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How Much Am I Worth? It Depends Who’s Asking…..

“What am I worth?” is an interesting question because it largely depends on who’s asking and why. An insurance advisor is considering your future. A headhunter is examining your track record and potential.

But if the IRS is asking, you may need some help with specific expertise determine this answer.

Let me explain by taking a step back.

As pass-through entities, S corporations generally do not pay entity-level tax on their taxable income. Instead, taxable income is allocated among the shareholders who report the items and pay the corresponding tax on their personal income tax returns.

This S corporation flow-through income has long enjoyed an employment tax advantage over that of sole proprietorships, partnerships and LLCs. This advantage states that a shareholder’s undistributed share of S corporation income is not treated as self-employment income. In contrast, earnings attributed to a sole proprietor, general partner or many LLC members are subject to self-employment taxes.

Payroll taxes on employers, employees and the self-employed have increased dramatically over the years. As these employment tax obligations have climbed, the advantage of operating as an S corporation has become greatly magnified. Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize salary in favor of distributions, which are also not subject to payroll or self-employment tax.

So if the IRS asks what you are worth as an S Corp owner, you need to play by the IRS’s rules and be ready to defend your self-employment income. Those rules are helpful but not definitive. You’ll need to take a look at the IRS guidelines, combine that with the most recent court cases and lastly do LOTS of research and comparison. As with any other wage determination, you should consider all the available information, and make a reasonable determination that is fully supportable.

It may be hard to believe, but most S Corp owners just give up and guess. The problem with guessing is that without backup for your Reasonable Compensation figure, you have no defense when challenged.

The best advice I can give any S Corp owner is this: Don’t procrastinate and pray. If you are just guessing at a reasonable compensation amount then you have no defense if ever challenged.


EXPRESS PAYROLL
has tons of data and salary comparisons from hundreds of businesses just like yours and has the expertise to help you determine the answer to this very important question when the IRS is asking. We can help get you on the right track.

Express Payroll is run and operated by CPA’s and trained accountants that specialize in the GYMNASTICS, DANCE, SWIMMING, KARATE, MUSIC/ARTS type industries, so we can provide the one-on-one attention and support that a small business owner needs and deserves.  We have the best software product on the market and many of our features were custom built for these type of child focused centers.  We are seamlessly integrated with Jackrabbit’s Time Clock and we have several features that enable owners to delegate the responsibility of processing payroll without allowing them to see what people are paid.   Simply your Life!

Learn more about Express Payroll at www.express-payroll.com. Contact Express Payroll for more information at info@express-payroll.com or 877-774-3327.

IRS to Step up Penalties for Delinquent Payroll Taxes

Employers owed the Internal Revenue Service approximately $14.1 billion in delinquent Social Security, Medicare and individual federal income taxes that they had withheld from employee paychecks as of June 30, 2012, and the Internal Revenue Service is being urged to do more to assess penalties against them.

With no surprise, approximately $13.5 billion of the delinquency related to employers that process payroll on their own or have control over their own tax disbursements.  A very compelling reason to consider outsourcing your payroll is the fact that most employers that are currently processing payroll themselves are utilizing a payroll software program and yet the penalties and delinquencies are still higher than ever.

New reports from the Treasury Inspector General for Tax Administration found that the IRS’s penalty actions against employers who don’t remit payroll taxes are oftentimes neither timely nor adequate. When a business does not remit taxes withheld from its employees, the IRS can collect the unpaid taxes from the individuals responsible by assessing a penalty along with interest.

The report claims that the IRS’s actions were not always timely or adequate in 99 of the 265 cases it reviewed in a statistically valid sample of cases. For 59 of the 99 cases, the untimely actions averaged more than 500 days to review and process the penalty assessment. That’s 1.4 years before the IRS starts their review…..  When the penalty assessments are not made in a timely way, taxpayers’ financial ability to pay can decline and the IRS’s chances of collecting the overdue taxes decrease.

That’s all about to change.  The IRS plans to make programming changes in its Automated Payroll Tax Recovery system to ensure it works more efficiently and it will provide additional training to all their managers. Emphasis is being placed on managers to increase their level of monitoring delinquent cases and ensure that revenue officers take more frequent penalty actions.

Hopefully with the higher level of scrutiny, more training provided to IRS agents and enhanced payroll tracking systems the level of delinquent payroll taxes goes down dramatically over the coming years.

If you are still processing payroll on your own, it may be time to get quotes from third party providers.  Express Payroll is approximately 50% less expensive than national providers, 40-60% less expensive than regional providers and the same price as online self-service software (if utilizing direct deposit).  Get FULL service for self-service pricing! Call or email today at 877-774-3327 or info@express-payroll.com

Image Credit: All Rights Reserved, Stephan Stanfel

 

IRS Sends Notices About “Possible Income Underreporting”

Has everyone seen the new Tax Form 1099-K?  This form started making its way to small business owners two tax seasons ago and the form is sent to businesses by “payment settlement entities” reporting the amount of credit card and other electronic receipts that were processed by your business.

The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business’s total income reported on its tax return. Where the numbers don’t seem to make sense, the IRS sends notices to businesses telling them they “may have underreported gross receipts.” Notices go on to say “This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments.”

The IRS has sent thousands of letters labeled “Notification of Possible Income Underreporting” to small business owners. The notification project is ongoing as part of the IRS’s campaign to deal with the “tax gap,” the difference between taxes owed and taxes actually collected.

Make sure what you report for income on your tax return exceeds the amounts reported on Form 1099-K, but also be sure to verify the amounts reported by your merchant provider – errors have been happening more and more in the last few years.

Read related posts:

Manage Your Business with a Few Key Numbers

2013 Tax Changes for Businesses

Can Happy Employees Equal Healthy Profits?

 

(Photo Credit: Some rights reserved by StudioTempura)

 

How to Spot an IRS Impersonation Scheme

Financial Tips from Sean Dever, CPA

The IRS does not send taxpayers unsolicited e-mails about their tax accounts, tax situations, or personal tax issues. If you receive such an e-mail, most likely it’s a scam.

IRS impersonation schemes flourish during filing season. These schemes may take place via phone, fax, Internet sites, social networking sites, and particularly e-mail.

How do you spot them? How do you spot the wolf in sheep’s clothing? There are clues that help identify scammers.

Many impersonations are identity theft scams that try to trick victims into revealing personal and financial information that can be used to access their financial accounts. Some e-mail scams contain attachments or links that, when clicked, download malicious code (a virus) that infects your computer or directs you to a bogus form or site posing as an IRS form or Web site.

Some impersonations may be commercial Internet sites that consumers unknowingly visit, thinking they’re accessing the genuine IRS Web site, IRS.gov. However, such sites have no connection to the IRS.

If you want to know whether a site is legitimate or if you think you have been the victim of identity theft or fraud, please contact us. We definitely don’t want you to get scammed.

  1. Due Date Reminders for Employers Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.
  2. Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.

This information provided by Sean Dever CPA. Sean provides personal service and expertise at affordable rates for business owners, executives and independent professionals.