WARD, LANE & ASSOCIATES, P.C.
Tips
Check back with us every week for new tax tips and advice concerning tax laws:
LATE PAYMENT PENALTY AVOIDANCE:
If you are an employee there may be a way to avoid a penalty if you underpaid or neglected to pay in your estimated tax payment for a quarter. You can increase your payroll withholdings in later months of the year to build up withholdings to cover the shortfall. Paying more on your next estimated quarterly tax payment wouldn't work since the prior quarter's shortfall remains. The trick is that your total annual employee wthholdings for the year are treated as though they were paid equally throughout the year.
INHERITED PROPERTY:
If you inherit property, your basic cost in the property is the "fair market value" on the date of the person's death. If you sell, your gain automatically qualifies for the lower long-term capital gains rate even if you own it less than a year. Separately, you should know that inherited property could be seized or levied by the IRS if you have an outstanding tax liability. One sly taxpayer owing several hundred thousand dollars in back taxes tried to disclaim his inheritance (over $250,000) which then passed to his daughter who immediately funded a trust naming herself and her father (of course) as beneficiaries to recieve trust funds for their family health and financial support. The IRS levied the trust for the back taxes, the trust sued and the courts, including the Supreme Court, sided with the IRS.
TIP: If you owe taxes and are about to inherit someone's estate, communicate your situation early to find ways to preempt the IRS.
TAX RULES FOR HOUSEHOLD EMPLOYEES:
It is important to review the basic rules regarding household employees you may be using throughout the year. A household or domestic employee is anyone you hire to work around your household. Included are workers such as nannies, independent lawn and garden workers, snow removal and cleaning people.
You are not required to withhold federal and state income taxes, but you must pay social security and medicare (FICA) if wages are $1,200 or more in 2001. Federal Unemployment(FUTA) must also be paid if earnings are $1,000 in any calendar quarter or the worker works twenty or more weeks for you and earns $1,500 or more. As an employer of a domestic worker, you may pay annually instead of quarterly like other employers must. If you have any questions about these taxes be sure to call because the fines for not paying FICA and FUTA can be 75% of taxes owed.