Financial Moves for the End of 2017

Tax Planning

tax planning

I don’t know about you but I am not sad to see 2017 go! It has been a crazy year of political drama, fake news, and crazy natural disasters.  In fact there is still debris from Hurricane Irma in my neighborhood!  The good news is there is still time left to make some financial moves to finish off the year strong.  Here’s a list of things to do to wind down 2017.

For small businesses

1. Get your bookkeeping up-to-date for the year. If you fell behind, now is the time to catch up.  There is no way to make any last minute moves unless you know where you stand at this point.

Once you know what your net profits for the year are looking like you can decide what to do.  Want to show more income for 2017 than 2018?  Try to get some extra income in December. Some ideas for this are running a year end or holiday special promotion, or asking clients to prepay for next year now at a discount. You can also keep expenses down by holding off on making purchases until January. Think the new tax reform will mean lower taxes in 2018? Slow down your collection efforts for the rest of the year and start up again in January. Stock up on supplies or make major purchases (see 4. below) before the year is over.

2. Make sure you have W-9 forms for all of your contractors. All copies of the 1099-MISC forms for 2017 are due January 31, 2018!  Make sure you have all of this information now so you are ready to hand over that information to your CPA in the beginning of January. You need to file 1099-MISC forms for any individual, partnership, and certain LLCs that you paid over $600 to in 2017. You also need to give 1099-MISC forms to any lawyers that you paid in 2017, and possibly your landlord too.

1099-MISC filing has become a hot button issue for the IRS. Every audit I have handled in the last year looked at the 1099-MISC filings.  They issue penalties for slip ups. The 2018 penalties for not filing correct information is:

 

Up to 30 days late – $50 per return/$187,500 max

31 days late through August 1 – $100 per return/$536,000 max

After August 1 or Not At All – $260 per return/$1,072,500 max

Intentional Disregard – $530 per return/No limitation

 

On top of these penalties the IRS can also disallow the deduction, resulting in additional taxes owed!

3. Make major purchases. If you’ve been contemplating buying a car, new computer, or other big equipment for your business, now is the time. You can take advantage of accelerated depreciation and get a full deduction for the entire cost, even though you purchase it in December!

Here is how to get a huge deduction for a car purchase.  Use the “Hummer Tax Loophole,” or Section 179 deduction. Section 179 lets you deduct up to $510,00 in 2017 in fixed assets (vehicles, computers, furniture, etc.).  There are special rules in place for autos, but if you by a NEW car in December and document that it is 100% for business you can deduct $11,160. Document your mileage with by keeping a log or using a mileage tracking app.

4. Check your payroll. S-corporation owners must run payroll.  This is a big “red flag” for the IRS when you don’t.  If you have a lot of cash maybe run yourself a bonus payroll. This is good if you need to show a higher salary on a W-2 or increase your Social Security contributions. This is also a great way to pay in additional tax if you missed your quarterly estimated payments – and avoid penalties.

While on the subject of payroll – S-corporation owners need to make sure their health insurance premiums are included in Box 1 of their W-2.  Contact your payroll company to make sure it is correct. If you skip this step your business cannot deduct the expense of the health insurance and you cannot use the self-employed health insurance deduction on your personal return!

5. Set up or make a contribution to your retirement account. Retirement contributions will reduce your tax bill and set you up for financial success for the future.  Examples of these kinds of accounts are a SEP, simple IRA, or 401(k). They each have different rules such as participation and contribution limits, so choose wisely!

6. Write off business gifts.  This is especially useful during the holidays. Just keep in mind only up to $25 can be written off.

Sometimes gifts can also be considered “meals and entertainment” – think show or game tickets.  Meals and entertainment can only be deducted 50%.  Here is one instance where the IRS is kind and let’s you use whichever classification is more beneficial to you!

7. Make your s-election.  If you are an LLC or a c-corporation and have been meaning to become an s-corporation, now is the time to file Form 2553 Election by a Small Business Corporation. You can have the election go into effect for January 2018.

