Taxes

Navigating the intricate web of tax laws and regulations can be daunting, especially when it comes to payroll taxes. Over the years, we’ve seen many businesses and individuals (“responsible persons”) run into payroll tax issues, sometimes inadvertently. It is important to understand that a portion of the required withholdings is your employees’ money, and you are being entrusted to submit those funds to the Internal Revenue Service (IRS) and the North Carolina Department of Revenue (NCDOR) on their behalf.  Failure to remit your employees’ funds as required will result in trust fund liability and significant penalties and interest not just on your business, but on the individuals responsible for ensuring employee funds are properly remitted.

Here are some key tips to help you and your North Carolina business remain compliant and avoid payroll tax problems.

1. Properly Classify Workers

Misclassifying workers can lead to significant tax penalties. It’s crucial to determine if individuals working for you are employees or independent contractors. Remember, independent contractors are not subject to payroll tax withholdings, but misclassifying an employee as a contractor can result in back taxes and penalties.  IRS and NCDOR may not respect your classification if the duties and work arrangements of your so-called independent contractor resemble those of an employee.  You can find more information on IRS’s view here.

2. Understand the Basics

Before anything else, familiarize yourself with both federal and state payroll tax requirements. Employers are generally responsible for withholding federal and state income tax, Social Security and Medicare (FICA), and federal and state unemployment insurance taxes (FUTA) from employee paychecks. Here are some helpful links: Employment Tax Publications & Withholding Tax Frequently Asked Questions 

3. Obtain Properly Completed W-4 and NC-4 from Employees.

These forms are crucial in determining the proper withholdings for your employees.  As a result of the Tax Cuts and Jobs Act, if your employee is married, your employee and his or her spouse should coordinate their completion of these forms for their respective employers, even if the spouse previously completed a W-4, the spouse should update their form based on the new employment status of your employee.

4. Submit Payments and Filings On Time

Penalties can quickly accumulate for late payments or filings. Set reminders for all tax deadlines, including monthly, quarterly, or annual filings and deposits. For North Carolina state withholdings, consult the NC-5 series of forms and their respective deadlines on the North Carolina Department of Revenue’s website.

5. Maintain Accurate Records

Keep detailed records of all wages paid, taxes withheld, and any tax payments made. Not only is this a good business practice, but it will also be invaluable if you’re ever audited. Retain these records for at least four years, as recommended by the North Carolina Department of Revenue.

6. Stay Educated

Tax laws and regulations can evolve. Consider attending workshops, webinars, or conferences on payroll taxes, or ask your tax professional to keep you up to date as changes are made. Joining local business associations can also provide networking opportunities and access to shared resources.

7.  Use Reliable Payroll Software and/or Professional Services

Modern payroll software can help automate tax calculations and withholdings, reducing the risk of errors. When selecting software, ensure it is updated regularly to reflect any tax rate changes. If you’re not comfortable handling payroll internally, consider outsourcing to a reputable payroll service.  Your CPA or an experienced bookkeeper can be a valuable resource in this and many other areas of your business, allowing you to focus on doing what you love.

Our North Carolina Business and Tax Attorneys Can Help

If you have fallen out of compliance with your payroll taxes, the team at Wilson Ratledge welcomes the opportunity to work with you, your CPA, and internal team to get you and your business back on the right track.  Contact us today for a consultation regarding your payroll tax compliance or audit issues.

A bankruptcy filing can solve a variety of debt-related problems. But, it can’t solve every debt-related problem, and bankruptcy isn’t always a wise choice when it comes to dealing with tax debt.

What Is Bankruptcy?

Bankruptcy is a process that allows individuals and organizations to discharge their debts. By filing for bankruptcy, an individual can discharge the debts they currently possess and cannot pay off.

Outside of allowing individuals and organizations to discharge their debts, bankruptcy will also enable creditors to obtain some form of repayment, often through liquidating certain assets.

Even though bankruptcy can be ideal – and, in some cases, necessary – filing for bankruptcy and going through the processes that this entails is often quite challenging.

What Are The Benefits Of Filing For Bankruptcy?

The act of filing for bankruptcy offers a variety of benefits. Some of the most notable benefits that can arise by filing for bankruptcy are as follows:

• No further legal proceedings arising from the debt can be filed against the individual who filed for bankruptcy.
• The debt that was owed to creditors will no longer be owed, even if this debt was not paid off in full.
• Many of the goods that were about to be seized – or, in some cases, have already been captured – can be retained to pay off this debt.

