Employers generally must withhold income tax from employees’ wages. To figure out how much tax to withhold, you need to use the employee’s Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods. You’ll deposit your withholdings based on your business and the amount you withhold. In this article we’ll discuss business owners’ responsibilities regarding employee taxes.

File returns four times a year, and at the end of the year, prepare and file Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to employees. Each employee needs a completed copy. You will use Form W-3, Transmittal of Wage and Tax Statements, to transmit Form W-2 to the Social Security Administration.

Other key responsibilities

You must withhold Social Security and Medicare taxes from employees’ wages and make sure they submit the matching amounts. (Something else to budget for!) To figure out how much tax to withhold, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide. Deposit the taxes you withhold. You can find the detailed requirements for depositing on the IRS.gov website.

The current tax rate for Social Security is 6.2% for you and 6.2% for the employee. For Medicare, the current rate is 1.45% for you and 1.45% for the employee, or 2.9% total. Also, an Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. You’ll withhold an Additional Medicare Tax of 0.9% for single filers who make more than $200,000. For married couples filing jointly, the threshold is $250,000, but if filing separately, $125,000. You don’t have to match this additional portion.

The government generally adjusts the earnings subject to Social Security each year. For 2023, the maximum earnings were $160,200.

Employers report and pay taxes under the Federal Unemployment Tax Act. The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different based on the respective state’s rules.

Key dates to remember

Mark your calendar with key dates. The IRS has an Employment Tax Due Dates page with information on what you need to do and when you need to do it. The matching share of the Social Security and Medicare payroll taxes are collected as the Federal Insurance Contributions Act taxes and your part is considered a business expense, not a liability. Because it’s a business expense, it can be written off at tax time.

Don’t forget the states

This is just the beginning of an employer’s responsibilities. You are likely subject to state withholding rules as well. It’s essential that employers be on top of the general rules and any annual rate changes. Understanding these tax issues is important, since you bear the responsibility of fulfilling your tax obligations relating to your employees. It’s important to send out payments on time to avoid penalties and late fees. Be sure to work closely with financial professionals to make sure you stay compliant.

Need Help Dealing with Employee Taxes in Las Vegas?

Approximately 2.5% of all U.S. small-business owners are audited by the IRS. To adequately prepare for the possibility of being audited someday, keep meticulous records of all tax-related transactions and work with a professional who has experience handling IRS audits when they arise. At Layton Layton & Tobler we help our clients do just that. Contact us today to schedule a consultation. We can also help you with payroll preparation and auditing.

Experts at Employee Taxes Serving Las Vegas Area Businesses

Serving Las Vegas, Summerlin & Henderson

Posted on April 12, 2023 | Published by Ignite Local | Related Local Business

Are you worried about the likelihood of your business being audited by the IRS? If so, there are a lot of preventive red flags that you can keep an eye out for when looking to protect your business from being the focus of an audit.

Inaccurately reporting your annual income

Every year, you will submit a Schedule C form, which denotes the income you report for the prior tax year. If you have incorrectly reported the amount of money that you earned in a given year, the likelihood of your being audited by the IRS will increase as a direct result of your inaccurate claim. As such, it is imperative that you report your income accurately — down to the penny. Refrain from rounding, omitting a portion of your income or stating that you either earned more or less than you truly accrued in the tax year in question.

Making deductions that are disproportionate to your reported income 

As a business owner, you will likely be able to benefit from itemized deductions and common tax deductions that are common amongst business owners of all business sizes, such as the home office deduction or deductions pertaining to the use of vehicles for business-related purposes. However, if you try to claim a lot of business deductions, the IRS may find it suspicious and audit you as a result of the red flags raised. In order to claim an expense as a business deduction, it must be both ordinary and necessary, meaning your expenses are related and applicable to your business operations.

• Claiming that you had a large number of expenses: If you spend a lot of money or you drastically alter your expenses year over year, this behavior may prompt an audit from the IRS. For example, business expenses that are deemed excessive or unreasonable would be if you were to claim that all your meals during your workdays are business expenses.
• Denoting a high amount of cash transactions: There are many business types that rely on cash, as well as profits, as a primary source of revenue. However, as a result of this and due to the nature of cash in that it is not documented the same way digital transactions are, the IRS may believe that you underreported income simply because it is easy to do so when cash is such a common form of payment for your business. You will need to be able to verify your income, so even if you handle cash often as part of your business transactions, do your part to prevent an audit by always documenting your transactions, both physically in the form of cash and digitally in the form of checks or credit cards.
• Claiming business losses from the past in the present: If you claim the same business loss every time you file a tax return from one year to the next, the IRS is more likely to audit you because this will be viewed as suspicious behavior. While it is not uncommon for losses to occur, especially in the context of a small business, reporting either the same loss every single year or claiming multiple years’ worth of losses can cause the IRS to question the legitimacy of your business as well as you as a business owner. As always, make sure you have proper documentation that depicts your revenue and expenses throughout the year.
• Falsely classifying your employees: Be especially mindful of how you classify your employees, and make sure you do not falsely report them as being independent contractors. In the eyes of the IRS, an independent contractor is someone who controls what they will do in terms of work, how it will be done and how much money they are willing to do said work for. Independent contractors vary greatly from employees, and as such, you cannot decide to reclassify someone who is an employee as an independent contractor for tax purposes. Always maintain important documentation regarding the work that your independent contractors do for your business and keep that information separate from the documentation pertaining to your employees.