 

For Individuals

1. Check your withholding.  Did you under-withhold in your payroll this year to have more cash in your paycheck?  Ask your CPA to do a tax projection for you to see if you are going to owe additional taxes. You can make estimated payments or pay in April when you file, but you could have some penalties to deal with.

2. Did you skip some of your estimated payments during the year?  You should send them in ASAP to limit your penalties.  The good news is you have until January 15, 2018 for the fourth quarter estimated payment due date.

3. Double up on real estate tax deductions. There might be a lot of changes to various itemized deductions with the proposed tax reform. If you are concerned that you might not be able to take advantage of your deductions such as real estate taxes, you can take advantage of them in 2017 by paying them before December 31. It’s an extra bonus if you paid 2016’s real estate taxes in 2017 as well.

4. Make your fourth quarter state income tax estimated payment in December 2017 instead of January 2018.  This will allow you to deduct all of your state income tax payments in 2017 in case the deduction isn’t available anymore in 2018.

5. Be charitable. Now is a great time for charitable giving.  Make sure you give to a legitimate 501(c)(3) organization. Make sure you keep documentation of the gift. If you give more than $250 to a charity they are required to give you a written acknowledgement.  

Items other than cash can be donated as well.  Organizations will take cars, boats, stock, and other assets. If your donation property is worth over $5,000 you will need to get an appraisal.

6. Use your Flexible Spending Account funds.  FSA funds are “use it or lose it,” so make sure you drain those accounts by December 31.  Some employers give a grade period until March 15, but this is optional.

7. Max out your 401k.  If you haven’t contributed all year or just want to put away more money you can put an oversized amount into your 401k with the last few payrolls.  You might also be able to contribute from your year-end bonus (talk to HR).

 

As always, if there is anything I can do to help please feel free to reach out!

 

6 Smart Business Tax Moves to Make For 2015 Year-End

Tax Planning

tax planning

2015 is almost over but there are still some ways to make the best of your tax situation before New Year’s is here.  Spoiler-number 6 is the most important!

1. Do your 2015 bookkeeping now. If you aren’t current with your bookkeeping, now is a great time to catch up. You can’t know what your tax situation looks like if you don’t know what your income – or loss – is for the year.

2. Run bonus payroll. If your company is sitting on some cash consider running a bonus payroll. Didn’t make those quarterly estimated tax payments? Put all or part of the bonus to federal withholding to help catch up what you owe.

3. Set up a retirement plan. If you own a small business there are some easy ways to put away money for retirement. SEP and Simple IRAs make a lot of sense for micro and small business owners. There aren’t a lot of paperwork headaches or complicated filings required, and the contributions are tax deducible to the business. This is another good move if your company has some cash at the end of the year.

4. Buy equipment. On the fence about purchasing a computer or other office equipment? Take advantage of Section 179 and fully deduct big ticket items (aka fixed assets) in 2015, even if you only have them for a few days. Right now the deduction is limited to $25,000 but congress might change this.

5. Spend some money. Buy supplies and other business related items now for next year. Spend the money now and take the deduction now.

6. Find a fantastic CPA to work with. CPAs can do so much more than prepare tax returns! My firm offers a wide range of services such as bookkeeping, contract controller and CFO, financial modeling, and more. Take a look at my packages and services. Contact me for a free consultation!

Happy Holidays!

2015 12 Worst Tax Scams

fraud scam and theft

fraud-scam-and-theft

The IRS has released the top 12 worst tax scams for 2015. It looks like crooks’ favorite way to deceive taxpayers is by calling them and pretending to be the IRS. This is followed by “phishing” emails.

The IRS will never initiate contact with you via phone. If you get a phone call asking for personal information (like your social security number), demanding payment on a bill with a credit or debit card, or threatening to have you arrested, you are victim of a scam.

The IRS also does not initiate contact with you via email. If you get an unsolicited email that appears to be from the IRS asking for personal information, beware. Send any suspicious emails to phishing@irs.gov.