Outside of these benefits, bankruptcy does come with a number of consequences. Some of the most notable consequences that can arise from filing for bankruptcy are as follows:

• A bankruptcy will show up on one’s credit report.
• A bankruptcy can make it challenging to obtain a business license.
• A bankruptcy will affect any business that one owns.

Someone who wishes to file for bankruptcy in North Carolina due to their tax debt should first speak with a tax planning lawyer. By doing so, they can determine if this is, in fact, the right choice for their situation.

What Types Of Debt Can Filing For Bankruptcy Eliminate?

A bankruptcy filing can eliminate many different types of debt. Some of the most common types of debt that bankruptcy can be, and often is, used to eliminate are as follows:

• Repossession deficiency balances.
• Credit card debt.
• Medical bills.
• Business debt.
• Unpaid utility bills.
• Personal loans.
• Unpaid rent.
• Overpayments from government programs.
• Collection agency accounts.

Every single one of the above can be eliminated by filing for bankruptcy. But, with that being said, there are a variety of different types of debt that cannot be eliminated through filing for bankruptcy.

Some of the most notable types of debt that cannot be eliminated through filing for bankruptcy are as follows:

• Child support. 
• Alimony.
• Debts obtained through fraud.
• Student loans.
• Mortgages.
• Car loans.
• Debts obtained through other criminal acts.
• Certain types of tax debt.

Our focus is on the latter item within that list.

Can A Bankruptcy Filing Be Used To Eliminate Tax Debt?

The simple answer to this question is “Yes.” But, while that answer is technically accurate, it fails to paint a complete picture of the ways in which bankruptcy can affect tax debt.

A bankruptcy filing can be used to eliminate one type of tax debt: income tax debt. Someone who files for bankruptcy due to their income tax debt may be able to eliminate the income tax they owe to their state and to the federal government.

Someone who owes tax debt unrelated to their income – payroll taxes, for example – will not be able to discharge this debt in a bankruptcy filing.

Outside of this fact, the following requirements must be met in order to allow an individual to eliminate their tax debt by filing for bankruptcy:

• The tax debt must be older than three years.
• For this debt, a tax return must have been filed a minimum of at least two years before filing for bankruptcy.
• The return must have been filed on time and in an honest manner.
• The IRS must assess the debt before bankruptcy can be granted.

Assuming all of these requirements are met, an individual can file for bankruptcy and eliminate their income tax debt. But, if they have other types of debt they wish to eliminate, they will be unable to do so.

Speak With A North Carolina Tax Planning Lawyer Today

No matter the tax debt you or your business are facing, bankruptcy is likely not the solution you are looking for. But, even so, there is a solution, and we at Wilson Ratledge will help you find it.
Speak with a tax planning attorney at Wilson Ratledge today. We will assist you in finding a way to eliminate the tax debt you are facing.

As a taxpayer, it is essential to remain compliant with the Internal Revenue Service (IRS) to avoid potential penalties or legal consequences. While many individuals might be aware of some tax-related consequences, not everyone knows that a significant tax debt or issue can lead to the revocation of their passport. This article will delve into the circumstances under which the IRS can revoke a passport and offer guidance for resolving tax issues.

The IRS and Passport Revocation

The IRS has the authority to revoke a passport under a provision of the Fixing America’s Surface Transportation (FAST) Act, which was enacted in December 2015. This law mandates the IRS to work in coordination with the State Department to deny, revoke, or limit the passport of any individual with a ‘seriously delinquent tax debt.’

What Constitutes a Seriously Delinquent Tax Debt?

A seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt, including penalties and interest, totaling more than $59,000 (as of 2023, adjusted for inflation). The following conditions must also apply:

1. A notice of federal tax lien has been filed, and all administrative remedies have been exhausted or lapsed.
2. A levy has been issued by the IRS.

Exceptions and Exclusions

There are specific situations in which a taxpayer with a seriously delinquent tax debt might not face passport revocation:

1. The taxpayer is in the process of disputing the tax liability in question through an IRS administrative appeal or in court.
2. The taxpayer has requested innocent spouse relief under the IRS provisions.
3. The tax debt is under consideration for an installment agreement, offer in compromise, or suspension of collection due to a collection due process hearing.

Moreover, passport revocation may not apply to taxpayers in a federally declared disaster area, victims of tax-related identity theft, those currently in bankruptcy, or those living in a combat zone.

How Does the Process Work?

If an individual meets the criteria for passport revocation, the IRS will send a certification of the seriously delinquent tax debt to the State Department. Before the certification, the IRS will mail a Notice CP508C to the taxpayer’s last known address, informing them of their tax debt and the possible passport consequences. The State Department may then revoke the passport or limit it to return travel to the United States.

