Here are six tips for new business owners.
Choose a business structure. The most common business structures are:
- Sole proprietorship: an unincorporated business owned by an individual.
- Partnership: an unincorporated business with ownership shared between two or more people.
- Corporation: also known as a C corporation. It’s a separate entity owned by shareholders.
- S Corporation: a corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
- Limited Liability Company: a business structure allowed by state statute.
Choose a tax year. A tax year is an annual accounting period:
- Calendar year: 12 consecutive months beginning January 1 and ending December 31.
- Fiscal year: 12 consecutive months ending on the last day of any month except December.
Apply for an employer identification number:
- It’s used to identify a business.
Have employees complete these forms:
Pay business taxes:
- The form of business determines what taxes must be paid and how to pay them.
Visit state’s website:
- Prospective business owners should visit their state’s website for info about state requirements.
The tax deadline was July 15 this year. Taxpayers who submitted an extension have until Oct. 15 to file and do not face the failure to file penalty if they file their taxes by the deadline.
But taxpayers need to remember that an extension to file is not an extension to pay. Any taxes owed after the July 15 deadline are subject to the failure to pay penalty and interest.
Those taxpayers who didn’t request an extension, and still owe taxes, face both the failure to file and failure to pay penalties.
The penalty for not filing a federal tax return by the due date, or extended due date, is generally 5% of the unpaid tax for each month that the tax return is late, up to 25% of unpaid tax.
If return is more than 60 days late a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is $435 or 100% of unpaid tax whichever is less.
Remember, if a refund is due, no penalty is charged on the late return filed.
The Coronavirus Aid, Relief, and Economic Security (Cares) Act can help eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRA’s.
Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRA’s or workplace retirement plans before December 31, 2020, if their plans allow. In addition to IRA’s this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.
These coronavirus related withdrawals:
- May be included in taxable income either over a three-year period (one third each year) or in the year taken, at the individual’s option.
- Are not subject to the 10% penalty on early distributions that would otherwise apply
- Are not subject to mandatory tax withholdings
- May be repaid to an IRA or workplace retirement plan within 3 years
Who is eligible?
- The individual is diagnosed with the virus SARS-CoV2 or with coronavirus disease 2019 (collectively COVID-19) by a test approved by the Center for Disease Control
- The individual’s spouse or dependent is diagnosed with COVID-19 by such a test
- The individual experiences adverse financial consequences as a result of
- The individual being quarantined, furloughed or laid off
- The individual’s spouse or a member of the household being quarantined, furloughed or laid off
- Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19
The IRS today reminds taxpayers who took advantage of the People First Initiative tax relief and did not make previously owed tax payments beginning March 25 through July 15 that they need to restart their payments.
As the IRS continues to reopen its operations across the country, taxpayers who were in payment agreements and skipped any payments from March 25 and July 15 should start paying again to avoid penalties and possible default on their agreements.
If a taxpayer can’t meet their current agreement terms due to a COVID related hardship, then they can revise the agreement on IRS.gov/paymentplan or call customer service on their IRS notice if they have a direct debit Installment agreement.
The Internal Revenue Service today announced that anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now have the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020.
The 60-day rollover period for any RMDs already taken this year has been extended to Aug. 31, 2020, to give taxpayers time to take advantage of this opportunity.
The CARES Act enabled any taxpayer with an RMD due in 2020 form a defined-contribution retirement plan, including a 401 (k) or 403(b) plan, or an IRA, to skip those RMD’s this year. This includes anyone who turned age 70 ½ in 2019 and would have had to take the first RMD by April 1, 2020. This waiver does not apply to defined benefit plans.
An IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by Aug. 31, 2020. The repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.
The Internal Revenue Service Office of Chief Counsel is expanding its Virtual Settlement Days program after the tremendous success achieved by three offices that took Settlement Days events virtual in May 2020.
Settlement Days events are coordinated efforts to resolve cases in the United States Tax Court (Tax Court) by providing taxpayers not represented by counsel the opportunity to receive free tax advice from Low Income Taxpayer Clinics, American Bar Association, volunteer attorneys and other pro bono organizations.
Taxpayers are often able to amicably settle their tax disputes without a trial. They helped dozens of taxpayers settle their court cases.
Virtual Settlement Days events take advantage of WebEx audio-visual conferencing software to allow taxpayers to join events from any location, including their homes.
The response to these programs have been overwhelming, and encouraged the IRS to expand this initiative.