Archive for April, 2017

Penalty for Failure to Review Your Form 1040

April 25th, 2017 No comments

The IRS requires that as part of a professionally prepared tax return that the taxpayer review his/her return before it is e-filed. This review process is important because the taxpayer is signing under penalties of perjury that the return and accompanying schedules and statements were examined by the taxpayer and to the best of the taxpayer’s knowledge and belief, that the return is true, correct and accurately lists all amounts and sources of income received during the tax year. It also states that the preparer is preparing the return based on the information received from the taxpayer.

In the tax court case of John J. Sweeney and Donna L. Sweeney v. Commissioner, TC Summary Opinion 2016-32, the taxpayers conceded that they failed to include all of their (unreported) income on Schedule C of their return, but contested the imposition of the IRS 20% accuracy-related penalty.

The IRS audit exam resulted because third-party insurance company payers reported more income on Form-MISC than the taxpayer reported on Sch. C as insurance commission income.

The IRS and the court found the taxpayer’s numerous arguments frivolous and without merit. The taxpayer acknowledged that he had received the unreported income and could offer no explanation as to how he arrived at the amount of income shown on his Sch. C. In fact, the taxpayer acknowledged that the reported gross receipts “couldn’t possibly be right.”

The taxpayers argued Read more…


Need To Make an IRS Tax Payment

April 18th, 2017 No comments

Since today is the due date for filing 2016 Form 1040, some taxpayers are going to find themselves worrying about filing their returns and paying the balance owed on 2016 taxes. Let’s attempt to reduce some of that stress.

First, if an individual files IRS Form 4868, he can receive an automatic extension of time to file his 2016 tax return until October 16, 2017. The filing of this Form 4868 provides the taxpayer an additional six months to file his 2016 tax return without incurring late filing penalties.

However, the IRS does not grant extensions of time to remit the taxes due. The remaining tax liability will be subject to late payment penalties if not paid by April 18. In other words, you can file your return after April 18 if an extension is timely filed, but all taxes are due April 18. If you cannot pay the full amount due, you should Read more…


Missing a W2 . . . Try These Helpful Hints

April 11th, 2017 No comments

Most taxpayers got their W-2 Forms by the end of January. Form W-2, Wage and Tax Statement, shows the income and taxes withheld from an employee’s pay for the year. Taxpayers need it to file an accurate tax return.

If a taxpayer hasn’t received their form by mid-February, here’s what they should do: Read more…


Husband and Wife LLC?

April 4th, 2017 No comments

We recently spoke to a new business owner (not a client) and he told us that he had formed a single member LLC (SMLLC) that was owned by him and his spouse. We informed him that a “single” member LLC means exactly that, it has a single owner. Thus, he and his wife could not be joint owners. When we inquired if he had filed a partnership return, he responded that he had filed his business return on Schedule C of Form 1040. And he assured us that everything was done correctly because he had hired an attorney to form the LLC.

Since curiosity got the better of us, we researched his LLC on the PA Dept. of State website and saw that he and his wife were organizers for the LLC. While a single-member LLC can have multiple organizers, it can only have a single owner. When we shared this with the business owner, he said that he was fairly certain that he and his wife were owners, thus perhaps they were a partnership. Unfortunately, this scenario is not atypical as many business owners do not understand their business structure.

We also recently read a discussion between CPAs as to whether a husband (H) and wife (W) can be joint owners of an LLC. There were some who believed it was doable, others disagreed. Thus, there are CPAs and likely other professionals who do not understand the tax rules regarding LLCs and spousal ownership.

The rules are quite clear. If you have a SMLLC, it can only have one owner. By default, it is classified as a sole proprietorship by the IRS. The SMLLC, if it desires, can request to be treated as a C Corporation or an S Corporation. Read more…

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