Reversing the Revocation

To reverse the passport revocation, the taxpayer must resolve their tax debt through one of the following methods:

1. Pay the tax debt in full.
2. Enter into an installment agreement with the IRS.
3. Settle the tax debt through an offer in compromise or another IRS-approved method.
4. Request innocent spouse relief.
5. Have the tax debt suspended due to a collection due process hearing or another valid reason.

Once the tax debt is resolved, the IRS will send a reversal certification to the State Department, typically within 30 days. The State Department will then reinstate the individual’s passport privileges.

Preventive Measures

To avoid the risk of passport revocation, it is crucial to stay proactive with your tax obligations. Here are some tips to help you stay compliant:

1. File your taxes on time and accurately to avoid penalties and interest.
2. If you cannot pay your tax debt in full, consider setting up an installment agreement or apply for an offer in compromise.
3. Consult a tax professional or tax attorney if you have any concerns or require assistance in resolving tax issues.

Our Raleigh Tax Controversy Attorneys Can Help

While the IRS can revoke a passport due to a seriously delinquent tax debt, there are steps that taxpayers can take to prevent this from happening or to resolve their tax issues. By staying proactive and addressing any tax concerns with the assistance of a knowledgeable tax attorney, taxpayers can minimize the risk of passport revocation and navigate the complexities of tax compliance. 

In cases where the revocation has already occurred, it is essential to act quickly and work closely with the IRS to settle the tax debt and reinstate passport privileges. By staying informed and taking appropriate measures, taxpayers can avoid the serious consequences of passport revocation and maintain their ability to travel internationally without restrictions.

Don’t let tax issues jeopardize your freedom to travel; contact the experienced tax attorneys at Wilson Ratledge today for expert guidance and personalized solutions to resolve your tax concerns. Let us help you protect your passport and your financial future.

Owing The Government Large Sums Of Money For Taxes Can Be Daunting, But It Happens

It could happen any number of ways – whether through under-withholding, untaxed income, or estimating quarterly tax payments required – but every year, thousands of people find themselves owing the Internal Revenue Service more than they can repay, at least at that moment. The IRS is not famous for being in the habit of waiting for payment. The IRS has an impressive array of collection options – it can seize and sell your property to pay your tax debt, garnish your wages, and place liens on your home and bank account. 

Owing the IRS money is not a small matter. A payment plan is an option for many people, but if you owe a lot, IRS payment plans are time-limited, and you might be unable to afford the payments to pay off the entire debt during the time period of the payment plan. Fortunately for people in this situation, the IRS provides another option for repayment, known as an offer in compromise.

An Offer Of Compromise Provides An Avenue Out From Under Debts Owed To The IRS

An offer of compromise is a process whereby you can make an offer to the IRS to pay an amount that is less than you owe in satisfaction for the total debt. Basically, you file copious amounts of paperwork, including IRS forms that include detailed information about your financial situation, including assets, debts, and the like, and you offer an amount you consider yourself willing to pay instead of the full amount owed. While the acceptance rate for such offers used to be less than 25 percent, in recent years, that amount has increased to about 45 percent. If your offer is accepted, you are deemed to have satisfied your entire tax debt.

The process is complicated, but the IRS provides a Taxpayer Advocate Service that can give you some assistance regarding an offer of compromise. They provide assistance and information, not advice – you’ll have to go elsewhere for that.

What Is Required To File An Offer Of Compromise?

The first requirement is that you be eligible to file an offer of compromise. To pass that first hurdle, you must show that:

• You are not currently in a bankruptcy proceeding.
• You have filed all previously required tax returns and have made all estimated or actual payments for taxes due on those returns.
• If you are applying for an offer in compromise for the current year, provided you are applying for an offer of compromise for the current year.
• If you are an employer, you have made required quarterly tax payments for the current quarter and for the two-quarters previous to your applying for an offer of compromise

If you meet those requirements, you can move on to filing an offer of compromise. That, in itself, can be a daunting process. You will be required to complete several IRS forms and provide significant amounts of information regarding your monthly income, cash on hand, debt, and assets. You also will be required to detail monthly expenses, including rent or mortgage, grocery costs, utilities, and any other recurring monthly expenses. You also will have to pay the application fee, which is refundable if your offer of compromise is rejected, and payment toward what you propose as the balance due on your taxes. Obviously, the proposed balance due will be less than the amount the IRS says you owe. If you opt for a payment plan, you will include the first payment amount. You also could include payment for the entire amount owed that you propose. Even if your offer is rejected, however, the IRS will keep your payment and apply it to the amount of taxes the IRS says are owed.

