Noble Business Services, LLC - Noble News #taxes

Self-Employment Taxes and The Common Traps to Avoid So You Don't Owe Back Taxes

Thu, 25 Mar 2021 01:12:26 +0000

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

Self-employed workers must pay the self-employment tax (SE tax) which goes toward Social Security and Medicare in addition to normal income tax. Employees split the cost of paying into Social Security and Medicare with their employers, but self-employed workers must pay the full amount themselves.

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!

Unpacking the American Rescue Plan

Wed, 10 Mar 2021 03:19:37 +0000

What changes are coming?

Last tax season was a doozy for those of us in the tax industry. Covid took the wind out of our sails and left us coasting in uncharted waters for months as we deciphered what the new federal programs and acronyms like EIDL and PPP and ERC meant. For the most part, it was a challenge that I actually enjoyed - but judging by many colleagues' comments on private Facebook groups, the season was enough to make even the toughest pros consider an early retirement.

Now, a year later, our world still feels topsy-turvy and the tax law changes just keep coming. We are being told to put stimulus payments that arrived in 2021 on 2020 returns and that, in certain situations, the stimulus payments can be granted to the same family twice. We've changed the advice we've given our clients based on IRS guidelines related to PPP forgiveness and deductions. We took enough continuing education courses to pass whole college classes.

And now, we will unpack what the American Rescue Plan - the newest Covid "Relief"* Plan means for our clients. Come along for the ride - if you read it here, you may have your questions answered and I will have one less email in my inbox !

And if you want to read my rant about the downsides (and there are significant ones!) of the American Rescue Plan, click here.

It seems to me that Congress loves to make laws without thinking about the actual implication or logistics of making their ideas work. Some parts of the American Rescue Plan that I am going to outline below are, in my mind, just ideas. That's because we don't have clear, definable action on how to implement them - this is something that will be left to various agencies to decide how to do and tax pros to learn the best ways to make things work for our clients.

Bear in mind: The following information is contingent on the bill being signed by the President - an action that is expected on Friday, March 12. A BILL IS NOT LAW (Yet.).

#1 - Stimulus - Show Me the Money!!!

The most popular and well-known part of the American Rescue Plan is the $1,400 stimulus payment that we have been told could be hitting our bank accounts before the month is out. Everyone likes to see their account balances go up, and for some, this will be a helpful boost to making ends meet during these turbulent economic times. The stimulus is $1,400 for adults and dependents and is estimated that it will be received by 85% of Americans. Of course, some people, like the higher income earners are excluded from these payments. Maybe they were all considered essential during the lockdowns and didn't experience any financial setbacks... but, I digress. As an individual filer, if your income is below $80K/year, you'll receive some, if not all, of the payment. As a married couple, you can be making up to $160,000 before losing out. The new stimulus will also be applicable to some other groups who didn't receive it last time - namely, certain people without social security numbers - provided some other conditions are met, as well as certain adult dependents. Bottom line is this - unless your income is what is considered "high" (who came up with that threshold anyway?!?!?), you will likely see a direct deposit to your account in the coming weeks.

#2 - Unemployment - No Tax on the first $10,200

If you received Unemployment benefits in 2020 due to being out of work, you should have received a 1099-G which I will use to add the income to your tax return. Before the enactment of the American Rescue Plan, you would have seen either a larger balance due or a smaller refund due to the additional taxes on your unemployment. Under the American Rescue Plan, the first $10,200 will no longer be subject to taxes. We've been holding onto our client's returns that have unemployment income on them (with their permission of course!). When those returns are updated with the new law, the balances will be smaller or the refunds larger. Many people received unemployment without thinking about the tax implications - only one return I've done so far this season had any federal withholding. This portion of the law shields unsuspecting taxpayers from substantial tax bills.

#3 - Unemployment #2 - More Benefits in the Pipeline

The American Rescue Plan continues the federal unemployment benefits (in addition to the State programs) at $300 per week. With the existing extra benefits ending on March 15th, this comes in the nick of time for those who are still using unemployment as their primary income.

#4 - Child Tax Credit - Show Me (Some More!) Money!!!

If you've gotten used to the new $2000 child tax credit that was enacted under the TCJA (Tax Cuts and Jobs Act), then get ready for some even bigger numbers! The new child tax credit is now $3000 for kids between 6 and 17 and $3,600 for kids under 6! That's a whole lotta' moola for families with many kids. Now this is the weird part - some of the child tax credit is going to be paid out as an advance credit. This means that you could have deposits showing up in your account as early as July of this year. We - and apparently no one else - really understands how this will work or how frequently the payments will be made, but something will happen. This is a temporary provision, but there are those who are pushing to make it permanent.

#5 - Dependent Care Credit

If you pay for care for your kids in order to work or look for work, you may have been accustomed to taking the Child and Dependent Care Credit on your tax return. With the American Rescue Plan, that credit is getting bigger. Now it can be up to $4,000 for one qualifying person and up to $8,000 for two or more. It's a phaseout threshold depending on your income, so some people won't be able to claim the full amount.

There's more, guys. It's a bill that is over 600 pages long. My guess is that we will be unpacking this bill for months to see what's really in it (after all, we have to pass the bill to know what's in it, right?!?!) and we as tax pros will have many, many more hours of continuing education coming our way! I'll keep you updated as we know more juicy details. In the meantime, if you're someone who has self-prepared your return and are hesitant about hiring a professional, this is the year to do it. There are so many changes - so many things to keep straight - and so many ways to get it wrong. You don' t want to rely on a computer software when you could have the benefit of an experienced pro!

