Simplifying the Tax Code Causes More Complexities!

taxes

While the Tax Cuts and Jobs Act (TCJA) sought to simplify the tax code, it also brought new complexity. For example, a new deduction provides substantial tax savings to people with “qualified business income” (QBI) from their pass-through business but calculating the deduction and limitations is complicated.

Generally, the QBI deduction is 20% of qualified income from a partnership, S corporation, or sole proprietorship. QBI, in a nutshell, is the net amount of income, gain, deduction, and loss with respect to your trade or business. Although we have a framework for the QBI calculation, we still await IRS guidance and clarification. This deduction will benefit many business owners, while phase-in and phase-out rules will reduce or eliminate the deduction for some taxpayers.

Complexities surrounding the new law can be daunting. Give us a call, and we can help you determine the impact that this deduction or other parts of the TCJA may have on your tax situation

3rd Quarter 2018 Due Dates

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July 31:

  • Employers. File Form 941 for 2nd quarter 2018. File Form 5500 or 5500-EZ for calendar-year 2017 if you maintain an employee benefit plan, or file Form 5558 to request an extension.

September 17:

  • Individuals. 3rd installment of 2018 estimated tax due.
  • Calendar-year C Corporations. 3rd installment of 2018 estimated tax due.
  • S Corporations. Calendar-year 2017 return due (Form 1120S) if on extension.
  • Partnerships. Calendar-year 2017 return due (Form 1065) if on extension.

Tax Deductible Vacations?

travel

Although technology has revolutionized the way we do business, there are still situations where it’s necessary for a face-to-face meeting with staff, management, or customers. With a little planning for the current vacation season, you can mix some leisure time in with your business travel and still get a tax deduction.

Deductible Travel Expenses — If your trip within the U.S. was primarily for business and, while at your business destination, you extended your stay for a vacation, made a side trip, or had other personal activities, you can deduct only your business-related travel expenses.

It’s important to keep records such as receipts, canceled checks, or bills, to support your expenses and be able to prove the number of days spent on business. The following is a list of expenses you may be able deduct depending on the facts and circumstances:

  • 50% of the cost of meals
  • Travel by air, rail, and bus fares
  • Baggage charges
  • Hotel expenses
  • Expenses of operating and maintaining a car
  • Local transportation costs for taxi fares or other transportation to and from the airport
  • Cleaning and laundry expenses
  • Computer rental fees
  • Telephone or fax expenses
  • Tips on eligible expenses

However, these same types of expenses aren’t deductible for non-business days. Personal entertainment costs on the trip, such as a sightseeing tour, aren’t deductible, regardless of the day on which they fall. Cost deductions for a spouse accompanying you on a business trip are allowed only if your spouse is a bona fide employee. Merely having your spouse-employee perform some incidental business service, such as typing up notes from a meeting, isn’t enough to establish a business purpose. Your spouse’s presence must be necessary to your business pursuits – not just helpful.

Travel Outside the U.S. — Travel outside the U.S. has its own set of unique rules and record keeping requirements. When documenting your business trips outside the U.S., your trip will fall into one of three categories:

  • Travel Entirely for Business,
  • Travel Primarily for Business, and
  • Travel Primarily for Vacation.

The factors which determine the category your trip falls into are related to the number of business days versus total days away. If your trip is less than one week, don’t count the day you leave the U.S. but count the day you return to the U.S. On the other hand, if your trip is more than one week, count both the day you leave the U.S. and the day you return. If your trip wasn’t entirely for business, you must allocate travel expenses on a day-to-day basis between days you did and didn’t conduct business.

Employing Youth

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Each June, millions of youth begin their search for a summer job. Before hiring any summertime help, it’s a good idea to be aware of the Federal and State laws governing youth in the workplace. The Fair Labor Standards Act (FLSA) youth employment provisions are designed to protect young workers by limiting the types of jobs and the number of hours they may work, based on the age of the minor. The following provisions apply to nonagricultural occupations:

18 Years of Age. Once a youth reaches 18, the Federal child labor provisions no longer apply to them – they can work any job for any number of hours.

16 & 17 Years of Age. Under the FLSA 16- and 17-year olds may work on any day for any number of hours. However, individual states may limit the hours or the times of day that anyone under the age of 18 may work. Also, all youth under the age of 18 are prohibited from working any non-farm jobs deemed hazardous.

14 & 15 Years of Age. 14 and 15-year-olds may work:

  • Non-school hours;
  • 3 hours on a school day;
  • 18 hours in a school week;
  • 8 hours on non-school day;
  • 40 hours in a non-school week; and
  • Between 7 a.m to 7 p.m. (except June 1-Labor Day when hours are extended to 9 p.m.)

If you are about to hire a youth and need assistance building a summertime schedule that follows the youth employment provisions, contact us.

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?

tax_return

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!

tax cut

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

estimated taxes

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.

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