Kundra & Associates PC FindLaw IM Template2024-03-27T20:45:16Zhttps://www.kundrataxlaw.com/feed/atom/WordPress/wp-content/uploads/sites/1501758/2020/12/cropped-Kundra-site-icon-1-32x32.jpgby ChayaKundrahttps://www.kundrataxlaw.com/?p=496542024-03-27T20:45:16Z2024-03-27T20:45:16Z
Misclassifying Employees as Independent Contractors
It is essential to distinguish between employees and independent contractors since they are taxed differently. To avoid this mistake, it’s a good idea to familiarize yourself with the guidelines set by the IRS to determine whether a worker should be considered an employee or an independent contractor. The IRS uses a three-factor test:
Behavioral control: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial control: Are the business aspects of the worker’s job controlled by the payer? This includes things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.
Type of relationship: Are there written contracts or employee-type benefits such as a pension plan, insurance, vacation pay, etc.? Will the relationship continue and is the work performed a key aspect of the business?
Keep in mind that if you classify an employee as an independent contractor with no reasonable basis for doing so, you can be held liable for employment taxes for that worker.
Failing to Withhold Taxes
Employers must withhold multiple federal and state payroll taxes from employee wages that include:
Federal and state income taxes
FICA taxes, i.e., Social Security and Medicare taxes
State unemployment taxes
Federal unemployment taxes
Failure to withhold taxes can result in penalties and interest charges. To avoid this mistake, be sure to calculate and withhold the correct amount of taxes from each paycheck.
Not Keeping Accurate Records
Employers are required to keep accurate records of their employees' wages, taxes withheld, and other employment-related information. Failure to keep these records can result in penalties and fines. To avoid this mistake, set up a system to keep track of all employment-related information.
Missing Deadlines
Employers must meet certain deadlines for filing tax forms and making tax payments. Missing these deadlines can result in penalties and interest charges. Mark important dates on your calendar and set reminders to avoid this mistake.
Failing to File Form 941
Employers are required to file Form 941, the Employer's Quarterly Federal Tax Return, to report wages, tips, and taxes withheld for each quarter. Failure to file this form can result in penalties and fines. To avoid this mistake, make sure you file the form on time and accurately report all information.
Other Important Issues to Keep in Mind
In addition to these common employment tax mistakes, there are other tax-related issues that employers should be aware of, such as the Affordable Care Act (ACA) and state-specific tax requirements.
Under the ACA, employers with 50 or more full-time employees must offer affordable health insurance coverage to their employees or face penalties. Employers must also report information about the health insurance coverage they offer to their employees on Form 1095-C.
State-specific tax requirements vary by state, so it is important to understand the tax laws and regulations in the states where you have employees. For example, some states require employers to withhold state income taxes, while others do not. Some states also require employers to register with the state tax agency and file regular tax reports.
By avoiding these common employment tax mistakes, you can save yourself time, money, and stress. In addition, it is important to stay up-to-date with tax laws and regulations to ensure compliance and avoid penalties.
Contact a Knowledgeable Business Tax Attorney Today
Kundra & Associates has been a trusted source of tax guidance for a variety of companies for more than three decades. Serving clients in Bethesda, Arlington, Rockville, Alexandria, and Washington D.C., as well as around the world, we provide clear and effective advice on policies and procedures aimed at avoiding tax mistakes and other issues. To leverage our wealth of experience and knowledge, please feel free to get in touch with us online or give us a call at 301-597-4975.
]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=496482024-03-15T16:43:31Z2024-03-15T16:43:31Z2024-2025 IRS Priority Guidance—Want to Opine?
Per Notice 2024-28, 2024-13 IRB, the IRS invites the public to submit recommendations for items to be included on the 2024-2025 Priority Guidance Plan. This document is used by the IRS to identify and prioritize tax issues to be addressed through IRS administrative guidance.
Improvements Suggested for IRS Tax Transcripts
ABA Tax Section asks the IRS to include on individual and business return transcripts issuances of taxpayer notices, taxpayer actions (CDP, Tax Ct petition), referral of matter to Taxpayer Advocate (TAS), etc. See, Tax Notes, 3/5/34.
