Why it is so easy for entrepeneurs to get into income tax trouble...but how do you get out?

Why it is so easy for entrepeneurs to get into income tax trouble...but how do you get out?

Full article: https://ift.tt/2XoKQr4 Self-employed? Owe IRS taxes but can't pay? Just what can be done about this? When you work for yourself, if you lose a customer or go out of business you often don’t find any safety net. Cash flow for many small business owners can be the most important metric to measure. Light cash flow is real scary! Yet, a level of success can happen, but can be hard to recognize. So many freelancers become very leery or unsure about sending off huge estimated tax payments to the IRS. When you see an operating account looking healthy, the last thing you want to do is empty it by sending it to an agency that you probably don’t feel that good about. Many self-employed individuals simply can’t make the estimated payments they need to because it is too scary. The key to success is to be disciplined and make estimated tax payments without thinking about them. A trick can be making estimated payments every month, or even weekly. That way, the checks are smaller and more regular, so your emotions are easier manage. Problem 2: No one to withhold taxes for you During the 2019 tax season when your 2018 business tax return is due, there will be a whole set of new entrepreneurs caught off guard with the IRS. This problem is closely tied with our first problem. In 1943, the federal government forced employers to withhold taxes for employees. The reason this was done is that the US income tax began to apply to nearly every taxpayer during WWII. The expanded application of the code would completely fail without this. Most people, if let to their own devices, would not be compliance with the IRS without the promise of a refund check once they file. But the self-employed have no one to file their withholdings for them. They are responsible for themselves. There is no one to force discipline, a discipline that can be so critical. So one trick is to find someone, a friend, a spouse, a tax professional to give you a nudge about your estimated tax payments. Problem 3: High & kind of hidden self-employment taxes If you could set aside 16% of your income for retirement, you’d have a pretty good retirement, wouldn’t you? For instance, in Australia, employers and the self-employed are required to put at least 9.5% of they gross pay into a retirement fund. This was the privatization of social security. The result? Australia is beginning to have a lot of middle class individuals become millionaires. But here in the US we weren’t so lucky. Attempts to allow people to be responsible for their own retirement were shut down. So we are are stuck with the same broken retirement system that forces freelancers to pay about 16% of their net income to the IRS for medicare and social security taxes -- all for the privilege of working for oneself. This massive tax bite is typically ignored for planning, but often times, the self employment taxes are far more than federal income taxes. The key is to understand exactly how much in self-employment taxes you need to pay. And sometimes to look to see if a change of entity to say an S- corp makes sense in order to reduce self employment taxes. These three problems for the self-employed lead to an IRS penalty treadmill that doesn’t ever seem to end. So let’s suppose you get behind for one year. If you file, you see you were assessed penalties. So you go and try to throw money at that balance. And by the time you nearly paid off that balance, another year with more taxes due and more penalties is added to the pile. This leads to a bitter irony: Some of the people who have the hardest time paying taxes wind up paying the most to the IRS. Now if you do owe, Maybe you decide not to file. And not for just this year. But for all years you’ve owed. And now maybe you have five, ten, twenty even thirty years of unfiled returns. So how can we fix this? No matter whether we are dealing with just one tax bill for one tax year, or decades of tax problems our solution always starts the same. We always get our clients - no matter what - to start making estimated taxes. As once we make the right estimated tax payment, then our clients are no longer adding to the problem. If the client is adding to the problem, then we can get a real plan in place. A plan that is realistic and is based on what our client can pay, and also takes into account current tax compliance and all the necessary expenses to run a business. Whether your solution is an offer in compromise, a partial or full pay installment agreement, we enjoy getting our clients the breathing room they need so they can focus on their business, not wondering what the IRS is going to do next. https://youtu.be/wkbOce8XxEc IRS Medic

What is IRS Form 3520-A? When is it required? How is one filed?

