People often dream of quitting their jobs and going into business for themselves so that they can pursue a passion and work without a boss. Self-employment can be a rewarding career decision, but it can lead to higher taxes and tax returns that are more complex that what you initially bargained for.

If you’re self employed, it is important to understand how taxes work so you can avoid making a mistake and owing more than your fair share of taxes.

Note: If you owe back taxes and need tax relief, we can help! We specialize in resolving complicated self-employed and small business back tax problems. Contact us for a consultation today! 

Definition of Self-Employment

The IRS considers you to be self-employed if you work as a contractor, freelancer, small business owner or are otherwise in business for yourself. If you earn income directly from clients and you don’t have an employer that withholds money from your pay for tax purposes, you are self-employed.

Tax Withholding and Estimated Taxes

If you work as an employee, your employer automatically takes a certain amount of money out of your pay each month to cover your tax obligations, which is called tax withholding.

Self-employed workers do not have an employer to withhold income for tax purposes, so they are responsible for paying their own taxes to the IRS through estimated tax payments. Estimated tax payments must be sent to the IRS on a quarterly basis if you expect to owe at least $1,000 in income tax at the end of the year.

The due dates for estimated tax payments are April 15, June 15, September 15 and January 15. Failure to plan properly and pay enough estimated taxes during the year can result in a tax penalty and a large surprise tax bill. If you pay at least 90 percent of the tax you owe or 100 percent of the total tax you owed from the previous year, the IRS typically will not assess a tax penalty.

Self-Employment Taxes

We always recommend hiring a professional to handle your taxes and stay compliant, but we especially recommend hiring a qualified tax relief firm if you find yourself behind on any taxes or you’re hit with a large tax bill you can’t afford to pay.

Do I Have To Report Side-Income If I Have A Normal Job As Well?

Individuals with self-employment income must file an income tax return if they have net income from self-employment of $400 or more. In addition, you must report any self-employment income you make during the year on your taxes even if you hold down a normal job.

For example, if you work as an employee year round but you take on small contract jobs on the side to make extra cash, that money must be reported as self-employment income when you file your tax return even if you don’t make enough extra cash to warrant paying estimated taxes.

It’s a common misconception that you don’t have to file or report income if it’s “cash” or if it’s from a side hustle. Not reporting it could lead to more trouble than it’s worth and the IRS will add penalties and interest on top of the taxes owed.

OWE BACK TAXES?

If you’re going to owe money to the IRS after filing your return, it’s important to note that not all tax professionals can help handle tax debt cases since negotiating with the IRS requires specialized skills that often fall outside of the scope of most conventional accounting, tax, and tax law firms.  

Our firm members are experienced in handling many tax problems and finding resolution for our clients! Our services are virtual so we can help clients anywhere in the US.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to us and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem! 

By Michael Rozbruch

Wesley Snipes was once best known for his work as an actor, particularly for his role as the vampire-hunting Marvel superhero, Blade. Unfortunately, when Snipes makes headlines these days, it’s usually due to his ongoing tax battle with the IRS.

Snipes’ tax woes first hit the public spotlight in October of 2006, when he was charged with felony tax fraud and conspiracy. Though Snipes would be acquitted of these felony charges, he was ultimately convicted of three misdemeanor counts of failing to file tax returns between 1999 and 2004 and sentenced to jail time. The actor argued against this conviction, insisting that he didn’t get a fair trial. The U.S. Supreme Court ruled against him, and Snipes served three years between 2010–2013. Shockingly, this wasn’t the end of Snipes’ tax drama.

In 2013, Snipes still owed $23.5 million in back taxes from 2001 through 2006. Snipes made an offer in compromise (OIC) of $850,000 — barley 4 percent of his total debt. An officer from the IRS was sent to determine Snipes’ assets and financial condition, though Snipes refused to cooperate with the investigation. When the officer denied his OIC, Snipes then accused the IRS of abusing its discretion and took them to court. The tax court sided with the IRS.

Though the IRS reduced their settlement offer to $9.5 million, Snipes refused to increase his original offer. He insisted paying the bills would send him into “economic hardship.” Economic hardship usually applies in cases of long-term illness, medical condition, disability, or monthly income being exhausted from caring for dependents. As Snipes didn’t fit any of these criteria, his case was denied.

The IRS’ decision to deny Snipes’ low OIC was upheld again by U.S. Tax Court Judge Kathleen Kerrigan in November of 2018. Kerrigan stated that accepting Snipes’ OIC would not be in the best interests of the United States. Someone should remind Snipes that, while the IRS is willing to work with people, they aren’t going to give up as easily as vampires at sunrise.

This year has been a doozy for business owners and, with the end of it just around the corner the last thing you likely want to do is take a walk down memory lane through it's challenges.  But that's exactly what I'm asking you to do as you read this article, so please sit back (hopefully with a cup of cozy) and let's talk PPP Forgiveness. 

