Small Business Profit Maximizer!

Why Should I Care About Good Accounting Records?

After all this time it still amazes me that business owners don’t understand the importance of having good records. As often as I have run into it over the last 30+ years, it shouldn’t anymore. They usually hire a bookkeeper and a CPA to do their taxes and then forget about it.

The problem – it’s not enough. I truly believe that a business where the owner understands the importance of good numbers is one of the main things that separate successful businesses from those that fail.

So – let’s try again. The following are the main reasons that every business owner should make having accurate, timely financials a priority:

• Lack of adequate record keeping is a major cause of business failure.I
• If you don’t understand your numbers, you can’t manage them.
• Good accounting records provide the data needed for owner to make informed, data-driven decisions.
• Businesses with good accounting records are less likely to overpay their taxes.
• When your business is audited by the Feds or by the state, good records go a long way toward reducing your exposure to additional taxes and the resulting interest and penalties.
• Good financials allow the owner not to operate in a vacuum. They can spot trends much earlier.
• Good financials help the owner increase sales by spotting customers that reduce their sales and following up quickly to solve the problem and recover the customer.
• Good financials help prevent or detect fraud quickly.
• Companies with good records almost always make higher profits than a similar company that has poor records.

As important as having good records is, there really is no good excuse for not having good records. So, why don’t you?

 

Client Question: Can I Keep Two Sets of Books?

Yes, in fact you should have two sets of books.  No, not to cheat on your taxes!   But a business owner may have one method for tax purposes and a second method for management purposes.

For the IRS, most small business owners are eligible to file their taxes using the cash basis. This reports your income when you receive it and your expenses when you pay them. This is generally available if the business has gross receipts of $10 million or less (C-Corps are limited to $5 million or less).  This is preferred by most small businesses since you don’t report income until you actually receive the cash.

IRS code section 446(a) states that for tax purposes, income must be calculated using the same method that the taxpayer uses to keep their books.  You also must be consistent in your use of cash or accrual from year to year.   You don’t get to change your mind every year based on which method gets you the lowest income tax liability.

This rule doesn’t stop you from using a different accounting method for your own management use.   In fact, it is critical that every business owner review their business on an accrual basis.  The accrual method reports income when you invoice it and expenses when you owe them.  Managing both accounts receivable and accounts payable is a critical part of the business owner’s job. 

Accounting programs such as QuickBooks or Peachtree make it very easy to switch between the two methods.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well-researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Readers’ Questions

Can I contribute to both a regular IRA and a Roth IRA?

Yes, as long as you are allowed to by the tax law.  For 2015, the maximum contribution allowed to be contributed to an IRA was the lesser of $5,500 ($6,500 if over age 50) or your taxable compensation.  You can divide your contribution between a Roth and regular IRA any way you want as long as you don’t exceed these limits.

 

I received $20,000 from an inheritance.  How much tax will I owe?

If you received cash, you will most likely owe nothing.  If you inherit an IRA, you will owe taxes when you take the money out.  Be sure to check with your tax adviser. 

A related question is, “I gifted my child $10,000.  Will they have to pay tax and can I deduct it?”  No, they won’t have to pay taxes and no, you can’t deduct it.  If your gift to one person exceeds $14,000 in a year ($28,000 for a married couple) you are required to file a gift tax return.  See your tax adviser so they can help you with this.

Readers’ Questions

What is the new tax on medical devices, and will I have to pay it?

Under the Patient Protection and Affordable Care Act of 2010 (ObamaCare) a 2.3 percent excise tax was added to most medical devices such as walkers, wheelchairs, and lift chairs.  The tax is imposed on and paid by the manufacturer, so the end user will not see it listed separately on their invoice the way they see sales tax listed.  But rest assured, the tax will most likely be passed on to consumers in higher costs.

I have deducted a business home office for many years.  Will I owe taxes when I sell my home?

Yes.  The law is complicated but you must “recapture” the allowed depreciation for your home office dating back to May 6, 1997.  This portion is not eligible for the $250,000/$500,000 home sale exclusion.  Check with your tax advisor when you sell your home.

Readers’ Questions

 

I Started a Home Repair Business.  Can I Deduct My Personal Tools and Pickup Truck That I Am Now Using For Business?

 

Yes.  You can claim a depreciation deduction for personal assets that are converted to business use.  Your basis for depreciation (the amount that can be written off over its useful life) is the lower of either the equipment’s fair market value when the asset is converted into a business asset or its original cost.

Example:  If you purchased your truck for $30,000 and it is worth $20,000 when you start using it for business, your basis for depreciation is the lower amount of $20,000.

