DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.

 

https://www.irs.gov/publications/p926

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A client of mine recently had a baby.  Yay, Baby!!  With that bundle of joy comes additional tax responsibilities and implications… and sometimes credits and deductions.

 

She had two questions.  What is the nanny tax? And Is it simple to do it yourself or should you pay a professional payroll company? (Ultimately, my client decided to try it out herself before she hires a payroll service.  As with any business there are initial startup costs and then monthly bookkeeping and filings. Sometimes certain forms can be filed on a quarterly or annual basis. Record keeping and organization is imperative for “keeping the books” long term.)

 

 

Many years ago, nanny’s and day care providers were simply considered self employed and filed their income and expenses on the Schedule C (attached to the 1040). The family would pay cash or check and the nanny or sitter would account for it on their own returns.   However, now, the tax law states that if nanny’s are paid more than $2,000 a year they are considered employees and are subject to all of the regular employment taxes, unemployment insurance and workman’s comp. Thus creating additional paperwork and costs.

 

What is the nanny tax? And is it easy to DIY

This weird sounding tax is actually just basic employment and payroll taxes.  All employees and/or employers are required to pay social security taxes, Medicare taxes, and sometimes unemployment insurance.  The “employers” may or may not withhold and pay federal /state too.  You’ll save quite a bit of money doing it yourself and its not that difficult.  Although, it is work in a sense and it takes a bit of time.

Requirements:

  1. Be able to read and follow directions. Have some patience.
  2. Be organized: calculate hours worked, gross income and net income.
  3. Be tech savvy. Most of this stuff can be done online. It’s also handy to have a scanner/copier/ printer handy but it’s not required necessarily.
  4. Be able to follow due dates and pay on time (or you’ll be subject to fees and penalties).  Ex: for unemployment insurance,  you usually calculate January thru March and the money is due in April.

 

 

Startup

Go to irs.gov and search for form SS-4 (fss4), Employers federal ID number.  Fill it in and apply online, or download the pdf to a computer and fill it out by hand then mail it in. Im sure the agencies hate it, but I still do alot by hand and use my stamps.com account to mail it in.

Go to Colorado.gov/revenueonline and apply for a state wage withholding license (only if withholding state tax for your employee).

 

IRS’s publication 926  instructs household employers of their duties.  I’m going to use a combination of that publication and my own insight and experience to describe the process to do your own bookkeeping and payroll when you have certain employees.

 

The Numbers for Social Security and Medicare tax  Employer W-2 Filing Instructions & Information

The social security tax rate is 6.2% each for the employee and employer, unchanged from 2016. The social security wage base limit is $127,200.  The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2016. There is no wage base limit for Medicare tax. Social security and Medicare taxes apply to the wages of household employees you pay $2,000 or more in cash in 2017.

 

The process *not including responsibilities for withholding federal and state taxes for the employee*

Example. On February 13, 2017, Mary Brown hired Jane A. Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. Jane worked for the remainder of the year (a total of 46 weeks). Jane didn’t give Mary a Form W-4 to request income tax withholding. The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3. See the completed examples of Form W-2 and Form W-3 for 2017 at the end of this publication

 

Total cash wages paid to Jane                                      $2,300.00

($50 x 46 weeks)

 

Jane’s share of: Social security tax is $142.60             EE share

($2,300 x 6.2% (0.062))

 

Medicare tax is $33.35                                                     EE share

($2,300 x 1.45% (0.0145))

 

Mary’s share of:Social security tax is $142.60             ER share

($2,300 x 6.2% (0.062))

 

Medicare tax $33.35                                                         ER share

($2,300 x 1.45% (0.0145))

 

Amounts reported on Form W-2 and Form W-3:Annual reconciliation at tax time.  Additionally, the schedule K will be added to the individual 1040 and reconciled that way.  You may or may not be required to pay estimated quarterly tax payments to ensure you don’t owe more than $1000 at the end of the year.  Talk to your tax professional.

