Barter Transactions

In today’s economy, small-business owners sometimes look to the oldest form of commerce — the exchange of goods and services or bartering. The Internal Revenue Service wants to remind small-business owners that bartering transactions generally have associated tax reporting, accounting and record-keeping responsibilities.

Bartering is the trading of one product or service for another. Usually there is no swap of cash. Barter may take place on an informal direct one-on-one basis between businesses and individuals, suppliers, customers, distributors, partners, contract labor, and employees, or it can take place on a third-party basis through a modern Internet barter exchange.

Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through barter is taxable income. Be sure to use a reasonable fair market value for the property or services received in a barter transaction to include in your income. The transaction is not a wash if you report the fair market value of the property received that is greater than your cost or basis in the property given up.

For example: if bowling equipment given up has a cost or other basis of $500 to you there is a $500 gross profit on the transaction if the fair market value of the fishing equipment received in the barter exchange is $1,000. Simply put, you should identify the transaction in your records and report the income and any related business deductions and cost of goods sold on your tax return.

Personal Returns: Need More Time? Unable to Pay?

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April 17th, 2018 is the official filing deadline for Form 1040, U.S. Individual Income Tax Return. Need more time to gather data to file a complete and accurate return? The IRS allows for an extension of time to file, NOT to pay. You can submit Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to receive a six-month extension until October 15th, 2018. By filing this form, you won’t be subject to the late filing penalty. But remember, you must pay in at least 90% of the current tax (100% of the prior year or 110% if AGI is greater than $150,000 in 2016) to avoid late payment penalties during the extension period with the remaining balance paid with the filing of the return. This may require you to estimate your income, deductions and tax liability. A valid extension requires a reasonable tax estimate indicated on Form 4868, even if the amount due isn’t paid with the extension. So don’t delay! If you need more time to file, gather your tax information, contact your tax preparer and request an extension estimate.
 

What if you can’t pay your taxes? Don’t panic! You’re not alone; many taxpayers have found themselves in financial distress and unable to pay immediately. If you cannot pay the full amount of taxes you owe, you should still file your return (or extension) by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options, such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the IRS may even be willing to waive penalties. Remember though, no matter what option you choose, don’t ignore your tax obligations; they won’t go away but will likely get worse, resulting in tax liens or garnishment of wages. Remember, the IRS is far more willing to work with you if they believe you’re making reasonable efforts to resolve the issue on your end!

2nd Quarter 2018 Due Dates

April 17:

  • Individuals:
    • 2017 Form 1040 due, or file Form 4868 for a 6-month automatic extension.
    • 2017 FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), due. Automatic 6-month extension will be granted for filers who fail to meet the due date.
    • Last day to contribute to an IRA and ESA for 2017.
    • First installment of 2018 estimated tax due.
    • 2017 Form 709, US Gift Tax Return, due if more than $14,000 was gifted to any individual besides a spouse or charity in 2017, or file Form 4868 or 8892 for a 6-month automatic extension.
  • Calendar-Year End C Corporations:
    • First installment of 2018 estimated tax due.
    • 2017 Form 1120 due, or file Form 7004 for automatic 6-month extension.

April 30:

  • Employers: File Form 941 for 1st quarter 2018.

May 15:

  • Partnerships & S Corporations: File Form 8752 if on fiscal year under Section 444 election.

June 15:

  • Individuals:
    • 2nd installment of 2018 estimated tax due.
    • 2017 Form 1040 due for U.S. citizens or resident aliens living/working (or active duty military) outside the U.S. or Puerto Rico or file Form 4868 for 6-month automatic extension.
  • Calendar-Year End C Corporations: Second installment of 2018 estimated tax due.

Businesses Will Be Affected by the Tax Cuts and Jobs Act!

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In late December, President Trump signed the Tax Cuts and Jobs Act (TCJA) that provides extensive tax reform to our tax system. Business owners will be faced with several changes as well as tax planning opportunities beginning in 2018. Below is a summary of some provisions included in the TCJA that may affect you:

Corporate Tax Rates. The rate has been reduced to a flat 21%. Previously, corporations were subject to graduated tax rates ranging from 15% – 35%.

Section 179 Expensing/Bonus Depreciation. Effective 1/1/2018, the ability to write off fixed asset purchases through Section 179 expensing has increased from $500,000 to $1 million with phase-out increased from $2 million to $2.5 million. Beginning in 2018, there’s also an opportunity to take bonus depreciation through 100% expensing for qualified property. Used property now qualifies as well as qualified film, television, and live theatrical productions.

Alternative Minimum Tax (AMT). The corporate AMT is repealed for tax years after 12/31/17.

Dividend Received Deduction. The 80% dividend received deduction is reduced to 65% and the 70% dividend received deduction is reduced to 50% for tax years 2018 and beyond.

Like-Kind Exchange Treatment. Beginning in 2018, like-kind exchanges are only available for real property that isn’t held primarily for sale. Therefore, like-kind exchanges on vehicles will no longer be allowed.

Entertainment Expenses. Deductions for entertainment expenses are disallowed for tax years after 12/31/2017. In addition, meals provided by the employer on the premises are subject to 50%, rather than being fully deductible.