What is IRS Form 3520-A? When is it required? How is one filed?

http://bit.ly/2MTGP9g Did a tax software program tell you that you need to file IRS Form 3520-A? Have you heard vague rumors that you might need one? Hi I’m Anthony Parent of IRSMedic. In this video we will explain the most likely reason you need to file a Form 3520-A, what goes into the form, and what to do if you are late and want to avoid the steep penalties in case you are audited by the IRS. And in some cases, the IRS doesn't even need to examine you to assess penalties. . Form 3520-A is an annual informational return of a foreign trust with a US owner. The surprise is that many foreign pensions and retirement plans are considered by the tax law to be foreign trusts. 90% of the 3520-A forms that our tax firm files are all for foreign pensions. How can my foreign pension be a trust? The law on Form 3520-A could be a lot clearer. In fact, the instructions for Form 3520-A fail to even mention the words “foreign pension” or “foreign retirement” anywhere. Schedule B mentions Form 3520, but completely fails to mention Form 3520-A. So if you are unfiled, you are in good company. But this is what we do know. The IRS often takes the position that a foreign pension is something known as a grantor trust or an employee’s trust. The IRS’s treatment is not entirely consistent, which is why you may encounter different advice. But we are not here to tell you what you will get away with, but rather, what could happen to you if you don’t file a Form 3520-A. What will happen if I don’t file a Form 3520-A? Well you may get away with it. But if you are detected by the IRS, you could also be looking at a $10,000 penalty for each Form 3520-A you did not file. If unfiled or improperly filed, the IRS can examine your entire Form 1040 indefinitely. That’s right, the IRS can audit you back to when you first started this retirement plan if an Form 3520-A was required but not filed. Even if that was 20 years ago. Suppose an American moved to Australia in 1999, with contributions to a superannuation starting the same year. If a Form 3520-A was required, or not filed or improperly filed, that is 20 $10,000 penalties the IRS could assess, for a total of $200,000 in penalties alone. In the last three years, we have seen the IRS begin to be assess aggressive penalties - so aggressive many taxpayers and tax professionals find themselves shocked and stunned. There is another 3520-A penalty the IRS can assess. Yet it is as of today, it’s rare to see.The IRS can impose a penalty of 5% of the retirement plan’s value. So if you have say a Swiss pension valued at $1 million USD, you can be hit with additionally penalties including a $50,000 penalty for not filing a Form 3520-A. And htis can be assessed multiple times. But this type of penalty is not as common as it can not be automatically assessed, unlike the $10,000 Form 3520-A penalty which often can be. Will I get hit with a Form 3520-A penalty? If the IRS can assess a $10,000 Form 3520-A penalty with little or no effort, your chances of being penalized are much larger. So then the question is “when can the IRS assess a Form 3520-A penalty easily?“ The answer is when you file late outside of a program or when you have an obvious error. We do know that the IRS has a hard time following its own procedures, and Form 3520-A penalties are no exception. We routinely need to correct an IRS that fails to mitigate or improperly assesses penalties of a taxpayer who has gone through a streamlined disclosure program. When is a Form 3520-A due? Do I attach it to my tax return? Do I have to file an extension? Form 3520A is due 3 months and 15 days after the end of the tax year for the trust/pension. This usually makes the Form 3520-A due on March 15th - a month before your tax return is due if you live in the US and three months before your tax return is due if you live overseas. If you file an extension for your tax return, this extension does NOT carry over to Form 3520-A. An extension of time to file Form 3520 A (including the statements on pages 3 through 5) may be granted by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. If the idea of IRS civil penalties causes you anxiety and the threat of an IRS criminal prosecution gives you so much anxiety you’ve forgotten about all about your other anxieties, listen carefully. Form 3520-A is hardly the only international form that our clients are missing or have filled out incorrectly. International tax compliance is nothing but a series of clever traps. So my advice would be to get legal advice from a tax law firm that specializes in individual international taxation and is a Leader in offshore disclosures. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/5F0erzqae7c IRS Medic