Returns are often selected for audits as a result of errors that the IRS has pinpointed within them. Most tax audits will take place within a year after the tax return was filed, and typically, audits take less than a year to complete. However, you can certainly take measures to shorten the timeline of an audit, starting with the prioritization of preparing your documentation and responding promptly to questions or requests from the IRS.

What to do in the event of an audit 

If you are notified that the IRS plans to audit you in the near future, here is what you can expect moving forward:

• Known as a field audit, most IRS agents will carry out business-related tax audits in person.
• In most cases, business audits will be comprehensive, meaning they will cover issues relating to employment taxes and income taxes. A field audit takes an extensive look into documented records pertaining to your business as well as your accounting system. The IRS will conduct an array of tests that are designed to determine the accuracy of your reported income. When you are prepared for the interview that coincides with the audit, the process will unfold far more easily and quickly than if you go into the audit completely unprepared.
• While you are being audited, the IRS agents will ask you to provide information and documentation that explains your position as denoted in your business tax return. You can incorporate the insights of a licensed tax professional to assist you in relaying facts and figures to the IRS as you work with the agents. A tax professional can serve as an advocate for you over the course of the audit process.
• Ultimately, the IRS will decide when it is time to finalize the audit and close the case pertaining to your business. Whether the IRS agents state that no changes must be made or the agents request that you make applicable adjustments to your business return, you will usually have a 30-day period during which you can appeal the IRS’s requests in the event that you disagree with the outcome of the audit.

Want to Be Sure You’re Prepared for an Audit in Las Vegas?

Approximately 2.5% of all U.S. small-business owners are audited by the IRS. To adequately prepare for the possibility of being audited someday, keep meticulous records of all tax-related transactions and work with a professional who has experience handling IRS audits when they arise. At Layton Layton & Tobler we help our clients do just that. Contact us today to schedule a consultation. We can also help you with payroll preparation and auditing.

Helping You Keep Your Business Affairs in Order in Las Vegas

Serving Las Vegas, Summerlin & Henderson

Posted on March 10, 2023 | Published by Ignite Local | Related Local Business

What’s important to you as you prepare to file? Your situation can make a big difference in the tax you pay and the paperwork you have to file. The IRS is trying to get you off to a good start this filing season by listing some of the issues the Agency believes are important to a wide range of filers. Here’s what you need to know as you get ready for taxes.

Reporting rules changed for Form 1099-K

Taxpayers should receive Form 1099-K, Payment Card and Third Party Network Transactions, by the end of January, if they received third party payments in tax year 2022 for goods and services that exceeded $600. There’s no change to the taxability of income. All income, including from part-time work, side jobs or the sale of goods is still taxable. Taxpayers must report all income on their tax return unless it’s excluded by law.

Note that before 2022, Form 1099-K was issued for third party network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. The American Rescue Plan Act of 2021 lowered the reporting threshold for third party networks that process payments for those doing business.

Now a single transaction exceeding $600 can require the third party platform to issue a 1099-K. Money received through third party payment networks from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable.

Some tax credits return to 2019 levels

This means that affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit, Earned Income Tax Credit and Child and Dependent Care Credit.

• Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
• For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022.
• The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

No above-the-line charitable deductions

During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.

Increased eligibility for the premium tax credit

For tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit. As explained by the IRS, the premium tax credit – also known as PTC – is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this credit, you must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit.

Not Sure Whether You’re Ready for Taxes in Summerlin?

These are just a few of the changes. Work with your tax professional to make sure you’re taking advantage of all the provisions applicable to you. Here at Layton Layton & Tobler we help our clients do just that. Contact us today to schedule a consultation. We can also help you with payroll preparation and auditing.

Helping You Get Ready for Taxes in Summerlin

Serving Las Vegas, Summerlin & Henderson

Posted on February 9, 2023 | Published by Ignite Local | Related Local Business