Tax Agenda and POTUS
Part of the President’s tax policy agenda addressed in the 2024 State of the Union highlighted restoring low- and middle-income tax breaks, higher tax floors and stricter limitations for high-earners and corporations.
Ramping up of Audit Review Issues
In reminding taxpayers to report all income earned (IR 2024-63, 3/6/2024) the IRS specified income from digital asset transactions, the gig economy, and foreign sources. By doing so, it is setting stage what IRS will be looking to in its audits and reconciliation with third party tax documents.
Virginia & Pass Throughs
From our next-door neighbor, through Virginia Public Document Ruling No. 24-12, 02/19/2024, VDOT provides guidelines on making the pass-through entity tax (PTET) election for taxable year 2021 and claiming a retroactive PTET credit. The Department previously released guidelines applicable to taxable years 2022 through 2025.
DC & Property Taxes now LawOur neighbor on the other side, though L. 2024, Act 25-363 (Law 25-133), effective 03/01/2024, enacted "Golden Triangle Business Improvement District Amendment Act of 2023." Starting with tax year 2024, tax rates in the Golden Triangle BID are set as (1) 19¢ for each net rentable square foot of improved Class 2 and Class 3 Property, excluding hotels, for any property for which the owner must report net rentable area; (2) 19¢ for each equivalent net rentable square foot of improvements of improved Class 2 and Class 3 Property, excluding hotels, for any property for which the owner is not required to report net rentable area; (3) 16¢ for each equivalent net rentable square foot of improvements of hotels; and (4) $163 per unit annually for nonexempt residential properties.
Voluntary Disclosure & ERC ends 3/22/24
All employers are urged to review their eligibility for the ERC and to voluntarily correct any mistakes to avoid penalties and interest per the IRS. (IR 2024-39, 2/13/2024)
Government Accounting Office & IRS Audit Suggestions
Per GAO-24-106112, in addressing a decline in audit rates for the highest-income taxpayers in 2020, Treasury directed the IRS to audit at least 8% of tax returns filed by individuals with income of $10 million or more. While IRS increased the number of said audits, according to the GAO, the IRS must still assess its “research efforts to understand the complexity of high-income returns, audit selection models to ensure IRS is not burdening compliant taxpayers, auditor hiring and training needs to address any staffing and skill gaps” and the “IRS should also centralize its management of high-income/high-wealth audit programs.”]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=495962024-03-08T06:34:50Z2024-03-08T04:10:03ZWhat is the impact of tax obligations on my corporation?
Every company has a unique tax profile. Understanding yours is the first step towards effective tax planning. This involves a thorough assessment of your business operations, financial transactions, and investment plans. By doing so, you can identify potential tax liabilities and plan accordingly.
Has the law changed?
Tax laws are complex and constantly changing. Stay abreast of these changes to take advantage of new tax-saving opportunities and avoid penalties. It's beneficial to consult with a tax professional to keep up with these changes and make updates to your strategies as needed.
Are we leveraging tax credits, deductions, and tax loss harvesting?
Tax credits and deductions are valuable tools for reducing corporate tax liability. Explore your eligibility for different tax credits and deductions, such as those for research and development, green energy initiatives, and employee training programs. These can be available at both the federal and state levels.
In years when your company experiences a net loss, consider tax loss harvesting. This involves using the net operating loss to offset taxable income in other years, potentially reducing your tax liability.
What about international tax implications?
If your company operates internationally, be aware of the tax implications. Understanding tax treaties, transfer pricing, and foreign tax credits can help you navigate the complexities of international tax planning.
Effective corporate tax planning is about more than just compliance — it's a strategic element of business success. By understanding your tax profile, staying updated with tax laws, leveraging tax credits and deductions, and considering the impact of state, local, and international taxes, you can position your company for financial success.]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=494792024-03-07T20:36:16Z2024-03-07T20:36:16ZWho must file this form?
This form can apply to both individuals and corporations. Qualifying individuals include citizens, resident aliens, nonresident aliens when filing a joint tax return, and nonresident aliens who are residents of American Samoa or Puerto Rico. Qualifying corporations include closely held domestic corporations or partnerships when at least 50% of the gross income from passive income and/or 50% of assets held to produce passive income and domestic trusts that have one or more specified persons as the beneficiary.