Be sure to check with your tax advisor.  Your deduction for vehicles may be limited by the “luxury car” rules.

 

When I Sell My Home, How Much Should I Reinvest in a New Home

to Avoid Paying Income Tax on the Gain?

 

It’s amazing how many people remember an old law that was in place for many years.  The old law, which was replaced in the late 90s, required that the taxpayer reinvest all of the proceeds in order to avoid paying income taxes.

Current law allows an exclusion from tax of up to $250,000 of gain for single filers and $500,000 for joint filers.  There is no longer a requirement that you buy a new home.  To qualify, you must have owned and used the home as your principal residence for at least two out of the five years preceding the sale.  Any excess is taxed as a capital gain.

In English, this means that if you purchased a $250,000 home, you would have to sell it for $500,000 if single or $750,000 if married before you would have to worry about paying any tax on the gain.

Client Question: Should I Answer This E-Mail I Got From the IRS?

NO!!!  Any e-mail you receive from the IRS is a scam!

I am 100% sure of this, since the IRS never contacts taxpayers by e-mail.  The IRS recently released IRS Tax Tip 201319 reminding taxpayers about this, and how to avoid identity theft:

1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information.

2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords, or similar secret access information for credit card, bank, or other financial accounts.

3. The address of the official IRS website is www.irs.gov . Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org, or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on their site and report it to the IRS.

4. If you receive a phone call, fax, or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to [email protected].

5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams, and helpful resources if you are the victim of a scam. Click on “Reporting Phishing” at the bottom of the page.

So don’t respond to it! Don’t even open it, since it might contain malware or a virus. 

Be sure not to ignore any written letters from the IRS, though.  These are almost always legitimate.

Client Question: My Child Is a Student and Works Part-Time—Who Gets to Claim the Education Credit?

The education credit or deduction is for tuition paid for on behalf of the taxpayer, their spouse, or their dependents.  So if a parent claims the child as a dependent, only the parent may claim the credit or deduction.  Check out my blog article titled Client Question:  Who Can I Claim as a Dependent? (http://bit.ly/TCSdZd), which details the rules on claiming a dependent.

If a parent claims a child as a dependent, only the parent may claim the education credit for the child.  If the parent is eligible to claim the education credit but chooses not to, only the student is allowed to claim the credit.

Like any good CPA, I need to add a disclaimer:  Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written.  And remember, I love my readers, but having me bookmarked on your computer doesn’t make you a client:  Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: Who Can I Claim as a Dependent?

There are three basic tests that you must pass in order to claim someone as a dependent on your tax return.

First, you cannot claim anyone as a dependent if they can be claimed as a dependent by another person.  If the dependent is married, they cannot file a joint return with their spouse.  Exception:  You may claim them if the only purpose for the joint return was to claim a refund and the dependent would not have a tax liability (either jointly or if filing married filing separately).

Second, the dependent must be a U.S. citizen, a national, or a resident alien.  Residents of Canada or Mexico also qualify.  Exception:  A child does not have to meet the citizenship test if he has been legally adopted by a U.S. citizen or national, or if the child lived with the adoptive parent as a member of the household all year.  This exception also applies if the child was lawfully placed with the taxpayer for adoption.

Third, the dependent must be a Qualifying Child or a Qualifying Relative.

A Qualifying Child must:

1. Be the taxpayer’s child, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them
2. Be (a) younger than the taxpayer and either under age 19 or a full-time student under age 24, or (b) any age if totally and permanently disabled
3. Live with the taxpayer more than half of the year
4. Not provide more than half of their own support
5. Not file a joint return (unless filed only to claim a refund)
6. Not a qualifying child of another taxpayer with higher priority under the tie-breaker rules.  Call your tax advisor for advice if you think someone else may also be able to claim them.

A Qualifying Relative must:

1. Not be the taxpayer’s or anyone else’s qualifying child
2. Either (a) live with the taxpayer all year as a member of the household, or (b) be related to the taxpayer
3. Have gross income of less than $3,800
4. Receive more than half of their total support for the year from the taxpayer claiming them.

Like any good CPA, I need to add a disclaimer:  Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well-researched or written.  And remember, I love my readers, but having me bookmarked on your computer doesn’t make you a client:  Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: Can I Legally Borrow From an IRA?

The short answer is no.  The IRS treats a regular loan from an IRA as a “prohibited transaction”.  This means that if you “borrow” funds, the amount you receive will be taxable income at ordinary income rates and subject to a 10 percent penalty if you are under 59 ½ (unless one of the tax law exceptions applies).

