Across the country, CPAs are crunching (and crunching, and crunching) numbers to assess how their clients can benefit from the new tax reform law. And for business owners, becoming a pass-through entity is even more enticing than ever.
What Are Pass-through Organizations?
Nearly 95 percent of businesses in the U.S. are pass-through organizations, and for a good reason. The structure is designed to reduce double taxation, or taxing a business both at a corporate level and on the owners’ level.
Instead of a twofold hit, company profits (and losses) are sent straight to owners or shareholders without a pit stop at the corporate level. Business owners then file and pay taxes through their individual returns (not corporate returns). Sole proprietorships, partnerships, and S corporations all enjoy this no-double-taxation life.
Tax Reform Wins: How Business Owners Can Save Money
2018 is looking up for business owners all over the board. Through the new bill, pass-through entities can deduct 20 percent of the business income that is passed to their individual return. This makes it a great option for low- to mid-income businesses (single-filing threshold is set at $157,500 and the joint-filing threshold at $315,000).
Pass-through structure not in your cards? C Corporations will catch a break with the new tax bill, with a cutting the corporate tax rate cut from 35 percent to 21 percent. A tax professional can help calculate your breaks if you’re above the 20-percent deduction threshold, or if your business is under a different tax classification.
Not every situation has a cookie-cutter solution when it comes to business taxes. If you’re a business owner, a tax professional can also help you decide on the most cost-efficient business entity and what tax reform means for you.
Learn more about taxes for businesses at BizSolutionsNetwork.com.
Taxpayers who earn income which requires them to estimate and pay their taxes will be required to perform their quarterly task on June 15th. This deadline must be met in order to avoid IRS penalties and late fees. The next quarterly due date for estimated taxes falls on September 15th, 2016 (preceding deadlines typically fall on the 15th of January and April).
Who Has to Estimate and Pay Tax?
Individuals who have taxes withheld from their earnings are not required to pay estimated tax, provided this is their sole source of income. In this scenario, the employer is required to withhold and pay the appropriate amount of tax throughout the year. However, individuals who owe tax of $1000 or greater from any of the following sources on a quarterly basis should plan on meeting the June 15th deadline:
- Self-employed persons or contract workers
- S-Corp shareholders
- Sole Proprietors
Additionally, corporation owners who expect to owe more than $500 are required to meet the quarterly due date.
What to Do
Taxpayers who do not have tax automatically withheld from their earnings must calculate, or estimate, their taxes, based on their total quarterly earnings. Once the correct amount is determined, they must file the proper form and pay the total due. Depending on the type of business involved, one of two forms must be filed:
- Corporation filers should use Form 1120-W, Estimated Tax for Corporations
- Form 1040-ES should be used by self-employed persons, S corporation shareholders, partners and sole proprietors
Instructions on how to pay estimated tax when using Form 1040-ES will be found on the form itself; payment methods include remitting by mail, phone or online. Anyone who is required to file Form 1120-W must make payment by the Electronic Federal Tax Payment System, which will be found at IRS.gov. Individuals who are required to estimate and pay tax, regardless of form type, may also find additional instructional information at IRS.gov.
What Happens If Payment is Not Made?
Any person who is required to estimate and pay quarterly tax and does not do say may be subject to both penalties and interest on the total amount due. Failure to pay, or underestimating/underpaying tax, can result in a penalty for tax liabilities of $1000 or more.
This penalty may be waived in the event the taxpayer fell victim to an unusual circumstance, such as natural disaster, which prevented the liability from being paid on time. Reasonable cause also applies to individuals who became disabled or were retired during the period for which taxes should have been estimated and paid.
Additional interest charges may apply for any tax liability which is not estimated and paid by the June 15th deadline. Individuals may refer to IRS.gov for specifics regarding punitive fees, or may consult with a licensed tax professional before taking action.
There are few chances that you get caught in the Tax Audit. Still, you should care of the following points from IRS to steer clear of a tax audit process.