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Small businesses: New forms for reporting payroll taxes

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in Small Business Tax,Small Business Tax Deduction Strategies

The IRS has implemented several key changes in the tax-reporting rules for small businesses. The changes for reporting payroll taxes are reflected in Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) and new Form 944 (Employer’s Annual Federal Tax Return).

Form 940: Both the form and the accompanying instructions have been redesigned to make them easier to read and understand. The IRS will be able to scan the form and capture data more easily. At the same time, the IRS has eliminated Form 940-EZ. Those who filed 940-EZ in the past must now use Form 940.

Form 944: Small business owners who have annual liability of $1,000 or less must file Form 944 instead of Form 941 (Employer’s Quarterly Federal Tax Return).

You file this new form on an annual basis instead of quarterly. The first Form 944 for 2006 employment taxes and income tax withholding is due Jan. 31, 2007.

Due to the relatively low limit, Form 944 applies only to the smallest businesses. Example: Running a sideline business from your home would qualify you to use it.

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