Understanding Unclaimed Property

Unclaimed property has become a topic of increased discussion in recent years, especially as states conduct unclaimed property audits. Examples include:

As a business owner, it’s important to be aware of unclaimed property and the role your business plays, as well as how unclaimed property can impact your financial statements and cause reporting issues.

Let’s start at the beginning.

Unclaimed property is an unclaimed financial asset your company owes to another business or individual. This can include uncashed checks, inactive savings accounts, life insurance proceeds, customer overpayments and unused gift certificates.

Unclaimed property happens when a debt remains outstanding for a specific period of time. Typically this is one year or more, as specified by state statute.

For example, your organization issues a pay check to its employee. One of those employees never cashes that check. The paycheck has now become unclaimed property.

So what am I supposed to do?

Here’s the short answer: Give the asset back or turn it over to the state.

In the above example, you should reissue the check if you can locate the employee.

There are a few steps you need to take in order to properly deal with unclaimed property:

  1. Identify the dormant accounts
  2. Notify the property owners
  3. Remit the asset to the property owners or to the state

Identify the dormant accounts

The first step is to determine if you are a holder (company in possession of an asset that belongs to someone else). The best way to determine this is by setting up processes and procedures that allow you to identify where unclaimed property exists.

Some of the procedures include:

  • Follow up on outstanding checks and credits after six months
  • Require all transactions in and out of accounts have to go through review and approval
  • If you’re thinking about acquiring a company, make sure you research and are aware of potential unclaimed property exposure
  • Keep good records, including name, address, taxpayer identification number, etc.

Notify the property owners

The next step to take as the holder is to locate the property’s rightful owner. This is a process known as due diligence.

After this period of due diligence, the holder has to submit a report to the state, listing who you weren’t able to contact, as well as payment for those outstanding accounts.

Remit the asset

At this point, either the asset is turned over to the property owner, or it gets turned over to the state (known as escheatment). Once it’s turned over to the state, they now have responsibility for it. In other words, they hold it so it’s available to the recipient at a later time, should they come looking for it. If no one comes for it, the state keeps the unclaimed property.

As a reminder, unclaimed paychecks are considered unclaimed property and subject to escheatment. If you have an unclaimed paycheck, the unclaimed property laws of the state where the employee last worked apply.

What happens if I don’t do these things?

States have been increasing enforcement efforts. Plus, you can be audited in relation to unclaimed property. The states even have unclaimed property examiners that come in to assess unclaimed property exposure in businesses.

Just to make things more fun, there’s no statute of limitations, meaning the state agencies can come knocking at any time.

Any other tips?

  • Research the laws in your state and know the particulars of unclaimed property reporting by state.
  • Set up policies and procedures to ensure you have good records and are tracking potential unclaimed property concerns.
  • If you’re confused or just need extra help, contact your CPA or business advisor.




The Business of Keeping Records

As a business owner, your financial information is incredibly important and necessary to help you run your business. But how do you know what to track?

It all starts with a system. You need to have an accounting system that will clearly track the financial state of your business. There are lots of different types of accounting systems (we have a few recommendations) but ultimately, you need something that will summarize your business transactions, gross income, deductions and expenses.

Supporting documentation. In order to get the information you need for your accounting system, you need to have the records or supporting documentation. These types of records include:

Gross receipts = income you receive from your business

  • Cash register tape
  • Deposit information
  • Receipt books
  • Invoices
  • Forms 1099-MISC

 Purchases = what you resell to customers, as well as what you buy

  • Canceled checks
  • Credit card receipts and statements
  • Invoices

 Expenses = costs you incur (other than purchases)

These need to show the amount you paid as well as a description of what it was.

  • Account statements
  • Credit card receipts or statements
  • Invoices
  • Petty cash slips

As a note, if you deduct travel, entertainment, gift or transportation expenses, you have to prove certain elements of the expenses. For more information on how and what to do, go here.

Assets = property you own and use for your business

  • When and how you obtained the assets
  • Purchase price for each
  • Cost of improvements
  • Documentation of deductions taken, including: 179D, depreciation, casualty losses
  • Selling price
  • How the asset was used
  • Expense of sale

So where do you find all of this information? Often you can find it on purchase or sales invoices, real estate closing statements and even canceled checks that identify the payee, amount and proof of funds transferred.

Employment taxes

There are lots of different tax records you need to keep. At a minimum, you need to keep record of employment for four years.

Why you need to worry about it.

For starters, accurate books help you make financial decisions about your business. But there’s even more benefits to ensuring you have good records.