Here’s the full list:

  1. Phone scams.
  2. Phishing.
  3. Identity theft.
  4. Return preparer fraud.
  5. Hiding income offshore.
  6. Inflated refund claims.
  7. Fake charities.
  8. Filing false documents to hide income.
  9. Participating in abusive tax shelters.
  10. Falsifying income to claim tax credits.
  11. Excessive claims for fuel tax credits.
  12. Frivolous tax arguments.

 

To read more about these check out this Journal of Accountancy article.

Need help dealing with legitimate IRS correspondence? Schedule a meeting with me now.

Estimated Tax and 1099-MISC Deadlines

This message is to remind you of two important upcoming tax deadlines:

  1. January 15 is the deadline for the fourth and final estimated tax payment for 2014. Make sure your estimated payment is postmarked by the 15th. You might want to send it certified return receipt to be sure of when it arrives.
  2. 1099-MISC forms are due to contractors by January 31. They are due to the IRS by February 28 for paper filing or March 31 for electronic filing. For more information on who needs to receive a 1099-MISC please refer to this post.

Need help with either of these deadlines? Get in touch with me!

2014 Year End Tax Update

Tax Planning

tax planning

 

In case you didn’t hear the news, Congress extended all of the tax breaks that ended in 2013… for just one more year. While this leaves the future hazy at least it gives us a little bit of time in 2014 to make some adjustments.

Here is a run down of the extended tax breaks for 2014:

  • Itemized deductions for state sales tax in lieu of income tax (great for Florida residents!)
  • $250 deduction for educators’ classroom supplies (read more about that here)
  • Exclusion of debt forgiveness on primary residences- this is great if you renegotiated your mortgage or had a short sale in 2014 because you won’t pay taxes on it up to $2 mil
  • Direct-to-charity donations for those over 70 ½ who have required minimum distributions (RMDs) from IRAs, up to $100,000
  • The research and development tax credit for business
  • Depreciation- two big changes here:
    • 50% bonus depreciation on fixed assets- take bonus depreciation on all assets whether or not they are new, but new to you (i.e. purchase of used equipment).
    • $500,000 limit on Section 179

In addition to the extended tax breaks, tax-deferred ABLE savings accounts were created for those who became disabled before age 26. Payins of up to $14,000 per year can be made to ABLE accounts, and payouts used for housing, transportation, education, etc. will be tax-free.

Congress also reduced the IRS’s funding for 2015. This means longer wait times if you need to call the Service. It also means that audits will become less frequent. That could be good news if you were planning on an aggressive tax strategy for 2014.

If you have any questions on 2014 tax rules? Want a difference set of eyes to review prior year tax return? Please feel free to contact me to arrange a consultation.

2014 Year End Tax Update

tax planning

In case you didn’t hear the news, Congress extended all of the tax breaks that ended in 2013… for just one more year. While this leaves the future hazy at least it gives us a little bit of time in 2014 to make some adjustments.

Here is a run down of the extended tax breaks for 2014:

  • Itemized deductions for state sales tax in lieu of income tax (great for Florida residents!)
  • $250 deduction for educators’ classroom supplies (read more about that here)
  • Exclusion of debt forgiveness on primary residences- this is great if you renegotiated your mortgage or had a short sale in 2014 because you won’t pay taxes on it up to $2 mil
  • Direct-to-charity donations for those over 70 ½ who have required minimum distributions (RMDs) from IRAs, up to $100,000
  • The research and development tax credit for business
  • Depreciation- two big changes here:
    • 50% bonus depreciation on fixed assets- take bonus depreciation on all assets whether or not they are new, but new to you (i.e. purchase of used equipment).
    • $500,000 limit on Section 179

In addition to the extended tax breaks, tax-deferred ABLE savings accounts were created for those who became disabled before age 26. Payins of up to $14,000 per year can be made to ABLE accounts, and payouts used for housing, transportation, education, etc. will be tax-free.

Congress also reduced the IRS’s funding for 2015. This means longer wait times if you need to call the Service. It also means that audits will become less frequent. That could be good news if you were planning on an aggressive tax strategy for 2014.