Domestic qualified business income. For tax years beginning after 12/31/2017, taxpayers will no longer be able to claim a domestic production activities deduction.

Cash Basis of Accounting. Beginning in 2018, the cash basis of accounting may be used by taxpayers who meet the $25 million gross receipts test (previously $5 million) regardless of income producing activities. Converting to the cash basis of accounting would result in a change of accounting method and the filing for Form 3115.

Accounting for Inventory. For tax years beginning after December 31, 2107, taxpayers who meet the $25 million gross receipts test are no longer required to maintain inventory, but rather can either treat inventories as non-incidental materials and supplies or in a manner that conforms to the taxpayer’s financial accounting treatment of inventories. The use of this provision will result in a change in accounting method and the filing of Form 3115 and may require paying significant user fees.

While change is often difficult, the TCJA does present opportunities for business owners. To discuss how these new provisions will affect your business, give us a call to schedule a meeting.

Tips for Paying Estimated Taxes

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Estimated tax is a method used to pay tax on income that isn’t subject to withholding. You may need to pay estimated taxes during the year depending on your sources of income. For example, income from self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, may require you pay estimated tax. For Sole Proprietors, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your Form 1040 return.

As a general rule, individuals must pay estimated taxes for 2018 if both of these statements apply:

  • You expect to owe at least $1,000 of tax on your Form 1040, after subtracting your tax withholding (if you have any) and credits, and
  • You expect your withholding and credits to be less than the smaller of 90% of your 2018 taxes or 100% of the tax on your 2017 return.

If you own a business, often calculating estimated tax on a quarterly basis is a better choice. We can help you determine the safest route to go.

With the passage of the Tax Cuts and Jobs Act, estimating income for 2018 may be more challenging than in the past. In these uncertain times, you need someone you can trust for timely and accurate advice. We are knowledgeable and available to help, so call us to schedule an appointment.

Estimated tax payments are generally due April 15, June 15, Sept. 15 and Jan. 15. The easiest way to pay estimated taxes is electronically through the EFTPS, however; you can also pay by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Season of Risk – Protecting Clients and Their Data

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Safety of your personal information and the threat of identity theft is one of the top concerns today by taxpayers. Because of this, here are a few things to consider when selecting a tax preparer for your business:

Preparer Credentials. The IRS requires anyone who prepares or assists in preparing federal tax returns for compensation to have a valid Preparer Tax Identification Number (PTIN). Additionally, your preparer should have a professional designation such as a Certified Public Accountant (CPA) or Enrolled Agent (EA) which requires them to attend continuing education classes.

Preparer History. Consider how long the preparer has been in practice, reputation in the community, their professional network, and what resources they have available. You can also check for disciplinary actions and licensure status through the state boards of accountancy, the state bar associations for attorneys, and the IRS Office of Enrollment for enrolled agents.

Preparer Specialty. Most tax preparers develop a focus, such as, trusts and estates, or small business returns. Make sure they specialize in an area that meets the specific needs of your business.

Preparer Availability. Make sure the tax preparer is accessible so that you can contact them year-round, not only just during tax-season! Consider if they are staffed properly to handle your needs.

The recently passed Tax Cuts and Jobs Act is the most extensive tax law of the past three decades, meaning you should take a closer look at your tax situation than at any time during the past three decades. Because your tax preparer also serves you as a trusted advisor, here are additional factors to consider when evaluating your tax preparer:

  • The tax preparer clearly explains things to you in a way you understand.
  • The tax preparer solves your problems using their available resources.
  • The tax preparer views your account as a priority.
  • The tax preparer gives good value for a reasonable fee.
  • The tax preparer provides timely information and advice on a regular basis.

It takes an educated professional to properly sort your business transactions into taxable income and expenses to the government’s satisfaction. Monthly, quarterly and annual reports are governed by strict regulations and doing things incorrectly may result in heavy penalties!

We thank you for your trust in our ability to safely maintain your information, to keep you out of harm’s way, and to provide you with exceptional accounting and tax services.

2018 Filing Season Begins!

2018 taxes

The IRS has announced that it’ll begin accepting 2017 tax returns on Monday, January 29th. This is approximately one week later than last year, which gives the Service time to determine how the passage of the Tax Cuts and Jobs Act in late December will impact tax returns and ensure key processing systems are ready. The deadline for filing your 2017 individual return is Tuesday, April 17th, since April 16th is Emancipation Day, a legal holiday in Washington D.C.

Choosing to e-file and direct deposit your refund remains the safest and fastest way to accurately file your return and receive a refund. The IRS expects to issue more than 90% of refunds in less than three weeks. However, by law the Service cannot issue refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February. The IRS will begin accepting paper-filed returns on January 29th as well, but won’t start processing them until mid-February as systems continue to update.

Tax Cuts and Jobs Act – How Does It Impact You?

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What can you expect in 2018 as a result of the Tax Cuts and Jobs Act? For starters, you may see a change in your paycheck as early as February since the IRS just released the revised 2018 federal tax withholding tables. Most of the other changes will appear when you file your 2018 income tax return in 2019. For example, you may no longer be able to itemize since the standard deduction nearly doubled to $24,000 for married filing joint and $12,000 for single filers.