  • Tax time isn’t fun when you don’t have good records. Your books allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and various other items you’ll need for your tax return.
  • Without solid financial information, your bank won’t be able to make lending decisions for your business.

For more tips and tricks on why you need to keep good records, check out this blog.

 The moral of the story

Documentation is important when it comes to running your business. It’s necessary to ensure you’re in compliance, as well as gives you the information you need to ensure you have the right financial information.

Preparing for the New Year: Expense Reimbursements

As we enter the new year, it’s important to take a look and ensure you’re entering 2018 on the right foot. There are several things you need to remember to keep your business in compliance. One of these things is your expense reimbursement policies.

The IRS defines business expenses as ordinary and necessary costs for carrying out your trade or business. So when we talk expense reimbursement, we’re referring to paying your employees back for what they spent (of their own money) on business-related expenses.

Not only should your business have an expense reimbursement policy, but that policy has to be compliant with the IRS and Department of Labor.

An Accountable Plan

The IRS states the following conditions must be met for your expense reimbursement to be in compliance:

  • A business reason. There has to be a business reason for the expense. In other words, you can’t just go out for drinks and submit it for reimbursement. It has to have a connection with the services your employee is performing.
  • It has to be validated. You have to have receipts or invoices that document the amount and nature of the expense being submitted for reimbursement.
  • No excess. Your employees need to return any amounts that were paid in excess of the validated expenses.

When these three conditions are met, it’s referred to as an accountable plan. This is important to know because if you’re deemed to have a non-accountable plan, the amounts reimbursed to your employees could be considered income and need to be included on the Form W-2. An accountable plan, on the other hand, allows reimbursements to not be considered taxable.

The Five “Ws” and a few other items

Meal Reimbursements
One of the key expenses often paid through reimbursement are meals. Yes, the IRS has specific rules about this.

If you’re not using a per diem allowance (go here to learn more), the IRS has specific requirements to substantiate your actual meal receipts. It’s known as the five “Ws”:

  • Who was there?
  • Why is the meal considered official business?
  • Where did the meal occur?
  • What was the cost of the meal?
  • When did the meal occur?

Automobile Expenses

The IRS also has rules when it comes to automobile expense reimbursements. Again we go back to the rule of substantiation. The policy related to automobile expense reimbursements must describe how your employees use a vehicle for business expenses. This applies to both an automobile owned/leased by your company as well as mileage reimbursement and personal use.

As a note, personal use of a company vehicle have to be included in taxable income.

The Department of Labor

The Department of Labor also has rules when it comes to expense reimbursements. These rules include:

  • The Five “ws”. The DOL also adheres to the 5 Ws when documenting all expenses to be reimbursed. Further, they also require your employees provide the original receipt and written description. If the receipt is lost, your policy has to state that you require a signed statement from the employee regarding the lost receipt.
  • Substantiation for all. The IRS has an exception that allows you to not have to keep records for any expense (excluding lodging) that is less than $75. This is not true with the DOL. The DOL states that all reimbursed expenses have to have the proper records.
  • For meal expenses, the DOL requires itemized receipts. In other words, the credit card slip won’t work. You need the actual ticket that details what each person ordered, as well as the credit card slip that indicates how much tip was left.
  • Automobile rules. When it comes to organization owned leases/vehicles, employees must furnish date of travel, number of miles driven, whether it was for personal or business and the odometer reading. If your policy also includes reimbursement for personal vehicles, the DOL states you have to have at least one record that includes date of travel, locations traveled to and from, number of miles and business purpose.

The moral of the story

Make sure your policy for expense reimbursements is in compliance as we kick off the new year. By setting these rules in place, you’ll ensure your employees not only have the information they need as they travel for work, but that your business is in compliance with the IRS and the DOL.



Forms, forms and more forms

There are many forms to remember as part of owning a business. There are forms to document employee wages, forms for contractors, forms for donated vehicles, forms for acquisitions … the list goes on and on.

Understanding what each form is, and which ones you need to fill out, is an important aspect of your business. Today we’re breaking down some of the most common information return forms and what gets reported on them.

First we’ll start with a definition. An information return is a tax document businesses use to let the IRS know about transactions. These forms are mandatory, meaning you don’t get a choice in filling them out and reporting your transactions to the IRS.

Now on to the forms …


Form W-2

The W-2 is also known as the wage and tax statement. It should be pretty familiar as it is used to document wages, tips and other compensation, Medicare, Social Security, income tax withholdings and more for each of your employees.

