taxes - Linkenheimer LLP CPAs & Advisors

An S Corporation Could Cut Your Self-Employment Tax

If your business is organized as a sole proprietorship or as a wholly owned limited liability company (LLC), you’re subject to both income tax and self-employment tax. There may be a way to cut your tax bill by conducting business as an S corporation.

Fundamentals of self-employment tax

The self-employment tax is imposed on 92.35% of self-employment income at a 12.4% rate for Social Security up to a certain maximum ($142,800 for 2021) and at a 2.9% rate for Medicare. No maximum tax limit applies to the Medicare tax. An additional 0.9% Medicare tax is imposed on income exceeding $250,000 for married couples ($125,000 for married persons filing separately) and $200,000 in all other cases.

What if you conduct your business as a partnership in which you’re a general partner? In that case, in addition to income tax, you’re subject to the self-employment tax on your distributive share of the partnership’s income. On the other hand, if you conduct your business as an […]

By Linkenheimer LLP|2021-05-19T17:57:34+00:00May 19th, 2021|business, s corp|0 Comments

California Tax Updates for 4/21

Update 1:

Employers in California who have questions about the Paycheck Protection Program (PPP) get some answers. The April edition of the CA Franchise Tax Board’s “Tax News” addresses whether CA will conform to the federal rules with respect to the PPP, which is part of the CARES Act. The Tax Board said that while income from PPP loan forgiveness is excluded for CA purposes, any credit or deduction allowed for any amount paid or incurred should be reduced by the amount of the exclusion allowed under the PPP. If other changes in CA law related to the PPP arise, the Tax Board will present the new information in its “Tax News.” Here’s more: https://bit.ly/2QsCO19

Update 2:

The 2020 tax year has brought changes to many California tax forms and instructions. That’s why the CA Franchise Tax Board (FTB) has created a tax forms webpage to describe the revisions it has made. Most of the […]

By Linkenheimer LLP|2021-04-21T23:34:09+00:00April 21st, 2021|business, ca, CA tax, california|0 Comments

The President’s Action To Defer Payroll Taxes: What Does It Mean For Your Business?

On August 8, President Trump signed four executive actions, including a Presidential Memorandum to defer the employee’s portion of Social Security taxes for some people. These actions were taken in an effort to offer more relief due to the COVID-19 pandemic.

The action only defers the taxes, which means they’ll have to be paid in the future. However, the action directs the U.S. Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

Legislative history

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act. A short time later, President Trump signed into law the Coronavirus, Aid, Relief and Economic Security (CARES) Act. Both laws contain economic relief provisions for employers and workers affected by the COVID-19 crisis.

The CARES Act allows employers to defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.

By Linkenheimer LLP|2020-09-03T20:02:04+00:00August 24th, 2020|business, New Tax Laws, relief, social security|0 Comments

Conduct A “Paycheck Checkup” To Make Sure Your Withholding Is Adequate

Did you recently file your federal tax return and were surprised to find you owed money? You might want to change your withholding so that this doesn’t happen next year. You might even want to do that if you got a big refund. Receiving a tax refund essentially means you’re giving the government an interest-free loan.

Withholding changes

In 2018, the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks. In general, the amount withheld was reduced. This was done to reflect changes under the Tax Cuts and Jobs Act — including an increase in the standard deduction, suspension of personal exemptions and changes in tax rates.

The tables may have provided the correct amount of tax withholding for some individuals, but they might have caused other taxpayers to not have enough money withheld to pay their ultimate tax liabilities.

Review and possibly adjust

The IRS is advising taxpayers to review their tax situations for this year and adjust withholding, if appropriate.

The tax agency has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized […]

By Linkenheimer LLP|2020-09-03T20:02:15+00:00July 15th, 2020|child, deduction, deductions, individuals, irs, tax planning|0 Comments

Steer Clear Of The Trust Fund Recovery Penalty

If you own or manage a business with employees, you may be at risk for a severe tax penalty. It’s called the “Trust Fund Recovery Penalty” because it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages.

Because the taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is very aggressive in enforcing the penalty.

Far-reaching penalty

The Trust Fund Recovery Penalty is among the more dangerous tax penalties because it applies to a broad range of actions and to a wide range of people involved in a business.

Here […]

By Linkenheimer LLP|2020-09-03T20:02:20+00:00July 7th, 2020|business, income tax, irs, social security, tax planning|0 Comments