TaxMamas TaxQuips: Tax Quips

Paying Quarterly

Eva Rosenberg — Tue, 14 Jul 2009 06:15:00 -0700

Today TaxMama hears from Bill in California, who tells us. “I am age 59 ½ and a recently retired federal employee (March 09). There is federal withholding on my pension, But I must file estimated taxes to the state of California on a quarterly basis. How can I file and pay?”

Dear Bill,

Congratulations on your early retirement. Hopefully, your pension will provide enough income to support through your many years of retirement.

The forms you use to pay California estimated tax payments are called the 540-ES forms. Each voucher has the mailing address on the bottom of the form.
http://www.ftb.ca.gov/forms/2009/09_540es.pdf
California also has a WebPay option with no convenience fees:
http://www.ftb.ca.gov/online/webpay/index.asp

Folks living in other states can find your ES forms by clicking on your state, here: http://www.taxadmin.org/fta/link/forms.html

And remember, you can find answers to all kinds of questions about estimated tax payments and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
California Form 540-ES :: Quarterly Estimated Tax Voucher
TaxAdmin website :: Links to all state tax forms

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Must I File a Tax Return?

Eva Rosenberg — Mon, 13 Jul 2009 05:53:00 -0700

Today TaxMama hears from Rick in Las Vegas who tells us. “I know that if you don’t owe any tax you don’t have to file even if you have income. How about if you do owe tax, but your withholding was in excess of what you owe? Is it a requirement that you file?”

Dear Rick,

That’s an interesting question. Your premise isn’t exactly right.

IRS says that you do not need to file a tax return if your income is below certain thresholds – not simply ‘you don’t owe any tax’.

Do you have to file a tax return if you do have taxable income, but your withholding is higher than your tax liability? The law says you must file the tax return. After all, unless you file, IRS can’t release their share of your withholding into the general fund for three years. The money is locked up in limbo in case you’re entitled to a refund.

However, as a diligent taxpayer, I certainly don’t mind if you don’t file to retrieve your refund. It’s certainly patriotic of you to leave your refund there for our legislators to mismanage.

Fundamentally, anytime you do not file a tax return for any year, you leave that year open to audit forever. When you do file a tax return, IRS may only open that year for audit for the next three years. (6 years if the tax return has substantial understatements.) So TaxMama® always advises folks to file a tax return whether you need one or not.
And remember, you can find answers to all kinds of questions about filing requirements and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

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Time Limit For Taxes

Eva Rosenberg — Thu, 02 Jul 2009 06:05:00 -0700

Today TaxMama hears from James in Arizona with a quick question. “Is there a statute of limitations on collecting back taxes?”

Dear James,

There are several limits – or no limits, depending on how you look at it.

In general, the federal limit (IRS) is 10 years after the tax has been assessed.

But that 10 years can be expanded, if you’ve filed for an offer in compromise, Tax Court petition, bankruptcy… It can start over if you’ve filed an amended return, or if IRS has reassessed the balance due via a correction letter or audit.

It can also be extended if you sign an agreement to give IRS more time to collect. Believe it or not there are times when that is wise.

And there is no statute of limitations if you’ve never filed the tax return at all.

Then there are state limits. Each state has their own rules. In some cases, the statute of limitations can be 30 years – practically an entire adult lifetime for some folks.

What can you do to find out the statute of limitations on your balance due? Easy, call your taxing authority and ask them. They will tell you.

I’ll bet this a lot more than you wanted to know!

And remember, you can find answers to all kinds of questions about tax debt and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
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Small Business Software

Eva Rosenberg — Wed, 01 Jul 2009 06:28:00 -0700

Today TaxMama hears from Leah in Georgia who wants to know. “What is the best small business tax software? I have doubts about QuickBooks and Quicken for business.”

Dear Leah,

Hmm…I can understand your doubts about QuickBooks and Quicken as tax software, since neither of them are. They are bookkeeping programs. Tax programs, for professional use, include software like ProSeries, Pro fx, Drake, ATX and more, programs you can find here: http://taxsites.com/software.html

Are you asking about the best software to use for bookkeeping? That’s a different matter. The best software depends on the level and complexity of information a company needs. You can get accounting programs costing several thousand dollars, or just a couple of hundred dollars. http://taxsites.com/software2.html

You’re right about Quicken. I see it used for business. But the reports are a total pain. Too much personal stuff gets mixed into it. It is terrific for managing and understanding personal finances. And it has some nice features I particularly like. But..no – not for business.

Personally, for working with small business offsite, I prefer QuickBooks online.
http://www.taxquips.com/index.php?id=552

Why? Without having to visit the client’s office or business location, I can do all the bookkeeping from my office. We can get on the phone and look at the same information at the same time. They don’t have to stop working, while I have their books – and I am not limited to the accounting adjustments in the accounting back up of QuickBooks.

Besides, everyone seems to be traveling for business these days. My clients can log in from anywhere in the world and enter their daily cash expenses, or issue checks.

It’s gotten much faster and more versatile than it used to be. AND, now you can convert a regular QuickBooks file to the online version when you set it up. That was not a possibility in the past.

