4th Quarter Estimates

4th Quarter Estimates are not due until January 15, 2017, but it may be beneficial for you to make your payments to the states before December 31, 2016.  If you make these payments before the end of the year, you receive a tax deduction in 2016 rather than waiting until 2017.  There are other factors that come into play to determine whether or not it is beneficial to make these payments early so if you have any questions, please do not hesitate to give our office a call (314-993-4285) or email.

If we compute estimates for you each quarter, we will be sure to get you the amounts to pay prior to the last week of the year (around December 22nd at the latest) as we are closed from the 23rd through the end of the year.  If you are traveling and need the estimated payments sooner, let us know.  Otherwise, look for an email from us with the amounts to pay that week!

The DOL Ruling on Overtime and the President-elect’s First 100 Days

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: The Do It All Form

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Form 1099 is the all-purpose player for the Internal Revenue Service. The form is used for many ordinary reporting items:

  • Rental
  • 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.

Health Care Information Reporting: Seven Things Employers Can Think About Now

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If your organization is an applicable large employer, you must report information about the health care coverage you offered to your full-time employees. As an employer, it’s not too early to start thinking about these seven facts related to your information reporting responsibilities under the health care law.

  1. The health care law requires ALEs to report information about health insurance coverage offered to its full-time employees and their dependents as well as to the IRS.
  2. ALEs must report information about themselves, the coverage they offered – if any – and the individuals covered under the policy.
  3. ALEs are required to furnish a statement to each full-time employee that includes the same information provided to the IRS by January 31, 2017.
  4. ALEs that file 250 or more information returns during the calendar year must file the returns electronically.
  5. ALEs must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage with the IRS annually, no later than February 28, 2017 or March 31, 2017 if filed electronically. Forms 1095-C are filed accompanied by the transmittal form, Form 1094-C.
  6. Self-insured employers that are applicable large employers, and therefore are also subject to the information reporting requirements for offers of employer-sponsored health insurance coverage, must combine reporting under both provisions by filing a single information return, Form 1095-C, and transmittal, Form 1094-C.
  7. The ACA Assurance Testing System opened November 7, 2016 for tax year 2016 testing. Software developers – including employers and issuers who passed AATS for tax year 2015 – will not have to retest for tax year 2016; the Tax Year Software Packages will be moved into Production status. New participants need to comply with test requirements for tax year 2016. For more information, see Publication 5165, Guide for Electronically Filing ACA Information Returns for Software Developers and Transmitters.

Applicable large employers can find a complete list of resources and the latest news at the Applicable Large Employer Information Center. 

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 Number: HCTT 2016-75.

New Law Sets Jan. 31 W-2 Filing Deadline; Some Refunds Delayed Until Feb. 15

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A new federal law moves up the W-2 filing deadline for employers and small businesses to Jan. 31. The new law makes it easier for the IRS to find and stop refund fraud. It also delays some taxpayer refunds. Those taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit won’t see refunds until Feb.15, at the earliest.

Here are some key points to keep in mind:

  • Protecting Americans from Tax Hikes (PATH) Act. Enacted last December, the new law means employers need to file their copies of Forms W-2  by Jan. 31. These forms also go to the Social Security Administration. The new deadline also applies to certain Forms 1099. Those reporting nonemployee compensation such as payments to independent contractors submitted to the IRS are due Jan. 31. Employers have long faced a Jan. 31 deadline in providing copies of these forms to their employees. That date won’t change.
  • Different from past deadline. Employers normally had until the end of February, if filing on paper, or the end of March, if filing electronically, to send in copies of these forms. The IRS is working with the payroll community and other partners to spread the word.
  • Helps stop fraud or errors. The new Jan. 31 deadline will help the IRS to spot errors on returns filed by taxpayers. Having these W-2s and 1099s sooner will make it easier for the IRS to verify legitimate tax returns and get refunds to taxpayers eligible to receive them. The changes will allow the IRS to send some tax refunds faster.
  • Some refunds delayed. Certain taxpayers will get their refunds a bit later. By law, the IRS must hold refunds for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. This means the whole refund, not just the part related to the EITC or ACTC.
  • File tax returns normally. Taxpayers should file their returns as they normally do. The IRS issues more than nine out of 10 refunds in less than 21 days. However, some returns may need further review. Whether or not claiming EITC or ACTC, the IRS cautions taxpayers not to count on getting a refund by a certain date. Consider this fact when making major purchases or paying debts.
  • Use IRS.gov online tools. Starting Feb. 15, the best way to check the status of a refund is with the Where’s My Refund? tool on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers may need their Adjusted Gross Income amount from a prior tax return to verify their identity. They can get a transcript of their return at www.irs.gov/transcript.