The tax law allows you to use IRA funds if you put the same amount back in your IRA within 60 days.  It doesn’t have to be the same money or even the same IRA.  Warning:  Missing the deadline for repayment makes the amount taken out taxable income at ordinary income rates and subject to a 10 percent penalty if you are under 59 ½ (again, unless one of the exceptions applies). 

Like any good CPA, I need to add a disclaimer:  Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well-researched or written.  And remember, I love my readers, but having me bookmarked on your computer doesn’t make you a client:  Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: How Long Should I Keep Payroll Tax Records for My Business?

You should keep all supporting documents for your payroll for at least four years after the due date your employees have to file their income tax returns.  To be safe, I usually recommend that you keep at least the last five years of payroll tax records.

The records to be retained include wage and payment dates, time cards, time sheets, wage payment records for each pay period, personal employee data (name, social security number, address, etc.), copies of W-4 forms, payroll tax returns, W-2 forms, and valuation records for fringe benefits provided to employees.

If in doubt, keep it for five years.

Like any good CPA, I need to add a disclaimer:  Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well-researched or written.  And remember, I love my readers, but having me bookmarked on your computer doesn’t make you a client:  Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: Why Are You Making So Many Changes and Starting a Magazine?

I have received many questions about the changes we have made.

Before I answer, let me give you a warning—we aren’t done yet.  We will be launching the following coaching programs in the next three months:

1. Monthly Business Profit Planning & Implementation System
2. Monthly Business Growth Webinar Series
3. Monthly QuickBooks Coaching & Support Plan
4. Monthly Lower Your Income Tax System

Finally, we expect to have two digital books published in September.

So again:  Why all the changes and new products?

The answer is long, and even this CliffsNotes version is a little longer than my normal blogs, so bear with me.

First, a couple of years ago it dawned on me that I am really not in the tax, accounting, and QuickBooks support business.  I am really in the business of providing information!  What my clients most find value in is the information I give them.  What is taxable?  What is deductible?  How can I save taxes?  How do I set up QuickBooks for my business?  How do I get this report?  How do I read my financials?  Should I incorporate?  When should I incorporate?  What should I do to increase sales and profits?  Tons of questions, but it’s all information that a business owner needs to survive and thrive.

But if I am in the business of providing information, then the traditional way CPAs deliver that information is not getting the job done.  We CPAs normally wait for the client to come to us with their problems and then we help them.  This is not being proactive, but reactive, and it is often too late for us to help.

Our blog, the iPad magazine, the Kindle books, and the coaching modules are the way that I have decided to deliver the information that a business owner needs to run their business, increase sales, and decrease costs and taxes in a way that is both affordable and timely.

Second, I prepared a traditional SWOT analysis of my business.  This is a strategic planning model where you study your business’s Strengths, Weakness, Opportunities and Threats.  I will discuss this further in a future blog, but what this analysis showed me is that I had built a CPA firm that did not allow me to use my strengths to their fullest.  I was not taking advantage of opportunities that had presented themselves in the digital publishing field to better deliver the information business owners needed.  Again, we will talk about this more in a future blog.

Third, I currently have well over 100 tax returns on extension that need to be prepared.  I called a few of my long-time clients to see why they are on an extension and discovered that my fee was a barrier to coming in to have their return done.  They have to pay both my bill and any taxes they might owe.  Now we offer our clients the ability to pay their fee in twelve equal monthly auto-payments on a credit or debit card.  They also may choose to have it drafted out of their bank account monthly.  Since this also helps even up my cash flow, I am giving my clients a discount and a guaranteed price for two years.

Fourth, for fifteen years, the IRS did very few audits and our clients received very few letters.  We didn’t charge a fee for answering the letters because I considered it a cost of doing business and an added service for our clients.  And I hadn’t had a client’s tax return audited in 17 years.  Well, the IRS has hired 16,000 employees in the last three years, and the local audit department has grown from two employees to around twenty employees.

Now our clients are receiving the same number of letters in a month that they used to receive in a year.  And 80% of these IRS letters are wrong!  Almost all of the others are items our clients forgot to tell us about.

As always, if we made a mistake, we take care of it at no charge to you.  But from now on, we are requiring a $250 retainer to answer an IRS letter and $1,500 retainer to represent you in an audit.  Our clients can avoid these high fees and get great representation by buying one of our audit protection plans.

Finally, I have made a decision that I mainly want to work with clients who:

1. are proactive,
2. take responsibility for their actions and the success or failure in their business, and
3. are willing to eliminate any excuses that stand in their path to success.

We introduced three programs that are designed to proactively give the business owner business and tax advice in a way that allows them to increase sales while reducing income taxes and costs.