Reportable assets include financial accounts at foreign financial institutions and certain investments.
When do I need this form?
Those who meet the above criteria will now look at their assets to determine if they need to file the form. A filing is likely necessary when the qualifying individual or business has a foreign asset valued over $50,000 on the last day of the tax year or over $75,000 at anytime during the tax year in question if the taxpayer’s filing status is single. Those filing as married must file when the asset is $100,000 at the end of the tax year and $150,000 at any point during the tax year.
Taxpayers who live abroad may still need to file. This is generally required when the foreign asset is over $200,000 on the last day of the tax year or over $300,000 at any point during the tax year. These ranges are doubled if the taxpayer is filing a joint return.
There are exceptions to these rules. If, for example, a taxpayer does not need to file an income tax return they do not need to file this form. This is generally true even if the values of the foreign asset are above the previously noted reportable amounts.
What happens if a qualified taxpayer fails to file?
A failure to file this form can result in steep financial penalties. The penalty generally starts at $10,000 but can quickly increase to $50,000 if the taxpayer does not come into compliance after notified of the error. Defenses are available for a failure to file this form and can include reasonable cause.
A Senate report recently criticized the IRS on its use of this law, noting the federal agency has failed to adequately use the FATCA to hold those who attempt to avoid tax obligations accountable for reporting these assets. As such, the agency may use its recent influx of funding to focus in on this area. Those with foreign assets could find themselves the target of a federal tax audit. As such, it is generally wise to review tax filings and ensure compliance with applicable tax laws. If errors are present, it is a good idea to take steps to remediate the situation before it escalates into allegations of criminal wrongdoing.]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=494732024-03-07T20:24:09Z2024-03-07T20:24:09ZWill the IRS question this estimate?
They may. The Cohan rule can apply if the Internal Revenue Service (IRS) conducts a tax audit and has questions about these estimates.
What is the Cohan rule?
The courts established the Cohan rule back in 1930. It was the result of a case involving a taxpayer business owner, business expense deductions, and poor record keeping. The court basically held that in some instances it will allow taxpayers to claim deductions based on a reasonable estimate even if they did not keep adequate records as long as they have some factual basis to back up their claims.
Is there anything else I should know about business expenses and the Cohan rule?
There are some exceptions. The court will generally exclude certain entertainment and travel deductions for example, as listed under Section 274(d).
It is also important to note that this law, like all things in the tax world, is evolving. It is not the same as it was when created in 1930. Congress made some changes in the sixties that increased substantiation rules for certain deductions, like automobiles, and the Tax Cuts and Jobs Act (TCJA) from just a few years ago made additional changes — removing entertainment deductions completely. The rule is likely to continue to change.
As such, it is wise for those who are looking to use the Cohan rule as a defense to allegations of wrongdoing during a tax audit to seek legal counsel. An attorney experienced in this niche area of tax law can review your case and discuss how to use this, or other applicable defense strategies, to your advantage.
]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=496392024-03-05T23:06:57Z2024-03-04T23:06:34ZIR-2024-56, a new initiative focusing on high-income taxpayers who failed to file federal income tax returns since 2017. The goal is to bring said taxpayers into current filing and payment compliance.
On this same date, the IRS also released Fact Sheet 2024-6 explaining what to expect after receiving a CP59 Notice https://www.irs.gov/individuals/understanding-your-cp59-notice. This is the non-filer compliance alert notice the IRS started sending out during the week of February 29, 2024 to more than 125,000 taxpayers. According to the IRS press release, “The mailings include more than” 100,000 to people with incomes between $400,000 and $1 million and over 25,000 to those with more than $1 million in income. The years are 2017 through 2021.
Further, per the IRS, “[t]hese are all cases where IRS has received third-party information—such as through Forms W-2 and 1099s—indicating these people received income in these ranges but failed to file a tax return.”
Taxpayers who do not respond to the non-filer letter will receive other notices which will likely result in a variety of IRS collection activity including estimated tax returns being prepared, audit actions, liens, seizures and potential criminal prosecution.