Every employer in a trade or business with employees who are compensated for their work needs to fill out the Form W-2 for them. If income, social security or Medicare tax was withheld, you get to fill out this form for your employees.


  • To recipient: January 31, for federal and most states
  • To IRS: January 31both e-file and paper copies


Form W-2G

Form W-2G is a specific form used for gambling winnings and losses. You will need to file a W-2G if you receive:

  • $600 or more in gambling winnings (if the payout is at least 300 times the amount of the wager)
  • $1,200 or more in winnings from bingo or slot machines
  • $1,500 or more from keno
  • More than $5,000 from a poker tournament

As a friendly reminder, all gambling winnings are subject to income tax.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099 Series

The Form 1099 series is a group of forms used to report ordinary kinds of payments, such as dividends, interest, retirement distributions and miscellaneous income payments.

Form 1099-MISC

Form 1099-MISC is filed by a business for payments made to nonemployees who do work for your business or trade. In other words, if they’re not an employee, but you’re paying them for a service, you have to report it on Form 1099-MISC.

Form 1099-MISC is required for each person you’ve made payments to based on the following criteria:

  • $10 or more in royalties or broker payments in lieu of dividends or tax-exempt interest
  • $600 or more in rents, services, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish you purchase or cash paid from notional principal contract to an individual, partnership or estate
  • Any fish boat proceeds
  • Gross proceeds to an attorney
  • Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
  • Any backup withholding regardless of the amount


  • To recipient: January 31, for federal and most states
  • To IRS: February 28 or March 31 (if filing electronically) or January 31 (if any payments for nonemployee compensation are reported in box 7)


Form 1099-DIV

This form is used for dividends and distributions. Specifically it’s filed for each person for whom you’ve:

  • Paid dividends and other distributions on stock of $10 or more
  • Withheld or paid any foreign tax on dividends and other distributions of stock
  • Withheld any federal income tax under the backup withholding rules
  • Paid $600 or more as part of a liquidation


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-INT

The Interest Income form is used for reporting interest payments when:

  • Interest of $10 or more is paid or credited on earnings
  • Interest of $600 or more from other sources in the course of trade or business
  • Forfeited interest due to premature withdrawals of time deposits
  • Federal backup withholding and foreign tax withholding and paid on interest
  • Payments of any interest to bearers of certificates of deposit

This form is specifically for interest payments made in the course of your trade or business, including federal, state and local government agencies.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-OID

Form 1099-OID is also known as the Original Issue Discount. It’s used when you purchase a bond for lesser price than the face value or principle amount. This discount is given instead of a bond earning interest. If you purchase a bond for less the face value, you should receive a Form 1099-OID, which is where you report $10 or more in gross income from that bond.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-R

This form is used to report any distribution of $10 or more form pension sharing or retirement plans, any individual retirement arrangements, annuities, pensions, insurance contracts, etc. It’s also used to report death benefit payments made by you as the employer that are not part of a pension, profit-sharing or retirement plan.

The fun part about Form 1099-R is that there are nine numeric codes and 18 alpha codes to use when reporting amounts in box 7 of the form. For more information on these, and what to put in what box, check out our W2/1099 ebook.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-PATR

This form is specific to cooperatives and must be filled out if $10 or more in distributions paid from the cooperative is passed through to their patrons. This includes any domestic production activities deduction and certain pass-through credits.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-LTC

This form is used if you pay any long-term care benefits, including accelerated death benefits. Payers include insurance companies, governmental units and viatical settlement providers.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-SA

Here we’re looking at reporting distributions made from an HSA, Archer MSA or Medicare Advantage MSA. Form 1099-SA can be used if the distribution is paid directly to a medical service provider or to the account holder. A separate return has to be filed for each plan type.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-A

Also known as the Acquisition or Abandonment of Secured Property, Form 1099-A is used for each borrower you lend money to in connection with your trade or business. Specifically, this applies to the full or partial satisfaction of a debt.


  • To borrower: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-C

Use this form for each debtor for whom debt of $600 or more was cancelled. Specifically, you must file Form 1099-C if:

  • You are a financial institution
  • A credit union
  • A corporation that is a subsidiary of a financial institution or credit union
  • A federal government agency
  • An organization whose significant trade or business is the lending of money


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-B

Form 1099-B is specifically for a broker or barter exchange. It must be filled out for each person for whom the broker:

  • Sold stocks, bonds commodities, regulated future contracts, foreign currency contracts, debt instruments, etc. for cash
  • Received cash, stock or other property from a corporation that the broker knows had stock acquired in an acquisition
  • Exchanged property or services through a barter exchange


  • To recipient: February 15
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-K

This one is specific to a payment settlement entity (PSE) for payments made in settlement of reportable payment transactions within the calendar year.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1099-Q

Form 1099-Q is used for payments from qualified education programs. Specifically, you must file this form if you’re an officer or employee having control of a program established by an eligible educational institution and have made a distribution from a qualified tuition program.