There are a number of reasons the IRS might reject your offer. Among them are failing to meet any of the requirements for eligibility, you failing to include the application fee, or the IRS has referred your case to the Department of Justice for prosecution. Reasons for accepting your offer come down to whether the IRS believes it can collect the entire amount due or whether the IRS believes it can collect that amount but that it would be unfair, inequitable, or cause economic hardship.

If You Owe Significant Amounts To The IRS, Contact The Tax Attorneys of Wilson Ratledge

The IRS is a formidable opponent with an unmatched ability to disrupt your life financially and even seize your assets. If you owe money to the IRS that you can’t repay, you should consider an offer of compromise. You should contact the North Carolina tax attorneys of Wilson Ratledge. We have the knowledge and experience to help you through the process.

Tax planning is an important part of financial planning, and with the current tax laws, there are a number of ways to reduce your tax liability. We will show you how to do so, the right way, in this article.

Getting Started With Tax Planning

Before getting started with trying to reduce your tax liability through asset protection planning, it is imperative to do the following:

1. Review Your Assets and Liabilities

Completing a personal balance sheet can be a helpful way to get a snapshot of your current financial situation. It can help you identify your assets – things you own that have value – as well as your liabilities, or the money you owe. By taking stock of your net worth – the difference between your assets and liabilities – you can get a sense of how financially healthy you are and where you may need to make changes.

2. Determine What Type of Asset Protection Is Best for You

There are a variety of different types of asset protection available to individuals, and the best type of protection for you will depend on your specific situation. Some common forms of asset protection include trusts, limited liability companies (LLCs), and offshore accounts. Each has its own advantages and disadvantages, so it is important to do your research and consult with a Raleigh tax planning attorney at Wilson Ratledge before making a decision.

3. Implement a Plan To Protect Your Assets

The next step to reducing tax liability while protecting your assets is to put the established plan into action. This can involve setting up trusts, creating a will, and/or creating an LLC. Working with an experienced estate planning lawyer can help you create a plan that fits your specific needs and protects your loved ones in case something happens to you.

Some Legal Ways To Reduce Tax Liability Through Asset Protection Planning

1. Use Charitable Contributions

Qualified charitable contributions are a great way to reduce your taxable income and save money on your taxes. The North Carolina deductible qualified charitable contribution is up to 60% of your adjusted gross income. There are a few things to keep in mind when making a donation, such as the type of charity and the value of the donation.

To be eligible for a tax deduction, donations must be made to qualified charities. Qualified charities are organizations that have been approved by the IRS as being eligible to receive tax-deductible contributions. Some common examples include churches, schools, and other nonprofit organizations.

The value of your donation is also important to consider. Generally, you can deduct the fair market value of any donated goods or services. However, there are some exceptions.

2. Gifting

Giving gifts is a popular way to celebrate holidays and special occasions, but it can also be used to reduce tax liability. The key to reducing your tax liability when gifting is understanding the gift tax exclusion. 

The Federal gift tax exclusion allows you to give up to $16,000 per person per year without having to pay taxes on the gift. If you exceed the $16,000 limit, you may have to pay taxes on the amount that exceeds the limit. However, there are ways to give larger gifts without having to pay taxes. 

You can gift assets such as stocks or property and avoid paying taxes on the gift. Additionally, you can spread out large gifts over multiple years in order to avoid having to pay taxes on the larger gifts too.

3. The Use of Trusts

Trusts are a valuable estate planning tool that can be used to reduce or eliminate your tax liability. Trusts can be used to hold assets and income for beneficiaries, which can help reduce the amount of taxes you pay on those assets. Additionally, trusts can be used to transfer property and income to beneficiaries in a way that minimizes the taxes they pay. 

Trusts can also help protect your assets from creditors and lawsuits. An often chosen way to reduce tax liability, if you too are looking for a way to reduce your tax liability, trusts may be the solution for you.

Consult With an Experienced Asset Protection Attorney

In conclusion, there are many ways to reduce your tax liability through asset protection planning. These range from gifting to LLCs, to wills to trusts to offshore accounts, and many more. By following the advice in this article, you can take steps to reduce your tax liability and protect your assets. 

Consult with a North Carolina tax planning attorney at Wilson Ratledge to get started on asset protection planning today. We will work with you to create a plan that will best suit your needs and protect your assets.