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 Special Edition Tax Tip Issue Number: 2016-16.

Nine Tips on Deducting Charitable Contributions

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Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

  1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization, or a political candidate.
  2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all non-cash contributions for the year is more than $500, you must also file Form 8283, Non-cash Charitable Contributions, with your tax return.
  3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event, or other goods and services.
  4. Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
  5. Fair market value is generally the price at which someone can sell the property.
  6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record, or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.
  7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.
  8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.
  9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

If you have any questions you can call us at our office, 314-993-4285.

Tax Tips for the Self-Employed

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When you are self-employed, it typically means you work for yourself as an independent contractor, or you own your own business. Here are six key points the IRS would like you to know about self-employment and self-employment taxes:

  1. Self-employment income can include pay that you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.
  2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.
  3. If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You figure this tax using Schedule SE, Self-Employment Tax.
  4. If you are self-employed you may have to make estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
  5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be ‘capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
  6. You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

If you have any questions please call our office at 314-993-4285.

Income Tax: Guidance Provided on Impact of Wynne

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To all of our friends, but especially to those of you in OH, the Wynne case from MD is beginning to gain traction in many tax advocacy groups around the country.  In the Wynne case the Supreme Court held that a state tax system that did not allow for an offset of income tax paid in another state against the resident state tax was unconstitutional.  Although this guidance is directed at IN taxpayers, it is good to note this case should help fix many issues in other states, but it will take time.  Our OH clients are especially hard hit by municipal taxes on income derived in a nonresident municipality as their local municipalities do not allow for a credit for the tax paid against this same income.  Pure double taxation, if I were the Don of municipality taxes it would be a beautiful thing!  Note, the Supreme Court case did not go as far down to the municipality level of taxation.

From CCH State Tax Review, Vol 77, Issue 35:

The Indiana Department of Revenue has issued a Commissioner’s Directive providing guidance on the impact of Comptroller of the Treasury of Maryland v. Wynne, U.S. Supreme Court, Dkt. 13-485, May 18, 2015, to personal income taxpayers and to demonstrate why Indiana is not in a similar situation to Maryland. The Wynne decision holds that under a Maryland law an income tax credit for taxes paid to a different state should recognize both income or earnings taxes imposed by the other state and local governments of the other state. Unlike Maryland, Indiana allows credits for out-of-state taxes at both the state and local levels. Indiana allows a credit for out-of-state income taxes against Indiana’s state income tax and a credit for out-of-state local income taxes against local income taxes owed in Indiana. According to the Supreme Court, had Maryland offered credits for out-of-state taxes, Maryland’s tax system would have survived constitutional scrutiny. Further, Indiana allows credits at both the state-to-state level and the county-to-county level. Finally, Indiana does not permit out-of-state state income taxes to offset Indiana county income taxes or allow out-of-state local income taxes to offset Indiana state income taxes. Thus, the department reasons that Indiana’s tax regime meets the internal consistency test set forth in Wynne.

If you have any questions or would like to discuss this further, please give us a call at our office, 314-993-4285.

Rental Losses Not Automatically Nonpassive Due To Status As Real Estate Professional

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HKA has always believed that you must materially participate in a rental activity even if you hold a realtor license.  Court affirms the stance.

The Court of Appeals for the Ninth Circuit has found that a taxpayer’s rental losses were not automatically nonpassive because of her status as a real estate professional. The court rejected the taxpayer’s argument that she did not need to show material participation in the rental property.

Take away. The Ninth Circuit noted that the Tax Court has held that caselaw clearly requires that a taxpayer claiming deductions for rental real estate losses must meet the material participation’ requirement.

Background

The taxpayer worked as a licensed real estate agent. The taxpayer deducted losses from rental properties she owned on her 2006 and 2007 returns. The IRS disallowed the rental losses. The IRS determined that the taxpayer had failed to show she materially participated in the rental properties. The taxpayer countered that her status as a real estate professional made her rental losses per se nonpassive. A federal district court ruled against the taxpayer and she appealed to the Ninth Circuit.

