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.

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.

Should I Panic if I Receive an IRS Notice?

No, absolutely not! Each year, the IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many can be dealt with simply and painlessly. Here are some tips:

  • Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice will likely cover a specific issue about your account or tax return and provide specific instructions on what you’re asked to do to satisfy the inquiry.
  • If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  • If you don’t agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  • Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help them respond to your inquiry.
  • Always keep a copy of the notice (and any correspondence) for your records.

Employer Alert!

As of January 2019, the Social Security Administration (SSA) will once again be sending out mismatch letters to employers who incorrectly reported their workers social security number (SSN). This practice was “paused” several years ago, but it is back in an attempt to enforce immigration laws. So, how can you avoid these notices?

  • Be sure to have Form W-4 for each employee and/or Form W-9 for each independent contractor on file before you pay them! Also, confirm with the employee/contractor annually the information on these forms is still accurate and update for any changes.
  • Take advantage of the Social Security Number Verification Service (SSNVS). This is a free online service that will verify the name and SSNs of employees using SSA file records. Alternatively, use the automated telephone service, Telephone Number Employer Verification (TNEV). These two verification services can only be used for confirming wage reporting issues, not to verify work authorization.

While often the mismatch is a simple mistake that can easily be corrected, we recommend responding timely since both the IRS and the SSA will be involved. If you would like to discuss your hiring procedures, please give us a call.

Statute of Limitations

After you file your taxes, you’ll have many records that may help document items on your tax return. You’ll need these documents should the IRS select your return for examination. Generally, this means you must keep records that support items shown on your return until the statute of limitations for that return runs out.

The statute of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax. Generally, this is the later of three years from the date the return was due or filed. The statue for claiming a refund is the later of three years from the date the return was filed or two years from the date the tax was paid, if no return was filed. Returns filed before the due date are treated as being filed on the due date.

Unable to Pay?

April 15th, 2019 is the official filing deadline for Form 1040, U.S. Individual Income Tax Return. Whether you submitted a return or filed an extension, many taxpayers find they cannot pay the full amount of taxes owed. 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!

Top Ten Things You Should Discuss with Your Tax Preparer

Your accountant or tax preparer is a knowledgeable resource, not only for tax preparation but also for planning and advisory services. Below is a list of topics that you should discuss with your tax preparer.

1. Short-term and long-term goals for your small business. Planning to sell your business in the near future? Looking for ways to grow? Or, perhaps, planning a large asset purchase? Your tax preparer may be able to provide direction and advice.

2. The NEW 20% qualified business deduction. The Tax Cuts and Jobs Act (TCJA) introduced a new deduction for small business owners that could impact your bottom line. Find out how to qualify and reap the benefits.

3. Your retirement plan. Will you have enough saved? Are there ways to increase your nest egg?

4. Saving for college. There is no doubt that higher education is expensive. But there are some ways to reduce the burden. Talk to your tax professional about 529 Plans, Educational Savings Accounts (ESA) and Educational IRAs.

5. Tax withholdings. Are you withholding enough or maybe too much? If you commonly face underpayment or late payment penalties, talk to your accountant!

6. Commonly overlooked deductions. Are you taking advantage of the deduction allowed? The new law, Tax Cuts and Jobs Act (TCJA), is complex and different. Don’t miss out on some new deductions! Learn more and take advantage!

7. Life changes. Getting married or having kids? What about changing jobs or expecting a change in income levels? Discussing major life changes before they happen is a smart idea… these changes will often affect your tax position and your tax preparer can guide you.

8. Legal documents. Do you have a will? Or a living will? Are your finances in order in case of an unforeseen tragedy? Discuss with your tax professional the important steps you can take to ensure that your loved ones are not burdened with your financial affairs should you die.

9. Budgeting. A budget is a great way to provide an illustration of what you “think” you save or spend and what actually occurs. Whether this is for your small business or your household, budgets tend to make people more accountable. Your accountant can assist you in preparing a budget…all you have to do is ask.

10. Securing your personal data. Discuss with your tax advisor how long you need to keep tax records and the best ways to prevent identity theft. Simple changes can make big differences in protecting your personal financial data.

2nd Quarter 2019 Due Dates

April 15:

    • Individuals:
      • 2018 Form 1040 due, or file Form 4868 for a 6-month automatic extension.
      • 2018 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 2018.
      • First installment of 2019 estimated tax due.
      • 2018 Form 709, US Gift Tax Return, due if more than $15,000 was gifted to any individual besides a spouse or charity in 2018, or file Form 4868 or 8892 for a 6-month automatic extension.
    • Calendar-Year End C Corporations:
      • First installment of 2019 estimated tax due.
      • 2018 Form 1120 due, or file Form 7004 for automatic 6-month extension.

April 30:

    • Employers: File Form 941 for 1st quarter 2019.

May 15:

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

June 17:

    • Individuals:
      • 2nd installment of 2019 estimated tax due.
      • 2018 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 an additional 4-month automatic extension.
    • Calendar-Year End C Corporations: Second installment of 2019 estimated tax due.
Facing a Tax Audit?
We can Help! Don't Delay!
Contact our Enrolled Agents today!!