Making payments to the IRS is something that we will all do at one point or another, some more than others. Small business owners certainly spend a lot of time making sure the IRS is properly paid, especially when company revenues pass through to personal tax returns as they would with several entity forms. In order to streamline the process of paying, follow these tips from the IRS:

1. Never send cash.
2. If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.
3. You can pay by phone or online using a credit or debit card whether you file a paper return or electronically.
4. Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.
5. If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
6. Enclose your payment with your return, but do not staple it to the form.
7. If you pay by check or money order, make sure it is payable to the “United States Treasury.”
8. Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.
9. Complete and include Form 1040-V, Payment Voucher, when sending your payment and  tax return to the IRS. This will help the IRS process your payment accurately and efficiently.
10. For more information, call 800-829-4477 for TeleTax Topic 158, “Ensuring Proper Credit of Payments.” You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at IRS.gov.

As of April 1, many taxpayers will see an extra few dollars in their paychecks as a result of the Making Work Pay Credit. The credit is part of the American Recovery and Reinvestment Act of 2009, signed into law by President Obama in February 2009. The credit will provide up to $400 per individual worker and $800 per working married couple.

The credit will be administered through cuts in withholding at the employer level. The credit will phase out for individual taxpayers with AGI in excess of $75,000 (up to $95,000) or $150,000 for married couples filing jointly (up to $195,000).  If you are a higher income taxpayer, you will see little or no change in your pay.

The amount of the credit that you receive will be reported on your 2009 income tax return, but it is not taxable and you do not have to pay it back if you received the proper amount. If you do not have taxes withheld by an employer during the year because you are self-employed or because your withholding level is too low for the credit to apply, you can claim the credit on your 2009 tax return. This is a refundable credit, so if you qualify and you do not receive the entire amount, you can file to have any additional credit refunded to you at tax time.

Office Depot will provide free copies (up to 25 single-sided pages) of 2008 tax returns for taxpayers this season. The promotion, which runs from March 22 to April 15, 2009, is available at the Design, Print, & Ship Depot center at Office Depot retail store locations nationwide.

For more information, please visit your local Office Depot retail store location or www.officedepot.com.

What is cancellation of debt income?

The Internal Revenue Code defines gross income as all income from whatever source derived.  Discharge of indebtedness income is included in gross income.  Discharge of indebtedness income arises when a debt is canceled or forgiven, or if a creditor accepts less than the full amount of the unpaid balance on a debt as payment in full of the obligation.  The amount of gross income is the difference between the amount of the debt being canceled and the amount paid to settle the debt.

What is a debt?

One must have a true debt to have income from the cancellation of indebtedness. A true debt exists when there is an unconditional and legally enforceable obligation to repay a loan.

Not all transfers of money are true debt and therefore do not result in gross income if the debt is forgiven. For instance, if a parent loans money to a child with a schedule of payments and interest but thereafter refuses payment, it is possible that the cancellation of any duty to repay may qualify as a gift under applicable tax laws.  In a business context, the question of whether a transfer of money or property is debt or equity will dictate whether failure to fully repay the transferor will create cancellation of indebtedness income.

How to calculate cancellation of debt income.

The amount of cancellation of indebtedness income is generally the difference between the amount of debt being canceled minus the amount paid to settle the debt.

Relief from cancellation of debt income.

The Mortgage Forgiveness of Debt Relief Act of 2007 may allow homeowners to exclude forgiven debt income if it is due to a discharge of debt secured by a primary residence. Income derived from restructuring a mortgage and debt forgiven in the restructuring is included. This law applies the debt forgiven between 2007 and 2012 on amounts up to $2 million. To qualify, the money derived from the debt must have been used to buy, build or substantially improve a principal residence. Funds used to refinance a home may also qualify.

The American Recovery and Reinvestment Act of 2009 provides additional relief for taxpayers facing cancellation of debt income. The new law allows taxpayers to elect to defer cancellation of indebtedness income earned between January 1, 2009 and December 31, 2010.  Instead of being recognized in the year of the cancellation of debt, this law permits a taxpayer to spread the income, and the tax burden from that income, over a five year period.

The exclusions also include provisions relating to debts discharged during bankruptcy and debts of taxpayers who are insolvent prior to the cancellation of debt.

If a taxpayer qualifies for an exclusion of debt forgiven, he or she must file an IRS Form 982 in addition to the 1099-C issued by the creditor upon a forgiveness of debt for less than full value.

The bottom line.

Be aware of and prepare for cancellation of indebtedness income when negotiating forgiveness of debt with creditors. Knowing the amount of income that will be reported to the IRS will help you plan ahead and prevent an unexpected tax bite next year.

Bicycle commuters get a tax-free benefit in 2009. This year, employers are allowed to reimburse employees up to $20 per month for the costs of commuting to work via bicycle. Reimbursable costs include the cost of the bike, repairs and storage costs.  The benefit is allowed only in months when the bicycle is used for a substantial portion of the commute.

But, employees receiving this benefit cannot receive any other tax-free commuting perk such as parking, transit passes or van pools. If they do, the bicycle commuting exclusion is lost for the month.  So, employees who get tax-free mass transit subsidies from employers are not eligible for the bicycle benefit if they bike to the train station from their homes and then use the transit subsidy to ride the train.

As for employers, the bicycle benefit cannot be funded through a salary reduction, as is allowed for parking and mass transit subsidies.  Consequently, companies offering the bicycle benefit will not save on employment taxes.