In my next couple of blogs I will be exploring in more detail the changes and how they will allow me to serve my clients better.

Until next time, let’s make this our most profitable year ever.

Client Question: Help!! I Just Got an IRS Collection Letter!

Nothing gets your blood pressure up like getting an IRS collection letter demanding money! So what should you do if you receive one?

Well first – Don’t panic! The good news is that in my experience at least half of them are wrong. Many times the IRS computer is kicking out a notice based on income that was reported to them on a 1099 that was reported on the original tax return correctly, but under a different name or by a different taxpayer (such as a related corporation). These are just two of the many reasons we have seen over the years where the notice proposing a change could be successfully explained away.

And if you do owe the amount but can’t pay it, the IRS has procedures in place to make payments. (This is another area where you should get your tax preparer or a CPA to help you.)

The second thing you should do is bring the letter to your tax preparer. We have much more experience dealing with these letters and can usually tell you if it is a serious matter or not right on the spot. If you did the return yourself, I would highly recommend getting professional help.

Third, don’t ignore the letter! The problem won’t go away. The IRS collection letter may be wrong, but the IRS is very good at collecting the amount they think you owe. Please don’t wait until you receive the dreaded “Intent to Levy” letter. Many times this is the first letter a client brings to us and now it’s an emergency. But this is actually the third or fourth letter in the collection series. So please, answer the first one while you have time to properly research it and give the IRS time to fix their records. Trust me, the IRS won’t forget you owe them!

And finally – have patience! You are dealing with a large, inefficient bureaucracy that is very slow to remove amounts it thinks you owe. Many times it takes us two or three letters and/or calls to get the IRS to remove the erroneous additional tax amount. 

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: Can Those Companies That Advertise on Cable TV Really Eliminate My Tax Problems?

Every year I hear this question many times from taxpayers who are behind on their taxes. It’s understandable; the IRS has scared them, and they are looking for a quick and easy way out.

The problem is that many of these tax problem resolution companies have been found guilty of deceptive trade policies where they overpromised, collected tons of money upfront, and then failed to perform. In fact, many of their customers had bigger problems after they were hired then they did before.

Check out this link to an El Paso Times article written by David Leeper (an excellent tax attorney, if you ever need one) that goes into more specific detail on this point. http://bit.ly/JP0sME

 

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question – I Do Non-Compensated Work for a Charity. Can I Deduct Auto Expenses?

Answer: Not exactly. If you use your own car, you may deduct actual gas expenses plus related tolls and parking fees attributable to charity-related travel. Instead of keeping detailed records, you may choose the IRS-approved flat rate deduction of 14 cents per mile in 2012.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Client Question: My Child Is Working; Can I Still Claim Them on My Taxes?

If they’re 18 or younger, yes.

Once your child marries, you can no longer claim them, even if you’re supporting them.

It’s when they get older that it gets tricky. In order to claim your child who is over 18, they must be a full-time student for 5 months or more and you must have supported them for the year. Their yearly income can exceed $3,700 for the year.

If your child is over 18 but not a full-time student, the only way you claim them is if they make less than $3,700 for the year, and you must have paid over half of their living expenses.

Once your child turns 24, it no longer matters if they’re a student or not. The only way to claim them is if they make $3,700 or less for the whole year.

Your child may need to file a tax return, but they must specify they are being claimed by someone else. If they do not, this can cause problems with your tax return. There are ways of fixing this, but it will take time and other tax preparation fees may accrue.

I hope this clarifies whether or not you can claim your working child. It can get complicated. If you need any more clarification, call our office at 915-857-8158.

Client Questions - Can I Deduct My Spoiled Inventory?

Question: A florist called our office this week asking if she can deduct the cost of flowers that didn’t sell by Valentine's Day. I also get this question often from restaurant owners.

Answer: Since flowers and food have a short shelf life, it is very rarely held in inventory. Normally the business owner deducts the cost of the flowers or food when they are purchased. Accordingly, they cannot be deducted again when they are thrown out.

Larger retailers, wholesalers, or manufacturers who have an inventory on their tax return will get a deduction when they write items of inventory off as worthless.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question: Can I Still Make an IRA Deduction If I Am Retired?

Answer: Normally, no. But if your spouse is still working, you will qualify for a “spousal IRA”. If you are both over 50, you can deduct up to $6,000 each for a total of $12,000 (assuming one of you earned at least that much during the year). You have until your tax return due date to make the annual contribution.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: How Long Am I Required to Keep My Tax Records?

Question: How long am I required to keep my tax records?

