UIA Rate Tax Reduction

The State announced that All employers will receive a Tax Reduction in their unemployment rate effective January 01, 2020.  This reduction is five months ahead of schedule.

The Obligation Assessment was a 10 year plan initiated in 2012 to repay the federal government, the $3.2 billion debt owed to the US Treasury.  To assist with paying the excessive number of Unemployment claims, the federal government loaned the state money.  In 2012 it was determined that the Obligation Assessment was necessary to gradually force all employers to assist in paying the debt back to the federal government.

Due to the growth in the state, more UIA revenue is now collected than originally expected.  The solvency of the state allows the Obligation Assessment to now be totally eliminated.  All employers will receive a $65 – $217 per employee tax savings.

Use the attached table to determine your 2020 savings.

Find your 2019 UIA Rate in the table.  Find your savings per employee and then multiple by your number of employees.

2020 Minimum Wage Rate Increase

Effective 01/01/2020, the State of Michigan increased the Minimum Wage from $9.45 to $9.65.

Employees age 16 to 19 years old must now be paid $8.20.  In their first 90 days of employment, a training wage of $4.25 is allowed.

For Tipped Employees, the new hourly minimum wage is $3.67 and Reported Average Hourly Tips Rate is $5.98.  Tips received plus wages paid must equal or exceed the minimum hourly wage rate and if it does not, the employer must pay the shortfall.

IRS withholding Tax Estimator

Allow time to complete the new IRS Withholding Tax Estimator. Even though the IRS makes it appear easy, there are still at least 4 parts to complete and may be as many as 6. Have your 2018 1040 handy. Caution: If there will be significant changes from your 2018 to 2019 return, ask a tax preparer for help.

  • Did you marry in 2019?
  • Did you divorce?
  • Did you start or lose a business?

Part I : “About You Do you know if you should be claiming “Head of Household”? If you don’t, that can be a thousand dollar error. This section consists of 9 questions.

Part II : “Income and Withholding. To complete this section, have your last paystub available. You can answer 10, 20, or maybe even 30 fields depending on your Filing Status and Pensions.

Part III : “Adjustments” consist of eight categories, including the Impact of Student Loans, Alimony, and Early Withdrawal Penalties.

Part IV : “Deductionsgives you the chance to input your Itemized Deductions. These include Medicat and Dental Expenses, Taxes Paid, Qualified Mortgage Interest, Gifts to Charity, and more. Did you use your 2018 Itemized Deductions , or what you “Think” this year will be?

Part V : “Tax Creditslist Foreign Tax Credit, Educational, Retirement Savings, Homeowner, and others.

Part VI : “Results” lists whether or not you will need to put more in for taxes.

Don’t hesitate to ask your tax professional for help or to do this for you, If you check the Head of Household Box when you should have checked single, your results may be that you’ll receive a refund, when you should be depositing $1,000 more in taxes. A mistake as this can result in penalties.

If you want to learn about the Alternative Minimum Tax Credit, click on the “?” and the IRS will explain it to you in 2 sentences. Or read about Form 5801 to complete the Prior Year Minimum Tax Credit. These are complex concepts.

The IRS encourages “everyone” to use the Estimator. It is User Friendly, but taxes are not. Using this Estimator if you do not understand what you are doing,  Not depositing the correct amount for taxes can be more costly.

Do I File my Tax Returns if I don’t have money to pay?

YES!  Effective January 1, 2020 the IRS will start penalizing Individuals $330 for Form 1040 Tax Returns due after December 31, 2019, but only if you owe money

If you are due a refund, you will receive your refund without interest when you do decide to file.  The IRS only refunds tax payers on late filed returns up to 3 years back.

The IRS knows if you owe them money.  All W2’s and Form 1099’s are recorded and sent to the IRS annually.  They know your income big or small.  They know your mortgage interest and possible income in your stock sales.

You may as well file your Form 1040 Tax Return timely.  You are not helping yourself by not submitting.

A client came into our office in December of 2018 and had not filed a Tax Return since April of 2009.  His wife died in 2010 and a “family friend”, not a tax preparer, told the gentlemen that he did not need to file a Form 1040 Tax Return.

What the “family friend” did not know was that the client was having Federal and State taxes withheld from his Pension and Social Security Benefits that exceeded the taxes owed.

In other words, the client gave up $18,238 in tax refunds that he could have collected for Tax Years 2010 to 2015. In 2017, the same gentlemen was penalized for not filing his 2017 Form 1040 because he owed money to the IRS.

It never pays to not file your Tax Return – However you look at it.

Take Care of Yourself!

No doubt, running a business drains you both physically and mentally. As a business owner, you’re always focused on the health of your business, and that’s normal since it’s your financial stability. But to be the best leader, it’s important to take care of yourself first. Here are some areas of personal health which need regular attention.