The software has always been flexible. You can always make entries for prior periods, out of order – so you don’t have to wait until you have all the check information or invoice information. You can correct entries when you reconcile the checkbook. And if you learn all the capabilities of the system, you can use QuickBooks for just about any kind of business and generate just about any kind of reports. Those are just some of the reasons why I prefer it.

Stay tune to TaxQuips #1269 the comments from other tax and accounting professionals for their favorite software.
http://taxquips.com/index.php?id=1269

And remember, you can find answers to all kinds of questions about bookkeeping and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
TaxSites.com :: List of Tax Software
TaxSites.com :: List of Accounting Software
TaxQuips #552 :: Review of QuickBooks

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Racing Sponsorship

Eva Rosenberg — Tue, 30 Jun 2009 06:03:00 -0700

Today TaxMama hears from Craig in California with this question. “I’m a kart driver, who is going to be doing a lot of racing in Europe in 2010. My budget and sponsorship money that I’m expecting to receive is in the 5 to 6 digits. Do I have to pay taxes on the sponsorship money I receive from companies or corporations? I receive it only once, and it covers the whole year. How does that work?”

Dear Craig,

Congratulations! How wonderful for you that you were able to raise the money to cover your expenses for a whole year.

Basically, sponsorship money is for advertising rights. Your sponsors want to see their logos all over your uniform and/or vehicles. It’s income. Naturally, you have to pay tax on it.

However, first you get to deduct all your expenses. For instance, all the maintenance and tires and parts on the vehicle that get expended with each race. Your staff, if you have permanent American staff, should be on payroll. If you pick up local staff, keep meticulous records about how much you pay them – and the dates. You will need to convert the local currency to US dollars for tax purposes. There are online tools you can use, as long as you have the dates – or an average conversion rate for the year – like OANDA – http://www.oanda.com/

Keep track of all your travel and meals via a log that spells out just where you are each day. By tracking the dates, you may be able to take advantage of per diem rates for hotels and meals that might turn out to be higher than what you actually spent. Be sure to track meals separately, since only 50% of meals dollars are deductible.

Track all the tips and other cash expenses you incur. Don’t forget transportation, shuttles, cabs, etc. If you track every dime, date and location of your trip, by the time the year ends, you won’t be showing much profit. You only pay taxes on the profit – not the full sponsorship money. Note: The Tax MiniMiser in The 100% Home-Based Business Tax Solution would be perfect for you.

Incidentally, since all the expenses are in 2010, see if they can hold off paying you the bulk of the amount until after January 1, 2010. In 2009, collect only what you will be spending during 2009 to set up the car and the races.

Good luck in your races!

And remember, you can find answers to all kinds of questions about racing income and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
OANDA :: The currency conversion and information site
The Tax MiniMiser :: Included with the 100% Home-Based Business Tax Solution

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Expiring Homeowners Credit

Eva Rosenberg — Fri, 26 Jun 2009 07:54:00 -0700

Today TaxMama hears from Penny in Kansas who is confused. “Have you heard anything about the new home tax credit having to be used by Monday, June 29, 2009? A couple of realtors have told clients that the money’s running out. If we are going to get the credit, they must get it by Monday.”

Dear Penny,

That’s utter nonsense.

They’re just trying to accelerate their sales, perhaps to win monthly bonuses at their offices…or just to pressure people to make offers and close escrows. Who knows what goes on in the minds of real estate agents who have to stoop to lying to generate a sale?

Relax. Take your time and find the perfect house. It is, after all, a buyers market this year. You can use the credit for any first-time home purchase until November 30, 2009. In fact, there is even talk on Capitol Hill about expanding the credit to $15,000 and removing the first-time homebuyer stipulation. That’s just talk so far. So don’t bank on it.

Now, perhaps there is a STATE credit in Kansas that’s expiring?

Though, I cannot find one.

And remember, you can find answers to all kinds of questions about the first time homebuyers credit and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online

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Unused Corporation

Eva Rosenberg — Thu, 25 Jun 2009 06:34:00 -0700

Today TaxMama hears from Luz in California with this problem. “I opened a corporation in 2001 but I never used it. I never filed tax returns. I didn’t even know how it works! Now I just learned that the state charges a fee for year that it is open. Is there a way or a law that I can reference to close the corporation and dismiss the past years?”

Dear Luz,

You’re in luck. You came to exactly the right person to help you.
The State of California wants you to believe that you must file each back year and pay the annual $800 fee AND all the penalties and interest related to that fee. However, in the Court’s discussion of the Ralite case, the Court made it clear that if the corporation is insolvent, it cannot be required to pay the back taxes. http://www.boe.ca.gov/legal/pdf/90_sbe_004.pdf

As to holding the owners liable?

In Ralite, the owners were held liable. But the Court said the owners can’t be held liable if the owners of the corporation did not get any money from the company without consideration. In other words, if the shareholders took loans out from the company without repaying them – or got paid without doing any work.

In your case, you never funded the corporation. And you never drew money out. So just write the Franchise Tax Board a nice letter, saying that under the Ralite case you are not obligated to pay the corporation’s debts.