Answer: “Audit-proofing” your return means having the proper documentation to prove a deduction if you are audited. We have written in the past about what documentation is required (see our ‘Surviving an IRS Audit Series' link under Categories on our home page).

But how long you should keep records depends on various factors:

1. If you owe additional taxes, and situations 2, 3, and 4 do not apply – then 3 years.
2. If you do not report income that you should report and it is more than 25 percent of your gross income shown on your return – then 6 years.
3. If you file a fraudulent income tax return – No limit.
4. If you do not file a return – No limit.
5. If you file to amend a previous return – then the later of 3 years or 2 years after the tax was paid.
6. If you amend your return due to a bad debt deduction or loss from a worthless investment security – then 7 years.
7. If you have employees – then your employment tax records must be kept for 4 years.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: When should I incorporate my business?

Question: When should I incorporate my business?

Answer: This week I had an appointment with the owner of a small trucking company who wanted to know if he should incorporate. He has been in business for about five years and has grown the company to about $700,000 in revenue, but was still having small losses due to high fuel costs and a slow economy.

As I told him, there are really only four reasons to incorporate:

1. If you are in an industry that has a high legal exposure such as doctors, construction, or trucking (due to possible accidents by his drivers). But this may not be enough of a reason. A business owner’s first line of defense should be their liability insurance. Many startup business owners have very few personal assets, so they are in effect “judgment proof”.
2. To save taxes. About 87 percent of small businesses who incorporate are formed as S Corporations. The ability to save social security taxes is the big reason. The idea can be illustrated by considering a small business that has a Schedule C (sole proprietor) income of $100,000. They would pay self employment (SE) tax of $15,300 (15.3 percent) on this business income. If they are an S Corporation and the owner pays themselves a salary of $60,000, then the remaining $40,000 would be not subject to the SE tax, for a savings of $6,120.
3. If the business has more than one owner. For these businesses, I highly recommend that they start off incorporated and structured as a S Corp. A partnership has shared liability by the partners. This basically means that your partner can borrow money or sign agreements that you are also personally liable for, even if you don’t agree with them.
4. To look bigger then you really are. The idea here was that having the word “President” on your card made you look more attractive to your prospects. In the world of the Internet and social media, this just doesn’t work anymore.

These reasons must be compared to the following extra costs related to incorporating. These include:

• The cost of having a good accounting system. For a Schedule C, all I need to prepare the income tax return are income and expense items for the business. Once you incorporate, I will also need good numbers for your assets and liabilities. This means spending the time and money to have a real accounting system--something that I strongly believe every business owner should have anyways.
• You have the cost of incorporating. If you do it yourself online, this will cost you around $500. If you hire an attorney to incorporate you, this will cost you between $1,000 and $1,500.
• You will need to file a separate corporate return that will cost you at least $750 per year.
• In Texas, you also may have to pay a franchise tax of 4.5 percent on your gross profit.

So what did my trucking company owner decide? Well, he decided I had given him a lot to think about, and he probably will wait until the company starts to make money before he incorporates.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: Why Did the IRS Penalize Me 10 Percent for Sending Them a Check to Pay My Payroll Taxes?

Question: Why did the IRS penalize me 10 percent for sending them a check to pay my payroll taxes?

Answer: Beginning January 1, 2011, the Treasury Department eliminated the system that processed the yellow coupon books (Form 8109) that most small business owners brought to the bank in order to pay their required federal tax deposits for payroll, income tax estimates, and extension payments. Now taxpayers are required to make all of these tax deposits using the Electronic Federal Tax Payment System (EFTPS). Failure to do so can result in a 10 percent penalty.

In order to enroll in the EFTPS system, small business owners should go to www.eftps.gov or by calling 1-800-555-4477.

New businesses that indicate a federal tax obligation when requesting their Employer Identification Number (EIN) will automatically be pre-enrolled in EFTPS. They will then be mailed instructions on how to activate their enrollment.

If you must pay by check in order to avoid a late payment penalty (due to problem with EFTPS or while waiting for the temporary PIN), you must be able to prove that you mailed it in at least two days before the due date to the following address:

                Financial Agent

                FTD Processing

                P.O. Box 970030

                St. Louis, MO  63197

 

Be sure to write your company’s EIN and specify the tax period being paid.

If you receive a penalty notice, you should 1) enroll in the EFTPS and 2) write a letter responding to the penalty notice requesting abatement. Be sure to enclose proof that you enrolled. Even though we have had success doing this, I won’t promise that they will abate the penalty. The IRS is seldom consistent in their treatment of taxpayer penalty abatement requests. But I know it won’t work if you don’t at least try!

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.