Those who choose to pay their taxes in quarterly installments will face double the bill, and double the headache, on April 17, 2018. Why? In addition to paying for the final quarter of 2017, you will also need to pay the Internal Revenue Service (IRS) for the first quarter of 2018.
The timing is not new, why double the headache? The new tax law makes the payment for the first quarter of 2018 particularly difficult. The exact impact of the law is not yet fully known and the Treasury Department and Internal Revenue Service (IRS) continue to issue notices in an attempt to provide guidance.
Navigating these rules is even more difficult for entrepreneurs. As noted in a recent piece by Reuters, sole proprietors and other freelancers are particularly hard-pressed to get an accurate estimate for their 2018 tax obligations. The deduction available in Section 199A is a prime example. This section is supposed to provide sole proprietors with 20 percent deduction on pass-through income, but no one knows exactly how it will work.
Although the details remain unclear, two specific things that could increase the risk of an audit for those who claim this deduction include:
- Number of income sources. The IRS will take note if you claim to be a sole proprietor but only receive income from one source. The agency will see this as a sign that you may truly be an employee, not a sole proprietor.
- High income. The deduction phases out as your income increases. The phase out begins for those who earn over $157,000 as an individual or $315,000 as a married couple. A failure to account for this will likely trigger an audit.
The experienced attorneys at Goldburd McCone, LLP can provide guidance if your tax return triggers an audit. Proactive steps taken by your legal counsel can help reduce the impact of an audit.