Box 1: Wages, tips                          $2,300.00

Box 3: Social security wages        $2,300.00

Box 4: Social security tax withheld $142.60

Box 5: Medicare wages and tips  $2,300.00

Box 6: Medicare tax withheld is     $33.35

 

The  social  security  tax  pays  for  old-age,  survivors,  and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe social  security  and  Medicare  taxes.  Your  share  is  7.65% (6.2% for social security tax and 1.45% for Medicare tax) of  the  employee’s  social  security  and  Medicare  wages. Your employee’s share is also 7.65% (6.2% for social security tax and 1.45% for Medicare tax). Continue reading “DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.”

How will the new tax plan affect you? Pull out your 2016 copy to see. If you need to prepare 2016 tax returns email Stephanie at stephanie@paulinestaxservices.com

The estimated date for the new tax plan, should the proposed bill be voted a law, should be around November 23, 2017 before thanksgiving.  I am excited, how about you?  Well,  you may or may not be thrilled depending on how it might impact you personally.  Pull out last years copy for revie, if you have no idea where it is now is a good time to look for it or request a new copy from your tax preparer.  I’ll lay down some basics and suggest the new numbers that you can insert into your own situation. It is some work, and yes, you have a tax professional but understanding how tax planning measures your life is priceless.  

 

  • Tax is calculated on income that has been adjusted for the inclusion of other items. (Taxable income, adjusted adjusted gross income).
  • Tax lingo is specific, so think, logical. Taxes are about reading. Lots of reading. which is why most folks pass the baton to the professional but think about it this way.  The tax professional reads all of the publications and instructions and updates.  The taxpayer (you) reads the 1040. It’s 2 pages.
  • Taxes are about math, lots of calculations.  Example: The tax professional (me) reads each publication for the equation, calculates based on data given, and then inserts answer onto appropriate forms.  The taxpayer (you) must keep a running tally of items you can deduct or need throughout the year and then pass that data on to the professional at the end of the year (tax season).  It’s different math, and different responsibilities but they work in conjunction.1040 EX of new tax plan.jpg

 

One major change I’ve noticed in the  proposed tax plan is the statuses have narrowed to Single or Married Filing Joint. No more Head of household, etc.  I read that there may be a new tax credit of $500 for taxpayers with non child dependents.

The current standard deductions given are shown on the left of the 1040 example in orange highlighter and the new numbers proposed are written in on the right.  Your itemized deductions on the Schedule A must be more than $12,000 (standard deduction) for a single person and more than $24,000 (standard deduction) for married people.

Currently every person listed on a return (including dependents) “gets” $4,050 “exemption” to deduct, but that may be eliminated.   Good news for some folks, though, the Alternative Minimum tax may be eliminated, too.  The Child Tax Credit might be increased.

– So far, known proposed items eliminated are the home office deduction as well as the deduction of prior years’ state and local taxes.

 

Proposed Tax Brackets 2018

Single                                                                                                     Married

$0 – 37,500 ish                                            12%                                  $0 – 75,000

$37,500  – 112,500 ish                               25%                                  $75,000 – 231,500 ish

$112,500 – $415,050 and up                    35%                                 $235,000 – 466,000 and up ish

 

That’s all for now but Ill try to keep you updated as November 23 approaches and then afterwards to prepare for the upcoming due date for tax returns.

 

 

“Tax time” is creepin. If you stay ready, you don’t have to get ready. Pauline’s Tax Service will be making some changes going forward for next year – Stay informed.

As the next couple of months cruise by there will be more information inserted on to my website to help prepare you for the upcoming tax due date of  April <15-18>, 2018

*There are going to be many changes this year, it seems, due to a new tax plan, although its not confirmed.  I’ll try to keep you updated with that too.

 

Pauline’s Tax Service, Ltd – By Stephanie

 

Over the last 2 or 3 years I have worked tirelessly to ensure the best possible service for this type of duty and for my clients, many of whom I inherited more than 11 years ago from my grandma, Pauline Parris.   This work was important to her, and it is to me too.  With that being said, there will most likely be many changes over the next 2 years as I’m trying to reconstruct and reorganize my business plan. Expansion is in our future.

In-office appointments are going to be limited.  The office address is going to remain the same for mail in’s, drop off’s, pick up’s and meeting’s.  The conference room will be available for those tough situations, but this means that some additional time & planning might be in order.  Documents can be submitted via mail, drop off, e-mail, fax, or uploaded to the client portal.  Limited in-office appointments will be available for 2018. Thanks in advance for any inconvenience. 

