Businesses on the cutting edge of technology may kick off the new year with a "sharing economy" workforce approach. Businesses that use a web-based approach to offering services, including the rental of tangible personal property, may qualify for the benefits related to this relatively new classification. Be aware of the IRS' requirements and the related rules for the best business practices and for preparedness in the event of an audit.
On February 19, 2016, California Assembly Member Lopez introduced Assembly Bill No. 2625 to amend certain sections of the Revenue and Taxation code related to the annual minimum franchise tax and microbusinesses. Specifically, it would reduce the annual tax for qualifying new microbusinesses according to a sliding scale, up to $600 annual tax for businesses with gross receipts less returns and allowances of more than $100,000 but less than $150,000.
In recognition of Small Business Week May 4-8, 2015, the IRS has highlighted special tax information regarding self-employed landscape and gardening professionals, including the webinar "Business Taxes for the Self-Employed: The Basics." Topics included are:
On March 18, 2015, the Treasury Inspector General for Tax Administration ("TIGTA") issued a report to the Large Business, International Business, and Small Business/Self-Employed Divisions of the Internal Revenue Service. The report was the result of a review of the IRS's partnership audit process, which revealed a lack of adequate performance measures. TIGTA noted that is has been more than 20 years since the IRS conducted a comprehensive compliance study on partnership, making it difficult to gauge the productivity and success of the IRS's partnership audit process.
An estimated 40 percent of small businesses outsource payroll tasks to third-party payers, delegating the responsibility to withhold and pay over Federal employment taxes to the IRS. Unfortunately, some third-party payers withhold the tax through payroll, but instead of paying it to the IRS, they pay it to themselves! This scam may go undetected for a lengthy period of time before the employer becomes aware of the problem, particularly if the defrauding third party is sophisticated in presenting copies of documents that purport to prove the tax has been paid. Ultimately, when the IRS contacts the employer for the payment of tax, the employer suffers a great hardship because although the money was expended, the tax is still unpaid and due.
"Self-employed" individuals include sole proprietors and independent contractors. The Self-employment income can include income you received for part-time work. This is in addition to income from your regular job. According to the IRS, there are a few things to keep in mind in reporting income. (http://www.irs.gov/uac/Are-You-Self-Employed-Check-Out-These-IRS-Tax-Tips)
According to the Internal Revenue Service (IRS), it will hold two free webinars for small businesses on this year's "Small Business Week," May 12 to 16. The Webinars focus on several key tax benefits and a special relief program for employers who reclassify their workers as employees.
Last December, the Second District Court of Appeal for California ruled in Cutler v. Franchise Tax Board that a California business incentive program violated the US Constitution's Commerce Clause. The program was enacted 20 years ago to allow investors selling stock in a qualified small business to be taxed at half of the state's capital gains rate or to roll the proceeds into a new qualified small business within 60 days of the sale. In order to qualify for the tax break, 80% of the business's payroll at the time the stock was purchased must have been within California and 80% of assets and payroll must have been within California during the taxpayer's holding period. This tax incentive was designed to encourage the establishment of small businesses in California. The Court found California's tax incentive unconstitutional saying it discriminated against out of state businesses.
The IRS is contacting small businesses based on a determination that close to $450 billion of taxes goes uncollected and approximately $140,000 billion of that amount is owed by small businesses. By identifying small businesses with high credit card sales, the IRS is confirming that cash sales are not being under-reported. For more details, see the CNN Money article written by Jose Pagilery.
It may not surprise anyone that the IRS has developed a software application to help them identify people that may be cheating on their taxes. According to some, this program has indicated that small businesses have a tendency to cheat on their taxes at a higher rate than most. Many of those small businesses that end up being subjected to audits are said to be located in California.