File a final return showing zeroes on all the lines. Check the box as FINAL RETURN to stop any new assessments.

Do NOT file the dissolution paperwork with the State Franchise Tax Board or Secretary of State. The dissolutions papers require you to accept liability for the corporation’s debts. So just be patient. The notices will stop. Someday.

Though, you may want to have your tax professional help you with this. After all there is well over $6,000 at stake here.

And remember, you can find answers to all kinds of questions about dissolving corporations and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
State Board of Equalization :: Ralite Case

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Complete List of Deductions

Eva Rosenberg — Wed, 24 Jun 2009 06:06:00 -0700

Today TaxMama hears from William in Florida with this request. “My wife is in school and doing her practicum in psychology. She is working for a nonprofit and considered a independent contractor. She was told she could take certain tax deductions such as mileage, cell phone etc. And I would like to get a complete list.”

Dear William,

There is no ‘complete list’ of business expenses.
What’s this complete list nonsense people keep asking about? Some people can take deductions that other people cannot based on the nature of their business and its activities.

What you can deduct, is based on what you spend that is business related. If what she spends is not for her business, it’s a personal expense. That’s pretty straightforward.

You can find more information about that in IRS Publication 334 the tax Guide for Small Business http://www.irs.gov/publications/p334/

But you’re asking the wrong question. It’s not the expenses that really matter. It’s all the loopholes, like ways to make it possible to deduct the cost of health insurance and medical care; education costs, pensions and more.

You can find that kind of guidance in Small Business Taxes Made Easy.
http://www.taxmama.com/AskTaxMama/book/

Even though the specific forms and limits in the book are far out of date, the concepts and strategies are not.

And remember, you can find answers to all kinds of questions about business expenses and other tax issues, free. Where? Where else? At TaxMama.com

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
IRS Publication 334 :: The Tax Guide To Small Business
TaxMama's Book :: Small Business Taxes Made Easy.

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Independent Contractor Option

Eva Rosenberg — Tue, 23 Jun 2009 06:25:00 -0700

Today TaxMama hears from Dianne in California with this question. “I am a contracted bookkeeper for a non-profit group in CA. One of my contractors has accepted employment with the same organization in a position that is typically paid through payroll, but wants to continue to be paid using the 1099 method. Is this going to cause a problem for the employer? It is already causing problems among the employees.”

Dear Dianne,

How charming of this fellow to think it’s his option! It’s not.

This is a job – not a freelance contract. He’s on payroll. Period.

If he wants to work badly enough, he’ll accept the position on those terms.

Your organization may want to be soft-hearted and give in to him. What will happen?

When and if he gets laid off, or gets ill or disabled, he will file a claim with California’s EDD. He will say he was an employee. EDD will review the case. They will agree. They will access back taxes, penalties and interest. They will assess those charges all the way back to the day he was employed.

And this will happen. It always happens. Really it does. He’s an employee. If he balks, cheerfully remind him how many other people are unemployed and just waiting for a shot at that position.

After all, he already knows he’s disrupting the workplace and it doesn’t bother him. What does that say about him?

And remember, you can find answers to all kinds of questions employment issues and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online

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California Budget

Eva Rosenberg — Mon, 22 Jun 2009 06:36:00 -0700

Today TaxMama hears from CJ in Concord, California has an urgent request. “Time is short on this one! Do you have any information about a bill being put before the California legislature tomorrow – (June 22) that would allow the state to have 3% in taxes withheld from payments to independent contractors, independent distributors, etc.? If so, can you recommend quick ways to protest this to the appropriate people?

Dear CJ,

Anytime you want to contact your California legislators, just go their websites and send them an e-mail. Better yet – call their offices! Or fax them – so they have a written record of your stand on the legislation.

Incidentally, according to an alert from Spidell – caltax.com, it seems that Governor Schwarzenegger is opposed to the independent contractor withholding. So send him a fax too, to let him know you support his position.

The governor’s contact is here: http://gov.ca.gov/interact#contact

You can find your Senators here: http://www.sen.ca.gov/~newsen/senators/senators.htp

The Senate committee memberships – look for Budget Committee ftp://leginfo.public.ca.gov/pub/dailyfile/sen/senate_committees

And your Assembly members here: http://www.assembly.ca.gov/acs/acsframeset7text.htm

The Assembly committee memberships – look for Budget Committee
ftp://leginfo.public.ca.gov/pub/dailyfile/asm/assembly_committees

And other California legislative information here: http://www.leginfo.ca.gov/yourleg.html

Those of you not in California, who have issues coming up this summer, and there will be many new issues with states in financial trouble. You can find your own legislators by Googling the name of your state and the word “legislature”.

And remember, you can find answers to all kinds of questions about affecting and other tax issues, free. Where? Where else? At TaxMama.com

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
Spidell Publishing Inc :: California Tax Resources
Governor Schwarzenegger :: Contact information
California State Senators :: Home pages and contact information
The Senate committee memberships :: look for Budget Committee
California State Assembly :: Home pages and contact information
Assembly committee memberships :: look for Budget Committee

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