Are you an employer? Are you and employee? I own my own business. I am both. I wear both hats. Recently I spoke with a client who also is an employer. He has employees. And he has a problem with one of his employees. I have learned so much over my varied career. I want to share with you what I’ve learned to help you have a better workplace. Now I don’t have all the answers. No one does. But see if you experienced any of what I experienced.   Savings Comes In Many Forms… While BulletProofYourTaxes is all about saving you money, some of that money is on the tax side; some of that money is on the business expense side. If you can save a dollar of expense, you might pay a little more in tax, but you are still money ahead. Like me, and like many of you, my client had been an employee before he had become an employer. When he hired his own employee he was so grateful to have help in his office so he could do what he did best. Let’s make it simple and call him Jack. And let’s make his office helper a woman and call her Jill. What’s the first thing any employer today must do? There are so many “firsts”. Let’s start with the paperwork. First have your employee complete the Form W4, Employee’s Withholding Allowance Certificate and corresponding state withholding form for you state if you are in a state that imposes an income tax. Then together you complete the Form I-9, Employment Eligibility Verification. In Arizona we must notify our Arizona Department of Economic Security of all new hires or re-hires so they can let us know if child support payments must be diverted from the worker’s paycheck. I recommend you check with your own state about their particular requirements. All of these forms will contain the employee’s name, address and social security number. So it is critical that you protect this information from potential identity theft. And your weekly pay check information will be used to prepare the quarterly reports, federal tax deposits and year-end W2 forms. I advise you, as I do my own clients, to make sure you have this paperwork in your files BEFORE you write that first paycheck. This gives you the documentation you need to protect your payroll deduction.   An Ounce of Prevention… Some of my clients who didn’t understand they could TALK with me before hiring that first employee also didn’t get the W4 before they wrote that first paycheck. And then another paycheck was written. And then another payday came around. And no W4 was ever obtained. And the employee quit. Do you think the employer can get that social security number now? Uh, no. Oops. Don’t let this happen to you. Now you might wonder, well, can’t you just treat this no-W2 person as an independent contractor responsible for reporting their own income and paying their own social security tax and income tax. No. Because you had control over where the job was done, when the job was done, how the job was to be done, this person was an employee. And you, the employer, have to be sure to fulfill your paperwork responsibility.   More TALK! Another important first actually happens in the interview process, before the actual hiring is done. TALK. Communication is the key here. It is imperative that YOU know what you want this employee to do for you. You must clearly communicate your expectations to that prospective employee. How can they possibly do the job you want them to do if you don’t let them know what you want done and how you want it done. I had many different jobs before joining the government ranks. And I worked for the City of Phoenix before I worked for the United States Government. Each had their own chain of command, their supervisors, their “bosses”. I was privileged to be part of a hiring team. And remember an applicant who drove all night from California for a morning interview in Phoenix, Arizona. I felt bad for the applicant and really wanted to give him a chance, when my boss asked me if I really felt he was our best choice for the job. This same manager had earlier shared with me her need to fire an employee who was not satisfactorily doing the job that needed to be done. It was difficult firing that person. But years later that same terminated employee came back to thank her. He really had not been well-suited for the job and being fired allowed him to find a job that suited him better. That was the happy ending, but the middle of that story had been rough.   What To Do During a period of unsatisfactory performance you want to have a performance review. Have an interview, a conversation, TALK with your employee. Re-visit the job description. Restate your expectations. Ask what is the problem. Ask how you can help them meet your expectations. If it should happen that you terminate this employee, you want to be sure you have in your files documentation (there’s that “D” word again) to support your action. If this employee should file for unemployment benefits, you want to be able to defend your decision and to keep your business from incurring a rise in your unemployment tax expense. I wish everyone had the job that was just perfect for them. I remember reporting for work every day and wishing I could just win the lottery so I could quit. That is not they way we are supposed to live our lives. I didn’t expect that miracle, so, of course, it never happened. I just changed my attitude and learned how to improve my own situation.   It’s All About Saving You Money! The whole purpose of this blog is to help you be aware that being an employer is more than just writing a paycheck, paying your employment taxes, and issuing a W2 at the end of the year. We have just begun the 4th and final quarter for 2012. 3rd quarter employment reports are due at the end of this month. W2 forms are due out before the end of January. Do what you need to do to be on top of your employment game.   To your lowest legal tax, Nellie Williams, EA  