Back in March, when the world was almost promising to fall down around us, you started to hear unheard of terms.  Acronyms floated through the news channels and websites and your accountant's mouth like fall leaves float on a breezy day.  Terms like PPP, EIDL, and SBA became commonplace references for some of us and we rushed to find out just what they meant.  For us here at Noble Business Services, that meant long nights and early mornings trying to unpack the mysteries of the CARES Act. 

What we discovered was what you are likely now familiar with: 

EIDL - the small business loan administered by the SBA that bears an interest rate of around 3.75% and a term length of 30 years. 

EIDL Grant - the non-taxable, non-loan portion of EIDL that you could be eligible for once you applied for the actual EIDL loan.  In the early days, many people thought this was an automatic $10,000 grant to applicants, but materialized as a grant of $1000 per employee - up to $10,000.  It was also promised to be delivered in 3 days which became somewhat of a joke as it took the SBA weeks or even months to process the rush of applications. 

PPP - the loan that was so uber popular that a second round was authorized and exhausted much quicker than anticipated. It is a loan with all the stipulations, terms and conditions of a regular loan - plus some.  For those who did not read their Promissory Note documents carefully, there could be some unpleasant surprises if you want to sell your company, liquidate some assets, or who thought this would be a cheap and easy tool to invest in business equipment or growth.  The PPP has been in the news for it's forgiveness aspect that sounds easier than it is, but still qualifies as what was an excellent, but limited, shelter from the economic storms that small business owners faced during this year. 

Today we're going to unpack just what the forgiveness process of the PPP loan entails (not intended to be a comprehensive or step-by-step walkthrough of requesting forgiveness). 

(Note: To our Covid-19 Clients: even though my team and I are completing the forgiveness applications for you, I still implore you to read this article so you can see that hiring us for this process was money well spent!).

Before we go further, I want to reiterate something that I said in the beginning of all this craziness: 

When lawmakers originally passed the PPP they thought that under its provisions

• you did not pay taxes on the forgiveness amount, and
• you also could deduct the expenses that you paid with the PPP money.

Obstacle

In late April, the IRS issued Notice 2020-32, which asserts that PPP loan recipients may not deduct business expenses paid using the PPP monies that gave rise to forgiveness (defined payroll, rent, utilities, and interest).

Lawmakers’ Take

In a letter to Secretary of the Treasury Steven Mnuchin on May 5, 2020, Senator Chuck Grassley (chairman of the Committee on Finance), Senator Ron Wyden (ranking member on the Committee on Finance), and Congressman Richard E. Neal (chairman of the Committee on Ways and Means) jointly stated that the IRS got this wrong and that the intent of the CARES Act was for the PPP to be a tax-free grant.

The Do-Nothings

The IRS was unmoved by the lawmakers’ letter. The IRS position was clear: no deduction for the expenses paid with the PPP money. The IRS understood that perhaps lawmakers didn’t mean that to happen, but in the eyes of the IRS, the way that the lawmakers enacted the law created the problem. To fix it, lawmakers simply need to pass a new law.

Frankly, we thought that lawmakers would pass a new law and take care of this problem. But no, that has not happened.

New Nails in the Coffin

On November 18, 2020, the IRS drove two new nails into the coffin regarding deductions for PPP monies that were forgiven and spent on payroll, rent, interest, or utilities.

·  Nail 1. In Revenue Ruling 2020-27, the IRS ruled that you may not deduct expenses paid with the PPP loan monies if you have received or expect to receive forgiveness of those loan monies.

·  Nail 2. In Revenue Procedure 2020-51, the IRS set forth safe-harbor procedures to follow if your PPP forgiveness is subsequently denied or if you decide not to apply for forgiveness.

With the rulings described above, the IRS has clarified its position to lawmakers: if you don’t like the non-deductibility of expenses paid with PPP monies, change the law.

What to Do Now

Join with hundreds of thousands of business taxpayers and tax professionals who are urging lawmakers to fix the non-deductibility issue.

To help encourage the action you desire (whether you’re for or against deductibility), get in touch with the lawmakers.

•  S. 3612 is the Senate bill to make the PPP forgiveness money used to pay business expenses tax-deductible. To express your yea or nay on S. 3612, contact your senators. You can find them at this link: https://www.senate.gov/senators/contact. 

•  H.R. 6821 is the House bill to make the PPP forgiveness money used to pay business expenses tax-deductible. To express your yea or nay on H.R. 6821, contact your representative. You can find him or her at this link: https://www.house.gov/representatives. 

Your yea or nay doesn’t need to be long or formal. You can fax, email, or phone and simply say you support or oppose the bill. It’s that easy—and it’s effective. Do it.