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Small Employers Rejoice - IRS Simplifies Filings

On of the largest burden on very small employers is dealing with taxes. Fortunately, the IRS has taken a major step to reduce this burden.

Quarterly Federal Tax Returns - Not!

There are millions of small businesses that labor under the burden of filing federal tax returns each quarter of the calendar year. These quarterly returns have been a major gripe of business owners who often feel they see their CPAs more than their families. The IRS is finally listening. Well, sort of.

Beginning January 1, 2006, the quarterly federal tax return will go the way of the dodo bird for some small businesses. Instead of being required to file every three months, these small business will be allowed to just file an annual federal tax return with the IRS.

When it comes to taxes and the IRS, there is always a catch. So, what is it in this situation? The annual tax return procedure will only be available to very small businesses, often just sole proprietorships.

Under the new regulations, small businesses will only be eligible for the annual filing if their estimated annual employment tax is $1,000 or lower. Put another


way, this equates to paying roughly $4,000 in wages in a calendar year. That is a significant catch.

Ostensibly, this new annual tax return procedure is designed to help mom and pop businesses or businesses that are barely running. Depending on the specifics of the regulations, however, a significant loophole may let a lot more people through the door. The IRS, for instance, categorizes a single member LLC as a sole proprietorship. As a result, the LLC doesn't technically pay employment taxes. Instead, the member can simply draw money from the business and then report it on his or her personal taxes.

To find out if you qualify for the annual return option, just sit and wait. The IRS is going to send out notices to qualifying small businesses during the first two weeks of February 2006. If you don't receive one, you can contact your CPA to see if there are any options for your business.

About the author:

Richard A. Chapo is with http://www.businesstaxrecovery.com - recovery of business taxes through tax help and tax relief. Visit http://www.businesstaxrecovery.com/articles to read more business tax articles.