Congress eyes $300B tax gap by Sandra Block, USA Today
………..Complicated tax returns
Because of the complexity of their returns, many self-employed workers must pay someone to do their taxes, which reduces their profits, says Todd McCracken, president of the National Small Business Association. Those who can’t afford to hire a professional must take time away from their businesses to meet complex reporting requirements, such as filing estimated taxes every quarter, he says.
They need to keep comprehensive records, too, because sole proprietors are up to three times more likely to be audited than are individual taxpayers who don’t file a Schedule C, the form used by self-employed workers to report their business income.
“Chances are, you’ll be audited if you’re in business long enough,” says Frederick Daily, a tax attorney and author of Stand Up to the IRS.
Chuck Smith Jr., co-owner of JR Services, a mortgage servicing company in Norton, Ohio, knows that all too well. Since he went into business for himself in the 1970s, he’s been audited three times.
None of the audits resulted in a higher tax bill, but in one case, he had to track down a receipt for a used truck cap. In an e-mail message, Smith said he now saves receipts for everything, some for as little as 50 cents.
A stepped-up effort to capture unreported income would lead to more audits of the self-employed. And it could also prove costly for families who employ nannies or other full-time household help.
If you paid a nanny $1,500 or more in 2006, you’re supposed to file Schedule H with your tax return and withhold a portion of your employee’s pay for Social Security, Medicare and unemployment tax.
Few pay nanny tax
But despite some high-profile cases of nanny-tax evasion, the tax is widely ignored. In 2003, the most recent year available, only about 241,000 taxpayers filed Schedule H, according to the IRS. The International Nanny Association estimates that about 1 million households employ nannies in the USA. Families bypass the nanny tax for many reasons. Some are already struggling to pay for child care and can’t afford it.
Others employ undocumented workers. And some don’t understand the rules, or think the tax is too complicated or burdensome, says Robert King, co-owner of Legally Nanny, an Irvine, Calif.-based company that helps people pay nanny taxes.
But this much is clear, King says: If the IRS audits your return and finds you have an off-the-books nanny, you’ll owe back taxes and interest — along with penalties for tax evasion and fraud………
October 9th, 2007 at 1:57 pm
Consider how the Nanny Tax compliance issue can affect your own employment scenario. Most publicly traded companies now have business ethics policies that address this situation.
Even if you aren’t employed by a Fortune 1000 company, you still expect your employer to follow State and Federal employment laws. There is really no grey area; if you employ a nanny or other household employee, and they work in your home, they have the same rights as you do at your office.
GTM Household Employment Experts can assist in managing this important relationship, at the same time making sure you are complying with the payroll and tax requirements for your nanny. For more information, please visit our website at www.gtm.com or visit your local bookstore and pick up Guy Maddalone’s new book, “How to Hire a Nanny: Your Complete Guide to Finding, Hiring and Retaining a Nanny and Other Household Help”!