EDD defines rules for classifying your workers — as either employees or independent contractors — and governs the tax responsibilities that come with each classification. If the EDD finds that you’ve misclassified your workers, even by mistake, you can be subject to hefty fines. Before you begin hiring, take the time to understand the differences between employees and independent contractors, and how to identify which type your workers fall into. When you’re ready to make your first hire, you may want to consult with a CPA or tax attorney to ensure you’re filing your new worker correctly.

Find Your Network of Trusted Professionals

A CPA is one of the first professionals you’ll want to seek out as a new business owner, but there are other experts that are essential to have in your network as you continue to grow your business. Throughout your first year, seek out and build relationships with knowledgeable and trusted professionals in key areas of expertise — some of them may be able to help you right away, while others may become valuable relationships if you come across a business challenge in the future. 

For instance, it’s wise to have a trusted tax attorney on hand should any legal tax matters arise. A tax attorney specializes in tax law, and can offer guidance and legal representation in the event of an IRS audit, California EDD audit, tax investigation, or other legal tax matter. At Milikowsky Tax Law, we have decades of experience helping California-based small business owners navigate the ins and outs of their taxes. As former business owners ourselves, we are dedicated to protecting you and your business. We’ve supported clients in reducing their risks of being audited by IRS or EDD, navigating employee misclassification audits, handling back taxes, and more. 

Call our expert team if you have any questions about California tax law and how it applies to your business, or if you need assistance navigating a tax law matter.

Check out our other helpful guides for business owners:

The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.