An online version of the Social Security Statement is now available at socialsecurity.gov. The new online statement provides eligible workers with access to their social security earnings and benefit information. In February 2012, the Social Security Administration resumed mailing paper statements to workers age 60 and older if they are not already receiving social security benefits.
Later this year, the agency plans to mail paper statements to workers in the year they reach age 25.
The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns. When it comes to filing your tax return, however, the law provides that the IRS can assess a penalty if you fail to file, fail to pay or both.
Here are eight important points about the two different penalties you may face if you file or pay late.
1. If you do not pay your taxes by the current year due date, you generally will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. The penalty for this can be as much as 25 percent of your unpaid taxes.
2. If you do not file by the current year deadline, you might face a failure-to-file penalty. If you do not pay by that due date, you could face what is called a failure-to-pay penalty.
3. The failure-to-file penalty is in most cases more than the failure-to-pay penalty. Thus, if you cannot pay all the taxes you owe, you should at least still file your tax return on time and pay as much as you can. You can then explore other payment options. The IRS will work with you.
4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
5. If you file your tax return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
6. If you requeted an extension of time to file your tax return by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty only if the remaining balance is paid by the extended due date.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month there are two scenarios. The 5 percent failure-to-file penalty will then be reduced by the failure-to-pay penalty. Please note, however, that if you file your return more than 60 days after the due date or extended due date, then the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
8. Another option is that you will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
You know, as a business owner, that the IRS rules require you to report certain payments on annual Form 1099. For example, when you pay $600 or more during a calendar year to an independent contractor for services, you must issue the contractor a Form 1099-MISC. You need to report a wide range of income, including rents, royalties, nonemployee compensation, and prizes and awards. Income from this form can be subject to self-employment tax and is required to be reported on Schedule C. Other income is reported on Form 1040, line 21 (other income), and is not considered self-employment income. However, the new healthcare law imposes surprising new Form 1099 reporting requirements. The goal of the new regulations is to catch income that is going unreported to the IRS. The federal government loses an estimated $300 billion each year from the “tax gap” between what individuals and businesses owe and what they actually pay.
Starting in 2011, companies that process credit or debit card payments will be required to report to the IRS the total amount paid to merchants. The IRS created Form 1099-K which is used solely for reporting these transactions. This form is required when a third party network, such as Paypal, Amazon.com, and others that service very small businesses, have at least 200 payment transactions a year totaling more than $20,000. There is no limit on transactions and dollar amount for a merchant card payment. It could be $1 and 1099-K is required. This new reporting requirement affects both companies that issue Forms 1099 to their vendors and companies that accept third-party settlement payments from payment settlement entities (PSE). Payments made through PSEs are reportable by the PSEs and not the parties that made initial payments. The reportable amount includes all payment transactions for each recipient without adjustments for credits, discounts, fees, or refunds. You will get 1099K’s this year for 2011; however, we do not have to separately report the 1099K’s on the tax return in 2011. This will start in 2012.
The IRS imposes penalties for failure to file correct Forms 1099 on a timely basis. The penalties have increased per form therefore the total penalty for not filing can be quite large. The amount of the penalty is based on when you file the correct information return. The penalty is:
- $30 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $250,000 per year ($75,000 for small businesses).
- $60 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $500,000 per year ($200,000 for small businesses).
- $100 per information return if you file after August 1 or you do not file required information returns; maximum penalty $1,500,000 per year ($500,000 for small businesses).
If your business doesn’t have a payee’s TIN, you will be required to withhold and submit backup federal income tax withholding at a 28% rate on payments. Therefore, all businesses should have a completed Form
W-9 from all vendors on file. A 1099 must also be filed for any person from whom federal income tax was withheld.
Intentional disregard of payee statement requirements. If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $250 per payee statement with no maximum penalty.
Have Assets in a Foreign Country? If yes, then you need to read this!
Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938.