 

*Before you would like your returns started – make sure you have all of your documents AND other information included before you send it to Pauline’s Tax Service for preparation.  Some returns that include the earned income credit or 

 

Address:  12365 Huron St., Suite 1800 Westminster Co 80234

Phone:     720-893-3712 ext.105

Fax:          303-252-4664

Email for Stephanie

Secure Client Portal

 

 

Almost the worst customer service ever – Shopify! Fail.

As a small business owner I often find myself in a position to expand business services while at the same time maximizing dollars to put towards expenses.  This fine afternoon I had the bright idea to “just add an online store” to my website to make it more convenient for my clients to make payments against their accounts. Godaddy hosts my site but it didn’t even occur to me to check with their affiliates.  I got on trusty Google and went on a tangent.

Before I knew it I was signed up for Shopify and my current website was redirected to shopify’s password or something site. Either way it wasn’t what I was looking for. I was looking for a software, like paypal, that was embedded on my page for clients to click to pay their invoices (but be able to adjust their payments due). When I realized shopify/amazon pay or whatever the heck i signed up for wasn’t what I was looking for I tried reversing everything I remembered doing initially but still my website was redirected somewhere else.

 

So I called shopify, although not an easy task. I was on hold for a solid 20 minutes when I was greeted by a not so knowledgeable JoeShmo.  He wasn’t privy to my issue and instead of letting me be on my marry way to figure it out myself he preceded to tell me its on Godaddy’s side and to change my DNS settings.  Hey guy, you’re a loser.

Meanwhile, still thinking logically to myself. “you signed up for this shit, you must cancel” -smacks self in head- because I was just on the phone with that guy who should have “cancelled” me right up…

I’ll cut right to the chase.  In shopify – settings, close store.  Website restored.

Getting smart with: Taxes. Why though? Here’s 5 reasons.

Taxes are intimidating.  When tax time rolls around,

stressed lady

stress levels increase and people get hyped.  No one knows what to do and they are definitely not prepared.  Well, that’s not true. Some people out there actually have a clue, but the majority do not.  The more prepared we are at the end of the year, the lower the tax bill.

Why should the average Sally Sue have a basic understanding of income taxes?

  1. Most economic transactions have an income tax effect.  The most common example is the purchase of a home.  Mortgage interest will be deductible on the itemized deductions worksheet.  Another example is withdrawing money from a 401-k retirement account.  The tax burden in doing so could be steep.  Both of these items, for the most part, happen in life prior to discussing it with your tax adviser.  Therefor, you should have a clue whats best for you.  Then, at the end of the year your tax preparer can draft your forms for you easy peasy, because you will be in tune with your transactions for the year and come prepared to your appointment.  Back to the 401K example, if you take money out you will receive an annual tax form with the information. Don’t forget to take it to your appointment.  Along with your W2 and mortgage interest statement.

 

2.  The income tax law influences personal decisions of individuals.  Pretty self-explanatory. 

 

3.  A knowledge of the income tax law enables taxpayers to make decisions that  can reduce other costs. By having a clue one can enter into various transactions that can minimize income tax burden.  Likewise, one can avoid a transaction or defer until a time more beneficial in the future.

 

4.  Protects against an audit.  The IRS isn’t always right and sometimes you will have to state your case or your interpretation of things to justify items on your return if they question you.  It doesn’t mean your wrong it just means you have to be able to explain your rightful position.

 

5.  YOU know your financial affairs better than anyone.  Tax planning and forecasting starts with you, not your accountant, although, you should have a conversation with them for sure and keep them included.  It’s important that you are both on the same page.  Use the tax system to your advantage…free-money-clipart

 

5 Tax Tips To Starting a Business

Source: IRS Summertime Tax Tip 2017-18: Starting a Business This Summer? Here’s Five Tax Tips

 

Starting a Business?  Here’s Five Tax Tips

If you are interested in starting a business, be sure to visit IRS.gov. The IRS website has answers to questions on payroll and income taxes, credits and deductions plus more.

New business owners may find the following five IRS tax tips helpful:

  1. Business Structure.  An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.
  2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from a checking or savings account.
  3. Employer Identification Number (EIN).  Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online.
  4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:
  5. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
  6. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year.

Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center