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!

 

April 15 – But It’s Not Tax Day?!

Crazy woman with tax sheets

Tax-crazy

Today is April 15 but it isn’t Tax Day.  The deadline for filing your 2015 taxes is actually Monday, April 18.  That’s good news if you’ve been procrastinating because you get a few more days!

The reason for the deadline being moved is because today is Emancipation Day in Washington DC. Emancipation Day is a holiday in marking the anniversary of the signing of the Compensated Emancipation Act, which president Abraham Lincoln signed on April 16, 1862. Normally it is held on April 16th, but being a Saturday this year it is being observed on April 15.  Government employees in DC enjoy the day off today, including those at the IRS.  The filing deadline had to be moved to the next business day – April 18.

If you still need to file an extension for your 2015 you can do so with Form 4868.  Contact me if you need help with your extension or tax filings.

Tangible Personal Property Tax Returns Due TOMORROW in Florida

April 1 is the deadline for filing the Tangible Personal Property tax for businesses in Florida. Tangible personal property (TPP) is stuff you can feel or touch that is moveable – basically anything that is not real estate or attached to real estate. Inventory is not included in tangible personal property tax, and it should not be confused with intangible property, which is assets you can own that have no physical substance, such as investments, trademarks, patents, etc.

TPP returns are filed with the county your business is located in. If you aren’t ready to file your TPP return, you can request an extension for 30 or 45 days, depending on the county. Check with your county for more information on extensions, forms, and other filing information.

If you aren’t located in Florida this website gives you a list of personal property tax deadlines by state.

Contact me if you need help with filing your business tangible personal property tax form.

Disasters and Your Tax Documents

Crazy woman with tax sheets

It’s rainy season in South Florida. That also means that it’s hurricane season. While we haven’t had a bad storm down here in a few years, the threat of destruction is always there each year. We make plans for keeping our families and homes safe, but what about important items like tax documents? Everyone needs a plan for when disasters strike.

One solution is to keep electronic records. Many banks have documents available online. Old tax returns and related documents and insurance policies can be scanned and saved in the cloud to electronic storage such as Dropbox, Box, or Google Drive. Many modern CPA firms like mine are paperless- ask your CPA to send you PDF versions of prior year tax returns. PDFs can be password protected to help keep your information secure.

Another solution is to keep paper duplicates in a safe location. This can be useful when you lose power and need to access information. We often leave copies of important documents with family members. Safe deposit boxes at banks are another option. The rental fees on these are tax deductible if you itemize your deductions on Schedule A.

The IRS can alwasy be your backup plan. By filing Form 4506 and paying a $50 fee you can get a copy of your tax returns. You can also request free transcripts of all your tax information (W-2s, 1099s, etc.).

For more information visit the IRS’s Disaster Relief website.

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.

Miss America Pageant Plays Accounting Games

Being a South Jersey native and growing up in Atlantic City, the Miss America Pageant was always an exciting thing.  I even got to be in the Miss America Parade in high school with the marching band.  But it wasn’t until seeing this John Oliver piece that I really gave it much thought.  Apparently the organization claims to provide scholarships of $4 million to women.  John’s team dug up all of the organizations tax returns, which are required to be open to public inspection because it is a non profit organization, and discovered that the actual dollar figure of scholarships given out was more along the lines of $500,000.  How can this difference be?  It turns out that Miss America comes to the $4 million figure by adding up all possible scholarships that they give, as well as all other scholarships that other organizations will give to their participants.  That is some creative accounting if I’ve ever seen any.  Watch the video- skip ahead to minute 9 to see the discussion on the tax returns.

 

Contractors vs. Employees

contractors vs. employees

recite-contractor vs employee

When companies are hiring there is often a question of whether they are bringing on contractors or employees. Sometimes it is easy to figure out, like when you use an outsourcing company or a subcontractor. Other times it can be more difficult to determine, such as hiring a remote employee or a sales representative.

The IRS asks some questions when determining if someone is a contractor or an employee:

  1. Does the company control what the worker does and how the worker does his job? For example, do you tell the worker he has to work from 9-5, or can he work whenever is convenient to him?
  2. Are the business aspects of the worker’s cob controlled by the company? This can include how you pay the worker, if you reimburse expenses, if you supply tools, etc.
  3. Are there written contracts or employee-type benefits? This can include pension plans, insurance, vacation pay, etc.

There are consequences for miscategorizing employees as contractors. If you are paying workers as contractors when they should be employees, you can be responsible for payroll taxes. Late fees and penalties for missed payroll taxes can be very steep, and the IRS takes this very seriously.

There is no set rule for answering the contractor vs. employee question. Consider the entire relationship, make sure you consider the degree of control involved (what will be done and how it will be done), and make sure you document the decision in case the IRS questions you.

If you have questions about contractors vs. employees or payroll issues, please contact me.

Tweet it! Consider control when determining if workers are contractors vs. employees. Read more: bit.ly/1o9O5rz @BetteHochberger