When Relief Isn't Relieving

Wed, 10 Mar 2021 03:19:37 +0000

Congress Passes a New "Relief" Package That May Do More Harm Than Good

I know that not all my readers will agree with me (and I'm ok with that) but I hope you will hear me out about why the newest Covid relief package is less about economic relief and more about political grandstanding.

It's no secret that our economy is teetering on the edge of a possible collapse. You'd be a bit blind to not know that. But, is handing out cash a sustainable way to get our economy back on track? I say it's not. In fact, I think that it will do more harm than good.

Let's dig in and see why...

First, let's look at why we are facing economic downturn in the first place. Many people are quick to say that it is due to the Coronavirus pandemic. I beg to differ. Viruses attack our bodies, whether that's our sinus passages, skin, organs, or some other part of us - they don't attack our finances, our financial structure, our businesses, or anything else of that nature. The virus is not to be blamed for putting people out of work, closing down businesses (many of which provide the sole support for American families), and wreaking havoc on community. No, the virus itself has not caused any economic problems beyond what is faced by the families who couldn't work due to being sick or who are taking time off to grieve the loss of a loved one. Those are direct results of the virus - situations which demand our full sympathy - but they do not make up the majority percentage of the issue we're facing as a nation.

Instead, what has caused the economic downturn has been the government's response to the virus. Instead of a national information campaign to encourage people to live a healthy lifestyle, boost their immune systems, and practice good hygiene, the government has instead told people, under threat of fines and punishments, to shut themselves in their houses, place a damp, bacteria-rich environment over their faces, avoid contact with other humans, and shut down their means of financial survival. It has been a failure of epic percentages, but one that was easy to see coming. The government has effectively taught millions of people to view each other as a dangerous weapon and has instilled fear into even the most stalwart heart. The resulting economic issues are only one of the negative results that have been borne out of the overreaching reaction of the government.

2020 was a demoralizing, discouraging, difficult, and sometimes disastrous year for many people. It was a time of grief and pain, of anger and despair, of loss and desperation. Realizing this, the government has now developed a plan to rescue us. But it's not a true rescue.

Imagine if you will, a large ship going down in the middle of the ocean. Desperate people all around are trying to figure out a way of escape. Some, in their belief that no help was going to be had, jump to their deaths in the icy water. Just as all hope seems to be lost, a lifeboat is seen approaching. Ropes are thrown out and life rings clung to as people escaped the sinking ship to board the lifeboat. It is small, crowded, not a wonderful existence, but at least they were alive!! As the celebration noises die down, a speed boat approaches, picks up those driving the lifeboat, and strips it of its motor or any ability to guide or maneuver itself. The speedboat races off into the horizon and the newly "rescued" people see that their celebration was too soon and very short lived.

The American Rescue Plan is the same way. It offers a lifeline, a rescue, a way out of "certain" economic death for millions of people. Free money is a great motivator to get people out of what is viewed as a dead-end situation and into what appears a safe and secure lifestyle. The problem is, that our celebration at having a fatter bank account may be too early and we are being left in the middle of an ocean of debt with our "saviors" speeding away into the sunset. They've gotten us off of the sinking ship, but left us to die (financially) on the "lifeboat". And a storm is coming.

Economists, and anyone with a handful of brain cells, will tell you that the current debt of the United States is untenable. It can't be sustained. But the government doesn't want to address that fact, instead enticing more and more votes with the promise of more relief. The problem though is that once you're on the lifeboat, they're the only ones who can get you to shore, show you how to survive, protect yourselves, and live independently again. And they don't want you to do those things, so they're going to leave you out there on the lifeboat, returning on occasion to toss some crumbs your way.

In contrast, the plan laid from the beginning of time has been for people to work, to own property, to create, to dream. It has been a plan of Independence, of hard work, of family and community and sustenance and ingenuity and entrepreneurship. These are qualities that are threatening to the elites who want us to stay on the lifeboat and be "rescued" but they are also the qualities that provide a way of escape.

Reliance on the handouts from the government will only last so long. If you're on the lifeboat and want to get back on solid ground, here are a few pointers:

Have a dream, an idea - and let it motivate you to look around at your situation and determine that it is unsatisfying. The drive, the purpose, the mission, the why - is what will keep you going when all hope seems lost.
Determine if there are others around you who have a similar dream and spend time with them. A coal left alone soon burns out, but when placed into a fire, it burns brighter and stronger. Don't try to go-it-alone... you'll burn out quicker than you think you will.
Write down your goals. If that involves getting off the lifeboat and onto the ground of financial security, you'll have to know just what you need to get there. What are going to be the tools you use to row to shore? Where can you find those tools? Who will help you?
Remember, a little spark can start a forest fire, so don't get discouraged. Even though you've been rowing for months and maybe even years, the shore is closer today than it was yesterday. You can get there!

The bottom line is this - don't rely on the ones who created the problem in the first place to rescue you from its troubles. You are smarter than that. The $1400 payment will be a nice boost in your bank account but in order for that to provide any lasting impact, invest it. Put it into an account where it will grow and turn into much more than $1,400 (that amount invested in an interest bearing account of 8% will be $14,087 in 30 years!). I know that some reading this will need the money to pay their mortgage or buy groceries or put fuel in their tank - and that's okay - as long as it's part of the plan that is bringing you closer to shore and out of reliance on government crumbs.

Be resilient, be open-minded, be ingenuitive, and be part of the solution that turns this struggle into success!

Wesley Snipes' Lowball Offer in Compromise Rejected in Tax Court

Thu, 17 Dec 2020 03:37:49 +0000

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.