  • Reduce stress by taking control of your time. Schedule time to address the problems and stressors, so that you can manage them. Allocate time to what you need to get done and learn to say “no” when you need to.
  • Establish a daily routine and stick to it. This means going to bed at relatively the same time every night and getting up at the same time every morning, even on weekends. Find a balance in your daily routine and maintain it.
  • Spend quality time with family and friends. Social beings need to regularly disconnect from electronic devices and focus on building relationships with real people.
  • Find humor every day because laughter is good for you! Seek things which make you laugh, even at work. Your health will appreciate it.
  • Stretch and grow your mind. You can always learn more. Even if you have already learned a lot and accomplished a lot, push yourself and expand your brain power! Try something new…perhaps learn a new language or try out a new hobby.
  • Eat healthy. Eating a nutritious diet helps to provide strength and stability to your mind and body. Pack a healthy lunch…your brain will thank you, and so will your wallet!
  • Exercise regularly. 30 minutes of daily exercise increases your mental health, decreases stress, lowers blood pressure, and reduces anxiety. Even little steps like taking the stairs instead of an elevator can help. Consider taking a walk on your lunch hour.
  • Get rest. Take time off when your body tells you to and get a good night’s sleep every night. Strive for 7-8 hours.
  • Mental health is necessary for your success. Maintain a journal to track your mental health. Log daily items such as your diet, sleep habits, and social activity, and make lifestyle adjustments when needed.
  • Visit doctors for regular checkups. Routine checkups are beneficial, as they can help find problems before they start. By getting the right health services and treatments, you’re taking steps to help your chances of living a longer, healthier life.

Rental Property Held as Tenant-in-Common

You don't have to form a corporation, partnership or other entity to own a rental property with a friend, relative, or business associate. You can own the property as tenants-in-common. And interests don't have to be on a 50-50 (or other amount based solely on the number of tenants) basis.

For example, Sandy can put up 70% of the capital and Jack 30%. If that's the case, Sandy is entitled to 70% of the income and is responsible for 70% of the expenses. And that's how each should report the income and expenses on their respective tax returns. If Sandy doesn't pay her full 70% share of the expenses, the additional amount paid by Jack is considered a loan to Sandy. Jack can't deduct the amount he paid for Sandy. Talk to your attorney about the best way to handle the agreement. In most cases the split should be spelled out in the deed. You may want to have a side agreement as to the responsibilities of each tenant.

3rd Quarter 2019 Due Dates

July 31:

  • Employers. File Form 941 for 2nd quarter 2019. File Form 5500 or 5500-EZ for calendar-year 2018 if you maintain an employee benefit plan, or file Form 5558 to request an extension.

September 16:

  • Individuals. 3rd installment of 2019 estimated tax due.
  • Calendar-year C Corporations. 3rd installment of 2019 estimated tax due.
  • Corporations. Calendar-year 2018 return due (Form 1120S) if on extension.
  • Partnerships. Calendar-year 2018 return due (Form 1065) if on extension.

Summertime Child Care Expenses May Qualify for a Tax Credit

The child and dependent care credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year. Here are seven facts the IRS wants you to know about a tax credit available for child care expenses.

  1. Applicable for care of dependents under the age of 13 (some exceptions apply). 
  2. The expenses must be paid so that both you and your spouse (if married) can work or look for work.
  3. Day camp costs may count as an expense towards the child and dependent care credit.
  4. Expenses for overnight camps don’t qualify.
  5. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
  6. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
  7. When figuring the credit, you may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals.

For more information on Child and Dependent Care Expenses, contact your Padgett Office today.

Prepare for Summer Storms!

Power outages can wreak havoc on electronic files. Safeguard your personal and business assets by taking the following steps:

Back up your records electronically. Keep a set of backup records stored away from the original set. Remember to scan paper documents into an electronic format!

Document valuables. Photograph or video the contents of your home or business, especially items of higher value, to prove the market value of items for insurance and casualty loss claims.

Update emergency plans. Emergency plans should be reviewed annually and distributed to all employees. Don’t forget the new hires!

Maintain current contact information for employees and customers. Ensure that you can communicate with employees and clients in the event of business disruption. Email is your best method when the phones are down!

Know how to get help. Federal and State agencies can offer assistance, such as FEMA, the Small Business Association, and the Department of Homeland Security. IRS publication 2194, Disaster Resource Guide for Individuals & Businesses, contains information and form needed to claim a casualty loss.

Under Audit?

While IRS audits are actually rare, it can be overwhelming when it happens to you. Here are some tips for surviving an IRS audit.

  • Do not ignore the IRS correspondence. IRS audit letters will state what’s being questioned, how to respond and when to respond. It’s important you follow the instructions to provide the information in a timely manner. Ignoring the letter will only result in additional penalties and the IRS will continue to pursue, even if they don’t hear back from you.
  • Lying to an IRS auditor is a criminal offense! Being honest and truthful about your tax reporting is the only avenue. If there was a misstatement on the return, now is the time to fess up!
  • Don’t be bullied. If you disagree with the auditor, you can challenge the decision and dispute the ruling in the IRS Court of Appeals. You also have the right to ask to speak to the auditors superior if you’re concerned about the audit engagement.
  • Stay current on your tax filings. Failure to file returns isn’t going to win you brownie points. Be sure to file returns, even if you can’t pay. Also, if you’re on an installment agreement, be sure to make your payments timely.
  • Be prepared for the audit. The IRS audit letter will indicate specific areas under audit. You should be prepared to support these items and answer questions related to these accounts. Do your homework and be ready. If you need extra time to gather your documents, ask for an extension.

Lastly, remember to take a deep breath and relax… most audits are quite simple and merely require you to supply documentation. If you wish to discuss an audit matter, give us a call.

Facing a Tax Audit?
We can Help! Don't Delay!
Contact our Enrolled Agents today!!