Failure to file may result in estimated or substitute tax returns based on wages and other income reported to it. These tax returns are not going to account for offsets such as credits for children, business expenses, offsetting deductions and exemptions they may be entitled to receive as the IRS is not privy to this information.
The press release also advises that people who receive these notices should “consult with a trusted tax professional so they can quickly file their late tax returns and pay delinquent tax, interest and penalties. The failure-to-file penalty amounts to 5% of the amount owed every month – up to 25% of the tax bill.”
Kundra and Associates has successfully handled many of these cases in the past and is available to help.]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=495932024-03-01T19:32:26Z2024-03-01T19:32:26ZWhat happens if the taxpayer and IRS disagree on the right amount for an installment agreement?
Not surprisingly, taxpayers and the IRS do not always agree. In a recent case, a taxpayer and the IRS disagreed over the right amount for monthly payments proposed in an installment agreement. The case, Kosmides v. Commissioner of Internal Revenue, involves a taxpayer who offered to enter a partial payment installment agreement (PPIA) with the IRS, making $400 payments to repay the debt until the installment payment period ended. He stipulated that he would not liquidate his retirement accounts to make the payments. The IRS Appeals Officer (AO) disagreed with the proposed payment and argued the taxpayer could afford to pay thousands more. The AO countered with a plan that included payments of $3,375.
One of the key disagreements in this case involves allowable expenses when calculating the appropriate payment for an installment agreement. The AO argued that installment agreements only allow “necessary expenses.” In this case, the AO argued the taxpayer’s use of other expenses like additional costs associated with vehicle payments, secondary health insurance coverage, and credit card payments did not qualify. The AO also argued that it was reasonable for the taxpayer in this situation to cash out a portion of his retirement savings to help settle the bill.
Are retirement accounts off limits when proposing an installment agreement?
In certain cases, the IRS can consider retirement accounts as an asset when making its calculations. In this case, the AO followed instructions provided by IRM 5.15.1, stating that the AO consider the income from the taxpayer’s retirement plan and whether it will meet the taxpayer and taxpayer’s needs upon retirement. If the account has funds in excess of those needed for retirement, the excess funds in the retirement account may be subject to liquidation.
What are allowable expenses?
IRM 5.15.1 further clarifies allowable expenses for those who request a PPIA. These expenses must generally meet the necessary expense test. The test takes into account expenses that are needed for the taxpayer and the taxpayer’s family’s health, welfare, and production of income. Examples can include:
Housing. The agency will allow for a standard amount adjusted for the state, county, and family size to cover the cost of utilities and housing.
Vehicle ownership. The IRS also allows a standard amount for the cost of a vehicle. The amount varies and can include car payment as well as operation.
Health insurance. The cost of maintaining health insurance coverage is generally allowed.
The installment agreement can budget for these necessary expenses. In theory, the proposed payment should be the taxpayer’s assets minus these necessary expenses. There are rules for when a taxpayer wishes to deviate from them. It is wise to discuss this with an experienced tax attorney to make sure your plan is in line with these and other applicable rules.
What if I disagree with the IRS’ findings?
You can appeal their findings. The taxpayer in the case above was not able to provide sufficient evidence to establish that the proposed expenses were necessary and lost their appeal.
It is important to gather appropriate evidence and act promptly as there are time limits that guide these matters. A failure to abide by the rules can result in the agency moving forward with a levy against the taxpayer’s assets.]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=495952024-02-29T21:15:39Z2024-02-29T21:15:39ZEvery business owner is wise to know the basics to avoid making a mistake.
#1: Employment taxes
Businesses with employees must pay employment taxes. These can include Social Security and Medicare. Payments may be withheld from the employee’s paycheck and are remitted to the IRS on a quarterly basis.
#2: Excise taxes
Certain businesses may also need to pay an excise tax. There are rules that guide the imposition of this tax, which applies to businesses that sell certain goods, services, and activities. Common examples include the sale of liquor and tobacco products. These are also generally due on a quarterly basis.
Calculating a business’ tax obligations is complicated. Businesses can utilize tax planning strategies to reduce their tax burden. It is important to keep proper documentation of these steps so that you can defend the claim in the event of an audit.
