Most of the country is still buzzing over the improbable victory of Donald Trump over Hillary Clinton, but as you expect of us, we’re considering the impact his first year in the Presidency may have on business and taxes. If you haven’t seen the President-Elects published plan for his first 100 days in office, a link to the transcript is as follows: https://assets.donaldjtrump.com/_landings/contract/O-TRU-102316-Contractv02.pdf.
The President-elect’s proposals will impact a cross-section of American wage-earners. We’ll wait for more concrete proposals to come out once the inauguration is completed in January, but we would like to stress one of our 2016 hot topics: Overtime pay.
The Department of Labor has issued final regulations concerning the definitions of exempt and non-exempt employees as regards the payment of overtime rates. These regulations must be enacted beginning December 1, 2016, and the President-elect has vowed to repeal this legislation in the first 100 days of his Presidency.
You’ve heard me speak on the subject of the HKA Informed Taxpayer Rule. If you haven’t heard of us expound on this before, our Rule looks like this: We believe it is our responsibility to make you aware of business and personal risk associated with positions you may want to take on your business and personal tax returns. You, as an informed taxpayer, make an assessment of the risk associated and your tolerance for that level of risk. We support your decisions (of course we never and you never promulgate fraud of any kind).
The DOL Overtime rule going live on December 1 (today!) would fall under this Rule. The 100 day plan, may be better described as a wish list. It is in no way a guarantee that all of these proposals will be adopted by this fractured and rancorous Congress. Our advice is simple: Adopt processes and procedures which enable you and your business to comply with the new regulations fully. Compliance with these new rules is not easy, but penalties are stiff and should be considered before you accept the business risk of non-compliance.
Please call our office at 314-993-4285 if you have any questions.
Form 1099 is the all-purpose player for the Internal Revenue Service. The form is used for many ordinary reporting items:
Earnings for non-employee services
Pension and IRA distributions
Interest and dividends
The key to the form, make sure you file it. Every business tax return has a question which asks if you have filed all 1099’s which were required to be filed. Not sure who would answer no to this question, but the Service is serious about yoking the threat of penalties on US business to get more income reporting forms filed. A few quick general issues to consider:
W2 and 1099: There is no instance where a W2 employee would also get a 1099. No the income threshold limit does not apply in this instance. No an employee cannot also have other non-employee earnings that shouldn’t have already been included in the W2. No bonuses cannot be put on a 1099 they must run through the W2.
Non-employee earnings vs Other income: If you are paying someone to work for your business and you are using any of the up to date accounting systems to run your business, make sure the non-employee/contractor is getting a 1099 for Non-employee earnings. The difference between Other Income and Non-employee earnings? Non-employee earnings is subject to FICA tax when they report the income on their personal return. Other Income does not require FICA tax on those earnings. (Technically it’s self-employment tax and not FICA, but it’s really the same thing).
Thresholds: If you are already running one 1099 for a contractor, stop stressing over the threshold limit and run it for everyone. What’s your downside, over-reporting? Allowing someone to not pick up income? Although the income does not have to be reported on a 1099, the recipient still has a responsibility for reporting it on their personal return.
Penalties: The penalty for failure to file a 1099 is $100 per payee statement. File everyone and don’t worry about a penalty. The penalty is the lesser worry, the bigger worry is the cost of scrutiny on your business practices and income tax returns the 1099 audit could cause. Even if the entire return is correct, the direct and intangible costs of an audit is worth avoiding.
The 1099 reporting season will be upon us soon. If you want us to assess how we can help you conform to the reporting requirement, please call us soon at 314-993-4285 so we can reserve time in our schedule.
Hobby or business? We’ve been disclosing the significant difference between a hobby or a business for many years. If your “business” is running a consistent loss, please complete a self-assessment using the nine factors the IRS uses to determine if it is truly a business. Keep us posted.
Millions of people enjoy hobbies. Hobbies can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income from hobbies is different from how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are five basic tax tips you should know if you get income from your hobby:
Business versus Hobby. There are nine factors to consider to determine if you are conducting business or participating in a hobby. Make sure to base your decision on all the facts and circumstances of your situation. Refer to Publication 535, Business Expenses, to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. See Publication 535 for more on these rules.
