Federal law requires you, as an employer, to withhold taxes from your employees’ paychecks. Each time you pay wages, you must withhold – or take out of your employees’ paychecks – certain amounts for federal income tax, social security tax, and Medicare tax. Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities.
Who Must File Form 941?

Use Form 941 to report the following amounts.

Do not use the Form 941 to report backup withholding or income tax withholding on nonpayroll payments such as pensions, annuities, and gambling winnings. Report these types of withholding on Form 945, Annual Return of Withheld Federal Income Tax. you must file a return for each quarter.

If you sell or transfer your business, you and the new owner must each file a Form 941 for the quarter in which the transfer occurred. Report only the wages you paid.

Download IRS Form 941 from here

Download IRS form 941 instructions from here

How to Deal with an IRS Notice if ever you receive one? Most americans are confused, terrified by the IRS notice showing up in their mailbox. However history says that you can very well handle the IRS notice without any need to panic.

Every year, IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
7. Most correspondence can be handled without calling or visiting anIRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
8. It’s important that you keep copies of any correspondence with your records.

If you still need help, You can either consult an IRS Tax Attorney or call IRS for help.

IRS has issued an updated guidelines for the new modernized E-file MeF platform used for IRS form 1040.

Software Developers and Transmitters who currently participate in the e-file program and want to participate in the 1040 MeF program can update their e-file application to add “MeF Internet, XML” as a transmission method on their “Forms” page for Form 1040. While updating your application, please also verify that your “Primary Contact” information is not missing and contains current information.

Please note that this doesn’t impact Electronic Return Originators who already participate in the 1040 e-file program – no application change is necessary in order to participate in 1040 MeF. Of course, EROs who are new to the 1040 program must complete their application as usual.

Recap:  What do current 1040 e-file participants have to do:
ERO – nothing
States – nothing (IRS will update the state’s e-file application to include participation in 1040 MeF)
Software Developer – add “MeF Internet, XML” as a transmission method
Transmitter – add “MeF Internet, XML” as a transmission method
Note: a participant who is a developer and a transmitter will need to update both roles

Via: IRS.gov

This notice is for all software developers, Return Transmitters and Authorized IRS e-file Providers/EROs.

IRS has updated the Form 1120/1120F/1120S and 7004 for Tax Year 2009.  The Tax Year 2009 Form Family 1120/1120F/1120S and 7004 Schemas, Business Rules and Release Memo have been posted on IRS.gov.

You can access the new files from the Valid XML Schemas and Business Rules for 1120/1120F/1120S/7004 Modernized e-File (MeF) on IRS.gov.

If you have any questions regarding the new files, you can contact IRS e-Help Desk at 1-866-255-0454.

IRS has officially announced the inflation adjustment factor and phase-out amount for the enhanced oil recovery credit for taxable years beginning in the 2009 calendar year.  The IRS  Notice 2009-73 also contains the previously published figures for taxable years beginning in the 1991 through 2008 calendar years.

The notice contains a major update on Oil Recovery Tax Credit. The enhanced oil recovery credit under § 43 for
any taxable year is reduced if the “reference price,” determined under § 45K(d)(2)(C), for the calendar year preceding the calendar year in which the taxable year begins is greater than $28 multiplied by the inflation adjustment factor for that year.

The credit is phased out in any taxable year in which the reference price for the preceding calendar year exceeds $28 (as adjusted) by at least $6.

Although most people won’t be filing their tax returns for several months, the dog days of summer are actually a great time to start planning for the tax filing season by ensuring your records are organized.  Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.

Here are a few things the IRS wants you to know about recordkeeping.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

Source: IRS Publication 552

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. The tax rate structure differs a lot for employee and a independent contracts. Lets understand the tax implications for hiring them.

IRS has listed down top ten most important things you should consider as a business owner about hiring people as independent contractors versus hiring them as employees.

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov

IRS (internal revenue service) charges interest rates to everyone who doesn’t meet the IRS deadline for filing taxes.

IRS charges interest on underpayments and late payments or even on family loans.

Internal Revenue Service announced that interest rates for the calendar quarter beginning October 1, 2009, will remain the same. The rates will be:

four (4%) percent for overpayments [three (3) percent in the case of a corporation];
• four (4%) percent for underpayments;
• six (6%) percent for large corporate underpayments; and
• one and one-half (1.5%) percent for the portion of a corporate overpayment exceeding $10,000.

The IRS rate of interest is determined every quarter and based on daily compounding.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.  The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

If you are a victim of a natural disaster or theft this summer, you  should know the rules for deducting your casualty losses next year when you file your federal tax return. Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.

IRS gives ten top tips for claiming tax deduction on casualty and theft losses:

1. You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement. You must reduce your loss by the amount of the reimbursement.
2. A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.
3. The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.
4. If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.
5. If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.
6. To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A. However, you can deduct a 2008 or 2009 net disaster loss from a federally-declared disaster even if you do not itemize your deductions.
7. If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009. For 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.
8. The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.
9. In figuring your loss, do not consider the loss of future profits or income due to the casualty.
10. Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.

For more info, you may refer to IRS publication on Theft and Casualty Losses

It might just be possible that IRS owes you money instead of your owing them The IRS basically collected more taxes from your and would like to return to you. Now lets understand how this whole process works.

If you have not filed a prior year tax return and are due a refund, you should consider filing the return to claim that refund. If you are missing a refund for a previously filed tax return, you should contact the IRS to check the status of your refund and confirm your current address.

Unclaimed Refunds

Some people may have had taxes withheld from their wages but were not required to file a tax return because they had too little income. Others may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit.

• To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
• If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
• There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
• Current and prior year tax forms and instructions are available on the Forms and Publications web page of IRS.gov or by calling 800-TAX-FORM (800-829-3676).
• Information about the Earned Income Tax Credit and how to claim it is also available on IRS.gov.

Undeliverable Refunds

Were you expecting a refund check but didn’t get it?

• Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
• You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
• You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
• If you do not have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.

Now most importantly, When you get your tax money back, use it wisely in this bumpy economy!