Those who miss these deadlines may find themselves the recipient of a notification of an audit by the IRS. Know that you do not have to go through the process on your own. You can have legal counsel to guide you through the process. An attorney experienced in this niche area of tax law can advocate for your business’ interests and work toward a more favorable outcome.]]>On Behalf of Kundra & Associates PChttps://www.kundrataxlaw.com/?p=496272024-02-21T17:28:36Z2024-02-21T17:28:36Z2023 Accomplishments Letter which runs through the agency’s Sep. 30, 2023, fiscal year-end.
The Achievements Highlighted Include:
The hiring of 197 new employees:
113 Revenue Agents and
64 Tax Examiners.
Approved 103,073 exempt organization (EO) determination applications of the 119,491 it closed.
New Online tool allows taxpayers to electronically upload responses to requests for information. The result: faster case processing time.
Continued focus on exam-related improvements & expects to publish the new TE/GE Consolidated Examination Internal Revenue Manual (IRM) in FY 2024.
Of the 2,464 EO returns examined, (Form 990 series+) along with employment and excise returns, the result was 76% closed with a change in tax and 141 tax-exempt entities recommended for tax exempt revocation.
See: 2023 Accomplishments Letter.
]]>by ChayaKundrahttps://www.kundrataxlaw.com/?p=495982024-02-13T14:59:42Z2024-02-13T14:56:35ZIRS has declared that roughly 4.7 million taxpayers will not be required to pay a failure-to-pay penalty. This decision offers substantial relief to individuals grappling with tax obligations amidst the ongoing challenges posed by the pandemic.
The IRS attributed its decision to provide the waiver to its suspension of late payment reminders in February 2022 due to the pandemic. Taxpayers who owed taxes for the 2020 and 2021 tax years would have received an initial bill notification but no subsequent reminders. Despite the absence of further collection notices, the IRS noted that tax penalties continued to accrue. Does this apply to you? This blog will help you find the answers!
Who is Eligible for Automatic Relief?
Basically, taxpayers who owed taxes for the years 2020 and/or 2021 and did not receive reminder notices for the balance due because of the pandemic-related pause may qualify for automatic penalty relief. To be more specific, taxpayers need to meet the following criteria:
Filed From 1040, 1041, 1120 series, or From 990-T;
During years 2020 and/or 2021;
Owe less than $100,000 per year in back taxes; and
Received an initial balance due notice (CP14 or CP161) between February 5, 2022, and December 7, 2023.
Those who meet these criteria do not have to pay the failure to pay penalty. The IRS will issue a refund for those who already paid this penalty. But it’s important to note: The waivers will be applied automatically, so eligible individuals won't need to take any action themselves to receive the relief.
What Else Should Taxpayers Know About this Relief?
The IRS uses this notice to remind taxpayers of the impact of a failure to pay tax bills. This can include:
Financial penalties. A failure to pay can mean the bill just grows over time as the agency will add interest, fees, and additional penalties to the tax bill.
Additional penalties. Adding to the bottom line is just one of the tools the IRS can use against taxpayers who fail to pay their bills. They can also work with other federal agencies to further clamp down on taxpayers. One example is the ability to work in collaboration with the State Department to deny a taxpayer’s passport application or revoke a current passport.
Allegations of criminal wrongdoing. In certain cases, the feds may attempt to build a case that the failure to pay is intentional and attempt to pursue criminal charges against the taxpayer.
Expert Tax Law Guidance and Representation: Navigate Your Tax Concerns with Confidence
If you're feeling confused by this update—or have questions—it's wise to consult with your accountant or conduct further investigation. Taxpayers experiencing difficulty in making payments have options.
However, if you've already missed payments and find yourself in trouble with the IRS, seeking help is crucial. An attorney well-versed in this specialized area of tax law can assess your situation and discuss the advantages and risks of each option tailored to your specific circumstances. With offices in Maryland, Washington D.C., and Mumbai, the legal team at Kundra & Associates provides robust representation and guidance to individuals dealing with significant tax liabilities, tax fraud, offshore tax matters, or payroll tax issues, serving clients both locally and internationally. Feel free to reach out to us by calling 301-597-4975 or contacting us online today.
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