Limits on Expenses. As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. See Publication 535 for how you should report them on Schedule A, Itemized Deductions.
Use IRS Free File. Hobby rules can be complex. IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 17. If you make $62,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. You can only access Free File through IRS.gov.
If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.
This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-15”
Don’t be afraid to visit IRS.gov, they won’t bite and they have some terrific tools to help you find your refund and the status of your return. Here’s a list of popular online, self-help tools offered for free use on IRS.gov:
IRS Free File. Use IRS Free File to prepare and e-file your federal tax return at no cost. Free File will do much of the work for you with brand-name tax software or Fillable Forms. If you still need to file your 2015 tax return, Free File is available through Oct. 17. The only way to use IRS Free File is through IRS.gov.
Where’s My Refund? Checking the status of your tax refund is easy with Where’s My Refund? You can also use this tool with the IRS2Go mobile app.
Direct Pay. Use IRS Direct Pay to pay your taxes or pay your estimated tax directly from your checking or savings account. Direct Pay is safe, easy and free. This tool walks you through five simple steps to pay your tax in a single online session. You can also use Direct Pay with the IRS2Go mobile app.
Online Payment Agreement. If you can’t pay your taxes in full, apply for an Online Payment Agreement. The Direct Debit payment plan option is a lower-cost, hassle-free way to make monthly payments.
Withholding Calculator. Did you get a larger refund or owe more tax than you expected the last time you filed taxes? If so, you may want to change the amount of tax withheld from your paycheck. The Withholding Calculator tool can help you determine if you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate and provide information that will help you fill out the form too. Give the new Form W-4 to your employer to make the change.
Interactive Tax Assistant. The ITA tool is a tax-law resource that takes you through a series of questions and provides you with responses to tax law questions. For instance, you can find out if you may need to make an individual shared responsibility payment or if you are eligible for an exemption, when you file your taxes. You can also use the tool to find out if you may be eligible for the premium tax credit.
IRS Select Check. If you want to deduct your gift to charity, donate to a qualified organization. Use the IRS Select Check tool to see if a charity is qualified.
Tax Map. The IRS Tax Map offers tax law information by subject. It integrates web links, tax forms, instructions and publications related to your topic into one search result.
If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.
This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-17”
If you are a small business owner, chances are that you depend on a timely set of financial statements (a balance sheet, income statement, and cash flow statement) prepared using generally accepted accounting principles, or GAAP, to provide you with a multidimensional view of the company’s financial health. That being said, there are most likely a series of other improvised reports that you run (probably on a spreadsheet) because the financial statements are not as useful when it comes to the day-to-day running of the business. By design, GAAP is continually being molded into a set of rules to report transactions in a way that fairly represent an entity’s business performance. Lenders and investors have come to rely on this form of presentation so this has become the standard. While there is no question of the value of financial statements prepared under GAAP, to more effectively manage your business you need different information to supplement those financial statements. That is where cost accounting comes in.
At the highest level, cost accounting is the branch of accounting that focuses on the assignment of costs. A critical component in the management of any business is developing the true cost of producing a product or delivering a service. By way of multiplication and division, it is relatively easy to assign direct costs (labor and supplies) to a product. However, it becomes trickier when trying to apply costs that are indirectly related. For example, what portion of the phone bill or administrative staff salary should be applied to a unit produced? How do you factor in downtime due to routine maintenance? How should overhead be applied if multiple products use many of the same resources? The ability to properly apply indirect of a product or service creates an opportunity for you to see the true cost of operations as well as to objectively quantify profitability per product or service. Fortunately, methodologies have been developed to address these and countless other issues faced by business owners every day.
Cost accounting can provide you with data to supplement the information you are currently receiving from your financial statements; this allows for more effective budgeting and planning, and will improve your internal control. If you have not yet implemented a cost accounting system into your business, we encourage you to consider doing so.
If you have any questions regarding cost accounting, please give us a call at 314-993-4285 or email us at firstname.lastname@example.org
As tax season nears a close, it’s important that you remember to send your tax preparers (that’d be us!) all necessary items. Making sure you are giving your CPA all of your information makes the process of preparing and completing your return go smoother and faster, and makes sure that nothing gets left out.
