Are you a small business owner and have questions about your tax return? Here are the top questions the IRS gets from small business owners:

1. Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
For a business to be classified as a sole proprietorship:

Either the husband or the wife would be the ownerof the business.
Either of the spouses can work in the business as an employee.
If a married couple who file a joint tax return elects to conduct their business activities as a qualified joint venture:

The husband and wife must materially participate in the trade or business.
The spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.

2. Must a partnership or corporation file a tax form even though it had no income for the year?
A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.

A domestic corporation must file an income tax form whether it has taxable income or not.

3. What is the difference between a Form W-2 and a Form 1099-MISC?
Both of these forms are called information returns.

The Form W-2 is used by employers to:
Report wages, tips and other compensation paid to an employee.
To report the employee’s income tax and Social Security taxes withheld and any advanced earned income credit payments.
To report wage information to the employee, the Internal Revenue Service and the Social Security Administration.

A Form 1099-MISC is:
Used to report payments made in the course of a trade or business to another person or business who is not an employee.
Required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or compensation are paid.
Provided by the payer to the IRS and the person or business that received the payment.

4. How do you determine if a person is an employee or an independent contractor?
The determination is complex, but is based on who has the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time.

There are three basic areas which determine employment status:
Behavioral control
Financial control and
Relationship of the parties

5. As an employer, do I have any liability if my employees receive tips but don’t report them to me?
You have a liability to withhold and pay Social Security and Medicare tax on your employees’ reported tips, to the extent that wages or other employee funds are available.

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips.
If the employee does not report tips to you, it places you at risk of possible assessment of the employer’s share of the Social Security and Medicare taxes on the unreported tips.
If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Report the allocated amount on the employee’s W-2 at the end of the year.

6.  If an employee claims more than 10 exemptions on their Form W-4, does the employer have to report this to the IRS?
This requirement has been eliminated:

In the past, employers had to routinely send the IRS any Form W-4, Employee’s Withholding Allowance Certificate, claiming more than 10 allowances or claiming complete exemption from withholding if $200 or more in weekly wages was expected.
Forms W-4 are still subject to review.
Employers may be directed (in a written notice or in future published guidance) to send certain Forms W-4 to the IRS.
The IRS also will be reviewing employee withholding compliance and you may be required to withhold income tax at a higher rate if notified to do so by the IRS.

7. Does a small company need a tax ID number?
A sole proprietor who does not have any employees and who does not file any excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.
 
8.  If I pay personal expenses out of my business bank account, should I count the money used as part of my income, or can I write these expenses off?
You would include the money in your income.
You would not write the amounts off as expenses.
Only business related expenses can be deducted from your business income.
It is recommended that you not mix business and personal accounts as this makes it easier to keep records

9. For business travel, are there limits on the amounts deductible for meals?
Meal expenses are deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties.
The amount of the meal expenses must be substantiated. 
However, instead of keeping records of the actual cost of your meal expenses you can generally use a standard meal allowance. The amount allowed varies, depending on where and when you travel.
The deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.

Most experts believe that Barack Obama’s nominee for Treasury Secretary, Tim Geithner will be confirmed.  The man entrusted with overseeing with the Internal Revenue Service and a remaining $350 billion in bailout funds–apparently isn’t so smooth when it comes to Intuit’s TurboTax. And the flap over Geithner’s confirmation hearings, his back taxes and his mention of TurboTax highlights two common problems in IT: Users vs. software and the “garbage in, garbage out” conundrum.

Last week, there was a flurry of news reports about Geithner’s comments about TurboTax. As background, Geithner’s confirmation hearings were Jan. 21 and Jan. 22 and he was grilled about paying more than $34,000 in back taxes. Geithner had self employment taxes he didn’t claim while he was an employee of the International Monetary Fund. Geithner worked at the IMF between 2001-2004. He was ultimately is likely to be confirmed, but Geithner’s standing has been diminished.

Geithner said he “mistakenly believed” he was meeting his tax obligations. When asked about what tax prep software he used, Geithner noted that the taxes were his responsibility, “but I used TurboTax to prepare my returns.”

This incident–see the Wall Street Journal’s live blog and Senate Finance Committee video (TurboTax mention comes at the 48 minute mark on Jan. 21 video) highlights the never-ending user error vs. software tug-of-war in IT. Was it your ERP applications that was screwy or your data you failed to input? Were Geithner’s tax problems the result of TurboTax’s failure to flag potential issues–like unpaid self-employment taxes–or the new Treasury Secretary’s failure to cough up critical information.

Intuit was real clear about where it stood. In a statement, Intuit said:

“Each year, millions of Americans use TurboTax to accurately prepare and file their federal and state tax returns. The software helps taxpayers report their income and find the deductions and credits they’re entitled to claim. TurboTax, and all software and in-person tax preparation services, base their calculations on the information users provide when completing their returns. TurboTax also has built-in error-checking tools that routinely catch common taxpayer mistakes. Federal law and our own privacy policy prohibit us from discussing specifics of any customer’s return.”