If you think this may apply to you, please contact us immediately.
Expanded Tax Credit for Hiring Unemployed Veterans
Thinking of hiring new employees in 2012? Hire a Qualified Veteran and receive a Tax Credit!
On 11/21/11 President Obama signed the VOW to Hire Heros Act which provided an expanded work opportunity credit to businesses that hire eligible unemployed veterans between 11/22/11 and 12/31/12. There is paperwork that must be completed prior to the job offer so be sure to let us know if you are considering hiring an unemployed veteran.
Hired a new employee in 2010 and still have them working for you?
Employers who hired an eligible employee from 02/04/10 to 12/31/10 and retained the employee for 52 consecutive weeks may be eligible for a non refundable credit of 6.2% of wages paid up to a maximum credit of $1000 per eligible employee. Please let us know if this applies to you.
2012 Standard Mileage Rates:
Beginning 1/1/12, the standard mileage rates for using a vehicle (including an auto, van, pickup, or panel truck) will remain the same at 55.5 cents per mile for business purposes, 23 cents per mile for medical or moving purposes.
Eight Tips for Charitable Taxpayers
You may be able to take a deduction on your 2011 tax return if you make a donation to a charity this year. Here are the top eight things the IRS wants every taxpayer to be aware of before taking a charitable donations deduction.
- Please make sure the organization qualifies
Your charitable contributions must be only made to qualified organizations to be deductible. You can always ask any organization whether it is a qualified organization and/or check IRS Publication 78, Cumulative List of Organizations. It is available at http://www.irs.gov. Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file their required annual reports for three consecutive years, as required by law.
- What you can deduct
Generally you can deduct your cash contributions along with the fair market value of most property you donate to a qualified organization. Some special rules apply to several types of donated property.
- You have to itemize
Remember charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
- Your Recordkeeping
Keeping good records of any contribution you make, regardless of the amount is most important. For example, for any cash contribution, you must maintain records of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity which contains the date, amount of the contribution and the name of the organization.
- Pledges and payments
Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
- For large donations
For any contribution of $250 or more that you make, you need more than a bank record. You must have a written acknowledgment from the organization. The acknowledgement must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If, for example, you donated property; the acknowledgment must include a description of the items and a their good faith estimate of its value. For items valued at $500 or more you must complete tax Form 8283, Noncash Charitable Contributions, and attach the form to your tax return. If you claim a deduction for a contribution of noncash property worth more than $5,000, then you generally must obtain an appraisal for it and complete Section B of Form 8283 with your return.
- When you receive something in return
If your contribution entitles you to receive goods, merchandise, or services in return – as an example: as admission to a charity banquet or sporting event – then you can deduct only the amount that exceeds the fair market value of the benefit received.
- Donations made near the end of the year
Include your credit card charges and your payments made by check in the year that you give them to the charity, even if you may not pay your credit card bill or have your bank account debited until the next year.
The IRS has raised the standard mileage rate to reflect the recent increase in gas prices for the last six months of the year. The rate will increase to 55.5 cents per mile for business miles driven from 7/1/11 through 12/31/11.
This is a 4.5 cent per mile increase from the rate in effect for the first six months of 2011 of .51 cents. The rate for computing deductible medical or moving expenses will also increase by 4.5 cents per mile to 23.5 cents per mile, up from 19 cents per mile for the first six months of 2011.
As far as the rate for providing services for a charity,, which is set by statute, and remains at 14 cents per mile.
The IRS has a Question & Answer PDF on their website on the issues faced by people who have lost their jobs.
- What income is taxable
- Starting your own business and
- Miscellaneous tax information
If you interested in learning more about this, click on this link.
As we wrote at the end of January, the mileage rate for business travel this year is $.51.
It was recently reported that the IRS has no plans, currently, to increase the 2011 mileage rate of $.51 per business mile, even though the price of gasoline has risen.
We’ll be watching this as you no doubt will too.