Below we’ve listed the top 7 items that get forgotten most:
Cost basis for stock sales
Estimated payment values and dates of contribution by municipality
Non-cash charitable donation values *if you need help deciding the value of an item, head to www.itsdeductible.com
Last pay stub *it has important information that your W-2 doesn’t have
Long-term care insurance
529 plan contributions
Deferred compensation or stock option pay-outs
If you have any questions or you realize that you forgot to give us some important information, please call us at 314-993-4285.
Most people have the following beliefs about extending the due date for their tax return:
The IRS puts people who extend on a list of “people to watch”.
Extending is a “red flag” for the IRS.
Extending creates a higher risk of an audit.
Extending is a bad and scary idea.
You must pay a penalty for extending.
It is better to file on time with inaccurate or incomplete information and then amend later.
All of these beliefs are false.
The truth is…
It is better to extend your tax return than to amend it later, especially if you are getting a refund.
Filing your tax return when you do not have all of the information needed and then amending later IS a red flag and puts your under closer scrutiny than if you were to extend.
There is no penalty for extending, although there is a penalty for paying late. If you think (or know) that you are going to owe, we can do a calculation for the tax due and you can make an extension payment to mitigate any interest that will occur between April 15th and when you are able to file your return.
If you would like to extend your tax return or you have any questions about extending, please give us a call at 314-993-4285 or email us at email@example.com.
The IRS has now made the electronic filing of 1040s mandatory (except for certain cases). Therefore, electronic tax documentation has become extremely important to tax preparers.
During one year a taxpayer may have bought and sold hundreds of stocks which each produce a transaction on Form 1099-B. This can create a document that easily exceeds 50 pages.
The IRS requires that either:
every sale transaction be reported separately on your tax return,
or that documentation be attached to the return if summary data is used instead.
Due to this requirement and the requirement to file electronically, we are asking our clients to send your 1099s from your investments to us in PDF form. This will allow us to electronically attach the document to your tax return.
If you have any questions regarding electornic 1099s, please don’t hesitate to call us at 314-993-4285 or email us at firstname.lastname@example.org.
We know that taxes can be complicated. When it comes to items like Medicare surtax, Roth contributions, and the like, it can be confusing where your taxes fall. Below are the rules for calculating your taxes owed in 2014 in regards to some of the most complicated items:
The Senate finally passed the Tax Extenders Act for 2014…. so you have 13 days left to do it.
Although President Obama has yet to sign it into law, he is expected to by the end of this week.
Here are some of the provisions the team at Hauk Kruse & Associates believe may be important to you:
Tax-free distributions from individual retirement plan for charitable purposes: IRA owners age 70-1/2 or older may exclude up to $100,000 per year from gross income if IRA funds were paid directly to most public charities.
Tax deduction for state and local general sales taxes in lieu of state and local income taxes: Taxpayers may deduct state and local general sales taxes paid rather than state and local income taxes paid.
Section 179 expense increase: Small and mid-size business owners can immediately deduct up to $500,000 of qualifying assets rather than over time according to depreciation schedules.
Bonus depreciation: The depreciation expense on new business equipment is 50% in the first year, plus regular depreciation on the other 50%.
Mortgage debt forgiveness: If the bank forgives all or a portion of your qualified personal residence, you do not have to claim it as income through the end of 2014.
Tax credit for residential energy efficiency improvements (including certain appliances): Homeowners can claim a one-time only energy-efficient home improvement tax credit of up to $500 for the installation of qualified insulation, windows, doors, roofs, water heaters, and heating and air conditioning systems.
Tuition and fees deduction: Qualifying taxpayers are allowed to claim up to $4,000 in education expenses (tuition, enrollment expenses, attendance expenses, student-activity fees, and books/supplies fees).
Research and Development credit: The R&D credit has been extended through the end of 2014.
Deduction for mortgage insurance premiums: Congress allows for a tax deduction for the cost of PMI for homes and vacation homes through the end of 2014.
Educator expense: Eligible educators will receive a deduction of up to $250 for unreimbursed expenses paid for supplies and equipment used in the classroom.
While the passing of this bill is excellent, it should be noted that this could once again mean a delayed tax season.