Advantage Intuit. No one watching Geithner’s testimony is likely to buy the blame the software routine. Clearly, this fiasco is a garbage in, garbage out issue. Geithner didn’t provide the necessary data.

The larger question is whether a guy that wrestles with TurboTax should realistically be expected to oversee the IRS and fork over $350 billion in bailout money. I’ll leave that for you to decide since that answer goes well beyond the scope of my blog. I’d hate to add yet another IT problem–scope creep–to this post.

For the average individual, trying to get tax related questions answered by the Internal Revenue Service is too difficult. Here are the top 10 questions taxpayers have regarding the IRS and filing taxes:

1. Can a person receive a tax refund if they are currently in a payment plan for prior year’s federal taxes?
As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.

Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.
You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
IRS will automatically apply the refund to the taxes owed

2. What is a split refund?
A split refund lets you divide your refund, in any proportion you want, and direct deposit the funds in up to three different accounts with U.S. financial institutions.

3.What should I do if I made a mistake on my federal return that I have already filed?
It depends on the type of mistake that you made:

Many mathematical errors are caught in the processing of the tax return itself.
If you did not attach a required schedule the service will contact you and ask for the missing information.
If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X, Amended U.S. Individual Income Tax Return.

4. Is there an age limit on claiming my children as dependents?
Age is a factor in the qualifying child test, but a qualifying relative can be any age.

As long as the following dependency exemption tests are met, you may claim him or her:
Qualifying child or qualifying relative test
Dependent taxpayer test
Citizenship or resident test
Joint return test

5. If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?
If you claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.

If an individual is filing his or her own tax return, and the individual can be claimed as a dependent on someone else’s return, the individual cannot claim his or her own personal exemption.
In this case, your daughter should check the box on her return indicating that someone else can claim her as a dependent.

6. How much does a student have to make before he or she has to file an income tax return?
If you are an unmarried dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits.

To find these limits refer to Filing Requirements for Dependents in Publication 501, Exemptions, Standard Deduction and Filing Information.
Even if you do not have to file, you should file a federal income tax return to get money back if any of the following apply:
You had income tax withheld from your pay.
You qualify for the earned income credit.
You qualify for the additional child tax credit.

7. For head of household filing status, do you have to claim a child as a dependent to qualify?
In certain circumstances, you do not need to claim the child as a dependent to qualify for head of household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild, or adopted child.

8. What are the tax changes for this year?
For highlights of any tax changes for the current tax year please refer to the “What’s New” section for:

Form 1040 Instructions
Form 1040A Instructions
Form 1040EZ Instructions

9. How do I know if I have to file quarterly individual estimated tax payments?
If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

You must make estimated tax payments for the current tax year if both of the following apply:

You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

10. How do I request a copy of my tax return for last year?
If you need an exact copy of a previously filed and processed return and all attachments, you must complete Form 4506 (PDF), Request for Copy of Tax Return, and mail it to the IRS.

Use the address provided in the instructions to the form.
Submit a check or money order for $57, per tax year, made payable to the “United States Treasury.”
Copies are generally available for returns filed in the current and past 6 years.

In cases where an exact copy of the return is not needed, tax return and transcripts may be ordered.

The tax return transcript shows most line items contained on the return as it was originally filed, including any accompanying forms and schedules.
In most cases, a tax return transcript will meet the requirements for lending institutions for mortgage verification purposes.
The transcript can be ordered by completing a Form 4506-T (PDF) or calling 800-829-1040 and following the prompts in the recorded message.
There is no charge for the transcript and you should receive it in 10 business days from the time we receive your request.
Tax return transcripts are generally available for the current and past three years.

source: irs.gov

Many taxpayers ask for a copy of their prior year tax return. If you had a qualified tax preparer complete your them, you can start with asking them for a copy. But be forewarned, some qualified tax preparers will charge you up to $10 per copy. So what are your other choices?

You can contact the IRS for a copy of the tax returns or ask them for a transcript. The IRS will provide you a copy of your tax return, however, a transcript will provide the information they need more quickly. Transcripts provide taxpayers with a computer-created record of their tax return which includes most of the line-items as filed with the IRS, including any accompanying forms and schedules. The transcript does not reflect any changes the taxpayer, his/her representative, or the IRS made after the return was filed.

To download Form 4506 (Request for Copy of Tax Return) or Form 4506T (Request for Transcript of Return), refer the taxpayer to this IRS.gov webpage.

Other notes:
If you were impacted by a federally declared disaster, you may request copies by phone at 1-866-562-5227 (Hours of operation are 7 a.m. to 10 p.m., Monday-Friday, your local time - except Alaska and Hawaii which are Pacific time.) Otherwise, you may call the IRS information line at 1-800-829-1040.
If the taxpayer used a professional preparer to prepare the prior year’s return, he/she can request a copy of the return from the preparer. If they need help locating the preparer, the Electronic Return Originator data base may help.
To request copies in person, you may refer taxpayers to the nearest Taxpayer Assistance Center (TAC).