Court’s analysis

The court first found that Code Sec. 469(c)(1) provides the general rule that any activity in which a taxpayer does not materially participate is passive. The term “passive activity” means any activity which involves the conduct of any trade or business, and in which the taxpayer does not materially participate. Further, Code Sec. 469(c)(2) establishes that rental activity is per se passive, regardless of whether the taxpayer materially participates; however, Code Sec. 469(c)(7) provides an exception for real estate professionals. Reg. §1.469-9(e)(1) provides that a real estate professional can treat rental losses as nonpassive, but only so long as he or she materially participates.

A taxpayer performs qualifying services in real property businesses if: (1) More than half of the personal services performed in a trade or business by the taxpayer are performed in real property businesses in which the taxpayer materially participates; and (2) The taxpayer performs more than 750 hours of services during the tax year in real property businesses in which the taxpayer materially participates. A taxpayer who meets the preceding requirements is commonly referred to as a real estate professional for purposes of the passive loss rules.

Compliance Alert

The court noted that the exception to the passive loss rules for rental activities of taxpayers who are involved in a real property business applies for tax years beginning after December 31, 1993.

The court found that even taxpayers who establish real estate professional status must separately show material participation in rental activities (as opposed to other real estate activities) before claiming any rental losses as nonpassive. Only the participation of the taxpayer with respect to the rental real estate may be used to determine if the taxpayer materially participates in the rental real estate activity under the material participation safe harbor provisions. Taxpayers who qualify as real estate professionals still must show material participation in rental activities before deducting rental losses, the court concluded.

Compliance Pointer

The court declined to address the taxpayer’s new argument that undated notes estimating the total hours spent on rental properties satisfied the burden of showing material participation.

If you have any questions or would like to discuss this further, please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from CCH Federal Tax Weekly, Issue No. 33.

Understand Your Taxpayer Bill of Rights

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Every taxpayer has a set of fundamental rights. The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 categories. You should know these rights when you interact with the IRS. Publication 1, Your Rights as a Taxpayer, highlights a list of your rights and the agency’s obligations to protect them. Here is a summary of the Taxpayer Bill of Rights:

  1. The Right to Be Informed. You have the right to know what is required to comply with the tax laws. You are entitled to clear explanations of the laws and IRS procedures on all tax forms, instructions, publications, notices and correspondence. You have the right to know about IRS decisions affecting your accounts and clear explanations of the outcomes.
  2. The Right to Quality Service. You have the right to receive prompt, courteous and professional assistance in your dealings with the IRS and the freedom to speak to a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.
  3. The Right to Pay No More Than the Correct Amount of Tax. You have the right to pay only the amount of tax legally due, including interest and penalties. You should also expect the IRS to apply all tax payments properly.
  4. The Right to Challenge the IRS’s Position and Be Heard. You have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. You should expect that the IRS will consider your timely objections and documentation promptly and fairly. If the IRS does not agree with your position, you should expect a response.
  5. The Right to Appeal an IRS Decision in an Independent Forum.You are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. You have the right to receive a written response regarding a decision from the Office of Appeals. You generally have the right to take your case to court.
  6. The Right to Finality. You have the right to know the maximum amount of time you have to challenge an IRS position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. You have the right to know when the IRS concludes an audit.
  7. The Right to Privacy. You have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be no more intrusive than necessary. You should expect such proceedings to respect all due process rights, including search and seizure protections. The IRS will provide, where applicable, a collection due process hearing.
  8. The Right to Confidentiality. You have the right to expect that your tax information will remain confidential. The IRS will not disclose information unless authorized by you or by law. You should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully use or disclose your return information.
  9. The Right to Retain Representation. You have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. You have the right to seek assistance from a Low Income Taxpayer Clinic if you cannot afford representation.
  10. The Right to a Fair and Just Tax System. You have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect your underlying liabilities, ability to pay or ability to provide information timely. You have the right to receive assistance from the Taxpayer Advocate Service if you are experiencing financial difficulty or if the IRS has not resolved your tax issues properly and timely through its normal channels.

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 2016-21”