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  Oh, no. I owe! I owe the IRS.  What do I do now? Is there any hope for me? Will I go to jail? Will I lose my house? Will they take my car? Will they take my retirement account? What can they do to me?   You Have Options Yes, the IRS is very powerful. But you do have some options. You have some choices. If you can pay your taxes in full that is the best solution. But if you cannot pay your taxes in full, the Internal Revenue Service will generally accept payments. After you file your return with taxes due, the IRS will send you a bill for that balance due. AND by law they must charge you interest until the taxes are full paid. AND there may be penalties assessed and added depending on your particular situation. Sort of like “name your price”, you can file a Form 9465 with your return (or after you file your return) to request an installment agreement. You tell the IRS how much you want to pay each month AND which day of the month you want you payment to be due. The IRS has a whole team of people in the Collection Division that will contact you on a regular basis when you owe tax. How long can the IRS Collection Officer come after me? There is a 10-year Statute of Limitations on IRS collection activity. If you are counting the minutes until that time clock stops ticking, you first have to know when that time clock began ticking. If this is you, I encourage you to seek qualified professional tax collection advice.   What Can They Collect? Can the IRS freeze my bank accounts? Can the IRS seize my car? Yes and yes. What is the difference between a lien and a levy? A lien is what is placed on property, whether personal property, like your car, or real property, like your residence or vacation home. A levy is placed on your financial accounts, your bank accounts, your retirement accounts. And the IRS can also garnish your wages to satisfy your tax debt. Now even your employer is involved. The IRS has a formula for determining your ability to pay your balance due. They will evaluate the amount of cash you have on hand and the amount of money you have in the bank. They will look at the value of your real estate and the value of your vehicles and the value of your retirement accounts. The IRS will also look to see if you have the ability to pay. Your ability to pay is based on two things: 1) your net equity in assets and 2) your ability to make monthly payments. The Collection Officer will look at your gross monthly household income. And then the Collection Officer will look at your expenses. The financial reports you must file are very detailed. The Internal Revenue Service can make certain allowances for fairness. There are national standards for personal living expenses based on the size of your family and where in this country you live. There are also allowable expenses for housing, for vehicles, for medical expenses, for income taxes, for court-ordered payments like alimony and child support.  After all of these allowances is there any money left? This is called net disposable monthly income. The IRS will want that disposable income. It is possible that you fall into a category called “currently not collectible?” If this is your situation, the IRS collector will be able to put a hold, or a pause, on their collection efforts. It you have been placed in not collectible status, the collector will review this status periodically.   It’s Not the End of the World It may be serious, but it doesn’t have to be the end of the world. The IRS also has what they call Offer in Compromise. You may be able to compromise your tax bill by offering to make a lump sum payment. There are lots of rules around OIC, but your collection expert representative will help you master this maze. I am a former IRS Tax Auditor. I worked in the Examination Division of the IRS. I left the IRS to open my own tax practice. I prepare tax returns and I represent taxpayers who are being audited. I do not have IRS Collection Division insider knowledge. When my clients owe tax and are unable to make a full payment or pay it off in just a couple of payments, I encourage them to seek the advice of one of my colleagues with Collection Division expertise. Some of them are former collectors, who also left the IRS and are now on your side on the outside. Some have developed their skills based on their dealings with the IRS. Either way, you need some one who knows the rules of IRS collection so you can play that game to win, too.   Always to your lowest legal tax,   Nellie Williams. EA Bullet Proof Your Taxes

Benjamin Franklin said, the only guarantees in life are Death and Taxes. Do I have to pay taxes after I die? I thought taxes would end when I did! While we are earning money, we get a W2 or a 1099 and we pay INCOME TAX. When we have investments that pay us interest income or dividend income or we sell an investment for a profit and have a capital gain we pay INCOME TAX. When we are retired and receiving retirement benefits we may pay INCOME TAX. And now you tell me I might have to pay taxes even after I die? If you leave too much money behind when you leave this earth, you may be subject to ESTATE TAX.  

I have a Will

“But I have a will. Doesn’t that make a difference?” A will is a legal document that determines how your assets are distributed after your death. Do you remember the board game Monopoly? “Go to Jail. Go directly to Jail. Do not pass Go. Do not collect $200.” Well, with a will you “Go to Probate. Go Directly to Probate… ” What is probate? According to Wikipedia, a probate court decides the validity of a will and grants its approval to the executor The executor is the person charged with having the legal power to dispose of your assets in the manner specified in the will. The court wants to make sure your wishes are followed. And probate takes time – sometimes a lot of time and it can take money for legal fees. Creditors need to be notified and given time to present their claims. Legal notices will be published to avoid IRS problems.  

I Don’t Have a Will

As many as 55% of Americans die without a will. Have you ever heard that making no decision is still a decision? Families are supposed to love one another, but things can get ugly very quickly when MONEY is involved. According to Morning Star.com, “If you don’t [have a will], the state will decide how your assets are distributed, and even who will be the guardian of your minor children. And once you have a will, it’s important to make sure it’s clear and up to date.”  

Advantages of a Trust

Why do I want to think about a trust? What can a trust offer me that a will cannot? Who never heard of Elvis Presley? He had a will. When he died in 1988 his estate was valued at over $10 million. The probate process fees and taxes cost over $7 million! His family would have received much more if he had had a trust. A trust is private, you avoid probate and IRS problems. While a will can be contested in court, it is much harder to challenge a trust.  

My Experience

This discussion is based on my own experiences and learnings. I am not an attorney and am not offering legal advice here. I do heartily recommend you consult with a legal professional when drafting important documents. I have worked with attorneys and other professionals to help my clients consider all the critical points in making their important decisions. My brothers and I were so very fortunate that our own parents had a Revocable Living Trust, an RLT. Revocable means that while my parents were alive they could revoke it, they could make changes. It was a living document while they were living. When my dad died, it became irrevocable. He wasn’t alive to make changes anymore. My mother became the sole owner of what had been their joint assets. Included in their RLT were a power of attorney for each of them while they were alive. There were medical powers of attorney for each of them so their medical care could be directed as they would have wanted if they were unable to voice that themselves. The trust document was clear about their end of life wishes. Each of my parents could specify what they wanted for themselves. After our mother’s death, I was appointed by their trust to see that her wishes were carried out according to her desires. Thankfully my brothers and I did not quarrel. We were able to distribute the assets fairly. Yes, there was sadness. But there was no battling. My parents did not have an estate large enough to have to pay any taxes at either death. They avoided the ESTATE TAX. But my brothers and I inherited. Did we have to pay an INHERITANCE TAX? There is no tax when you inherit property. There can be INCOME TAX if that inherited property provides you with income, like interested or dividends, like rental income, or like capital gains if you sell inherited property at a profit.  

The Bottom Line

Taxes do not always have to be paid at a death. But like anything else in life, it is better to have knowledge in advance so if you have a choice, you can make an informed decision and avoid IRS problems.   To your lowest legal tax, Nellie Williams, EA Bullet Proof Your Taxes