If you have any questions on 2014 tax rules? Want a difference set of eyes to review prior year tax return? Please feel free to contact me to arrange a consultation.

When Outsourced Payroll Goes Bad

IRS doesn't take excuses when it comes to payroll

recite-payroll bankrupt

Usually when you work with a payroll company, the last thing you expect is for them to not send your tax payments into the IRS. Unfortunately, in a recent court case, when a payroll company declared bankruptcy, that is exactly what happened.

In this particular case, when the payroll company went under it held client funds that were supposed to be paid to the IRS. Some clients received IRS notices that they still owed money while others never received those notices because they went straight to the payroll company. The bankrupt payroll company told some clients it was an IRS error. Regardless, the clients’ money was gone- and they still owed the taxes.

To reduce the risk of something like this happening to you, follow these steps:

  1. Hire reputable payroll companies. I work with www.zenpayroll.com.
  2. Don’t allow the payroll company to sign your tax returns. Confirm that the payroll company deposited your tax payments and filed your returns.
  3. Don’t let IRS correspondence be sent to the payroll company.
  4. Request tax account transcripts from the IRS on a regular basis.

Payroll taxes is one area the IRS is not sympathetic or forgiving about. Companies are always responsible for their taxes and the tax courts agree.

Tweet it! IRS doesn’t take excuses when it comes to payroll taxes, even if your payroll company goes bankrupt. bit.ly/1uvBd4p @BetteHochberger

 

Bitcoin-It Isn’t Cash

bitcoin not cash

bitcoin not cash

 

Bitcoin is a new, virtual currency created in 2009. Transactions are made without banks, without fees, and without giving your real name. Exchange Bitcoins via mobile apps or computers, similar to sending cash digitally (like PayPal). Some big companies, such as Dell, Expedia, and Zynga even accept Bitcoin as payment.

Virtual currency sounds great except that as far as the IRS is concerned, Bitcoin is not considered cash. It is considered to be property. Similar to buying and selling stock, you need to record the cost you paid for the Bitcoin and the value when you sold it.

Here’s an example. You buy a Bitcoin for $2- this is your cost. Later you use that Bitcoin to pay for $10 worth of Candy Crush items from Zynga. The $10 would be your sales price. According to the IRS, you have a taxable gain of $8 ($10 sale less the $2 cost), which you need to report on your tax return! Pay $10 to Zynga in cash, and there would not be anything to report.

Tax issues surrounding Bitcoin and virtual currency are new and developing. If you work with Bitcoin and have tax questions, please contact me.

Tweet it! Bitcoin is not cash, according to the IRS. Read more: bit.ly/1oswotn @BetteHochberger

Copies of Tax Returns and Other Tax Information from the IRS

tax info and return copies requesting IRS transcripts

recite-transcripts

Can’t find your copy of an old tax return? Not sure that you received all your 1099s or other tax forms this year? You can get the information from the IRS by requesting transcripts or copies of tax returns.

 

Transcripts

Transcripts show the important information of tax returns without reproducing the forms. You can often get transcripts faster than copies of actual forms, they usually contain the information a third party (such as a mortgage company) requires, and they are free! They can be requested for:

  • Tax returns- this shows most line items of your tax return Form 1040.
  • Tax account- this shows basic information such as marital status, type of return filed, adjusted gross income, and taxable income.
  • Wage and income- this shows amounts reported on W-2s, 1099s, and 1098s.

 

The IRS has a system to get transcripts either online immediately or by mail. You can use the online Get Transcript system here.

My disclaimer- I tried to use the system to view my transcripts. It could not find my information and locked me out after a few tries.

 

Tax Return Copies

If you want a copy of the actual tax return you filed, that can be requested as well. You will need to fill out Form 4506 and pay $50 per return requested.

 

Tweet it! Get tax info and return copies by requesting transcripts from the IRS. www.irs.gov/Individuals/Get-Transcript bit.ly/1quZN4t @BetteHochberger