About Me

Albuquerque, New Mexico, United States
I am a Certified Public Accountant in Albuquerque, New Mexico specializing in representing taxpayers who are unable to pay the taxes they owe or must file delinquent returns or are under audit. I am also a frequent presenter of IRS Small Business Workshops for new businesses and new employers. You can read more articles on my website.

Wednesday, February 19, 2020

Is it true that independent contractors owe New Mexico gross receipts taxes?

Yes!  Income from the sale of services is taxed differently in New Mexico than in most other states.

Businesses in New Mexico receiving income from services provided to buyers located within New Mexico are subject to N.M. Gross Receipts Tax (GRT). Income from s
elf-employment is affected. Independent contractor income is affected.Caution: Gross receipts from the sale of services to non-profit organizations and government entities are subject to N.M. Gross Receipts Tax even though those organizations do not have to pay tax on the merchandise they purchase.

Businesses must register. 

If you live in New Mexico and receive income from your services (unless you receive a Form W-2) you are required to register your business with the N.M. Taxation & Revenue Dept., report your gross receipts and pay Gross Receipts Tax.Overlooking this tax can be costly.

Those businesses not already reporting their gross receipts to the N.M. Taxation & Revenue Dept. will be audited. That's because the N.M. Taxation & Revenue Dept. (TRD) receives information from the IRS about anyone living in New Mexico who files Schedule C.  The TRD then matches gross receipts (aka sales on the federal income tax return to gross receipts reported to the state. A discrepancy will cause the TRD to audit the business's gross receipts.

Important: The "employer" of the services of an independent will usually be required to send you a Form 1099-MISC and file a copy with the IRS as well. As a consequence the IRS will expect you to file a Schedule C, Profit or Loss from Business, with your Federal Individual Income Tax Return. 

Amnesty of sorts.

Once an audit begins the taxpayer will not qualify for the N.M. Managed Audit law, which is effectively an amnesty with respect to penalties and interest applicable to delinquent tax returns.Also read:

How to confirm the identity of a field revenue officer if they come knocking at your door.

When an RO visits a taxpayer, they will always provide two forms of official credentials, called a pocket commission and a HSPD-12 card. Both forms include a serial number and photo of the IRS employee. The HSPD-12 card is a government-wide standard for secure and reliable forms of identification for federal employees and contractors. Taxpayers have the right to see each of these credentials and can verify information on the RO’s HSPD-12 card by calling a dedicated IRS telephone number, provided by the RO, for verifying the information and confirming his or her identity.

Saturday, January 18, 2020

Do you have a balance due on your tax return?

It's best to file on time. You will avoid the 5% per month late filing penalty. And you can request an installment plan. You should know that many people are afraid to file a return if they can't pay. That fear can start a cycle of not filing for multiple years. Penalties build up to the point that they can add as much as 50% to the tax. This creates a "hole" that is very difficult and expensive to dig your way out of.

Tuesday, July 23, 2019

How do you distinguish between a business and a hobby?

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is done mainly for recreation or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
  • Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
You may find more information on this topic in section 1.183-2 (b) of the Federal Tax Regulations.

Saturday, May 18, 2019

I have a tax problem with the IRS but I can't afford to pay fees for representation. What can I do?

If you would have difficulty paying for professional representation and your income is less than the amount listed in this brochure, you may qualify for the assistance of the NM Low-Income Taxpayer Clinic. If you are located outside of New Mexico, here is a list of LITCs in other states.

Saturday, September 29, 2018

Should business owners prepare their own returns?

Preparing one's own personal income tax returns is not necessarily difficult. Many people have straightforward income from jobs and only a few deductions.

Business returns are another story. 

I've seen many returns prepared by business owners. A number of them contained mistakes that resulted in larger tax bills than were necessary. The most common is not being aware of what expenditures might be deductible in the first place. Other returns get audited, not so much because of the deductions they took, but in the way the deductions were presented on their returns. 

One example is a N.M. gross receipts tax case where the return contained the wrong standard industry code. The code was for a real estate development business. The owner was actually a real estate sales associate. In N.M. those people are not subject to GRT. Using the wrong SIC code caused N.M. Taxation & Revenue Dept. to mistakenly believe this was a taxable business that hadn't reported its GRT. In the end no tax was due. Nevertheless, there were other consequences. Understandably, the owner worried a lot about having to undergo an audit.  The owner had to take time away from earning their living. And they paid for professional representation. (They could have represented themselves; but, hat's a topic for another discussion.)

Another case involved a return where the deduction for office expenses included other types of expenses. The owner used it as a sort a catch-all because they shoehorned everything that wasn't a preprinted line item into office expenses. The result was that the amount of the office supplies deduction was unusually large compared with the business's sales. The IRS noticed this and flagged the return for an audit. While many of the mis-classified

expenses were legitimate, the IRS uncovered some that weren't.
How about sharing your stories of what went wrong because you prepared your own return or the success you had by having your return professionally prepared.

Tuesday, September 11, 2018

Some articles on my website