The increase in the standard deduction along with lower tax rates and expanded child care tax credit should help offset the loss of the personal exemption deduction and some popular itemized deductions for middle-class families. Schedule an appointment with us to review your personal tax position for 2018 and determine if there are any strategic moves you can make this year to reap the benefits of the new tax law.

1st Quarter 2018 Due Dates

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January 15:

  • Individuals: Fourth quarter 2017 estimated tax payments are due (final Installment).

January 31:
Employers:

  • Give your employees their copies of Form W-2 for 2017. File Form W-3 with Copy A of all Forms W-2, regardless of whether you file these forms by paper or electronically. The SSA encourages all employers to e-file. Don’t e-file the same returns which were paper filed.
  • File Form 941 for 4th quarter 2017, or annual Form 944. File Form 940 for 2017.
  • File Form 1096 with Copy A of Forms 1099-MISC reporting non-employee compensation payments in Box 7 only.
  • As a part of the employer reporting requirements under the Affordable Care Act, you may need to give your employees copies of Form 1095-B (Health Insurance Coverage Statement) and/or Form 1095-C (Employee Statement) for 2017. If you’re unsure of your reporting requirements for these forms, please contact us.

Businesses: Distribute Form 1099 to recipients for 2017.

February 28:

  • Employers who paper file: File Form 1096 with Copy A of all Forms 1099, except for any 1099-MISC reporting nonemployee compensation payments in Box 7. As a part of the reporting requirements under the Affordable Care Act, you may need to file Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS. If you’re unsure of your reporting requirements for these forms, please contact us.
  • Large food or beverage establishments who paper file: File Form 8027 to report 2017 tip income, reported tips, and allocated tips.

March 15:

  • Calendar-Year S Corporations: 2017 Form 1120S due or file Form 7004 for an automatic six-month extension. Provide shareholders with copy of Schedule K-1.
  • Partnerships: 2017 Form 1065 due or file Form 7004 for automatic six-month extension. Provide partners with copy of Schedule K-1.
  • C Corporations & LLCs: File Form 2553 to choose to be treated as an S corporation beginning on January 1, 2018.

April 2:

  • Employers who e-file: E-file Form 1096 with Copy A of all Forms 1099, except any 1099-MISC reporting non-employee compensation payments in Box 7. As a part of the employer reporting requirements under the Affordable Care Act, you may need to e-file 2017 Forms 1094-B, 1095-B, 1094-C, and 1095-C. If you’re unsure of your reporting requirements for these forms, please contact us.
  • Large food/beverage establishments who e-file: E-file Form 8027 to report 2017 tip income, reported tips, and allocated tips.

Tax Cuts and Jobs Act

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Are you ready for change? NOW is the time to prepare for tax reform, as every taxpayer will be affected by the new legislation beginning in 2018. Will you see an increase or decrease in your taxes? Will your tax return become simplified or more complicated? There’s no doubt that 2018 will bring new opportunities for tax savings and tax planning for you and your business. Below is a brief summary of some provisions in the Tax Cuts and Jobs Act. We will be monitoring the progress of this bill as the Internal Revenue Service will begin interpreting the provisions and providing guidance to taxpayers.

Proposed Provisions Affecting Individuals for Tax Year 2018

  • Tax Rates – Maintains seven tax brackets but lowers the tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The highest current tax rate is 39.6%.
  • Standard Deduction – Almost doubles the standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.
  • Personal Exemptions – Eliminates the personal and dependent exemptions, which is presently $4,150 each.
  • Child Tax Credit – Increases in the Child Tax Credit to $2,000 from $1,000 and expands the refundable tax portion of the Child Tax Credit from $1,100 to $1,400.
  • Alternative Minimum Tax – Increases the exemption amount from the Alternative Minimum Tax.
  • Individual Healthcare Mandate – Eliminates the penalty for individuals failing to maintain minimum essential health care coverage for years after 12/31/2018.
  • Earned Income Tax Credit – Maintains the Earned Income Tax Credit for low to middle-income wage earners, which can be up to over $6,000 credit for a family with three kids.
  • Itemized Deduction for Taxes – Taxpayers who itemize can deduct up to $10,000 in state/local income tax deduction, sales tax deduction and real estate tax deduction.
  • Mortgage Interest – Mortgage interest deduction is capped on new home loans of $750,000 and no longer includes home equity line of credit (HELOC) interest.
  • Medical Expense Deduction – Allows a deduction for qualified medical expense in excess of 7.5% of adjusted gross income.

Proposed Provisions Affecting Business Owners for Tax Year 2018

  • Tax Rates – Lowers the corporate tax rate to 21%. Current rate is 35%.
  • Alternative Minimum Tax – Repeals the corporate AMT.
  • Pass Through Entities – Allows for a 20% deduction of Qualified Business Income for most businesses.
  • Cash Accounting – Expands the limits on cash accounting and may remove the requirement to track inventory.
  • Direct Expensing – Businesses can fully expense qualified purchases for the next 5 years.
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