  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)


Form 1042-S

This form is used to report income subject to withholding paid to nonresident aliens, foreign partnerships, foreign corporations or nonresident alien or foreign fiduciaries of estates or trusts.


  • To recipient: March 15
  • To IRS: March 15


The moral of the story

This is a high level overview of just some of the information returns that exist. It’s important to understand what forms apply to your organization and what information to report on each form. To learn more, check out our W2/1099 year end planning book or contact your business advisor.



The Gift of Per Diem Rates

Business travel expenses are enough to make anyone’s head spin. There are so many things to remember, both for the employee traveling, as well as the business owner. There are the receipts and the records and the purpose of the travel … you can see how this begins to add up.

There is another option for business travel, known as per diem rates. Per diem rates are the daily fixed allowances employees are paid or reimbursed for work travel. These could include:

  • Lodging
  • Meals
  • Tips
  • Ground transportation
  • Other incidental charges (dry cleaning, wi-fi, etc.)

One thing per diem rates don’t cover is the cost of transportation to the work function or site. So if your employees are flying or driving, that’s paid separately by you.

Per diem rates are based on IRS-approved rates for your location. The General Services Administration issues these rates within the continental United States. They’re updated each year (check out the most recent update here).

So why use per diems? Well receipts usually aren’t required for per diem, meaning less paperwork. Another benefit of per diems is that qualified per diem reimbursements usually aren’t subject to income or payroll tax and therefore aren’t reported on an employee’s W-2.

But before you get all excited, here are some tips for implementing a per diem program that actually qualifies for tax-free reimbursements.

  • Is there a business purpose? Per diem rates are deductible when they have a purpose. In other words, the expenses your employees incur while traveling for work must be ordinary and necessary business expenses associated with travel away from home in connection with the performance of duties for a job, profession or business.
  • Are you away from “home”? Per diem rates only work when the employee is actually away from their tax home. The basic rule of thumb here is that per diem rates apply when the employee is away from home longer than an ordinary day’s work and reasonably could not be expected to make the trip home without obtaining sleep or rest. This is also known as the “sleep or rest rule.”

The establishment of a tax home is important. Temporary employees who hop around to different work assignments in various locations are not eligible for per diem rates. When in doubt, think about if the employee incurs substantial continuing living expenses related to their tax home location.

  • Is the assignment long term? Per diem allowances do not work for employee assignments that last over a year. In order for per diems to apply, the assignment has to have a definite period (beginning and end) and be documented.
  • Have you been keeping track? Yes, one of the benefits of a per diem allowance is the less stringent recordkeeping. However, documentation is still required. Typical documentation for per diems includes: days worked, location and business purpose.
  • Do you know the IRS-approved rates? The rates for per diem allowances differ based on location. If you pay over the location based amount, the excess will be classified as taxable income for your employee.
  • Are you giving breaks? Sometimes you put an employee at a job for multiple assignments. But what if that assignment lasts longer than a year? Make sure the breaks between assignments in the same location are legitimate. Typically, the IRS has said breaks of three weeks or less might not be considered a break at all. So pay attention to the length of contracts and the breaks between assignments.







Tips for Form W-2

As tax season rolls around, it’s important to have all your information ready. Not only will you feel more organized, but you’ll be able to provide your employees with all the information they need to file their own personal taxes.

One of the key pieces you’ll need to have for each of your employees is Form W-2.

What is it?

It’s an information form used to report federal and state taxable wages, taxes withheld, and other fringe benefit information to your employees. Information on this form is used by both the taxpayer (that’s your employees) in preparing to file taxes and the IRS to match records to the taxpayer’s tax return.

Do all my employees get one of these?

An employer legally must send out W-2 forms to each of its employees to whom they pay a salary, wage or other form of compensation.

If you need a refresher on who is an employee, go here.

Form W-2 must be filled out if you did any of the following:

  • Withheld any income, Social Security or Medicare tax from wages. This is regardless of the amount of wages.
  • Paid $600 or more in wages, even if you did not withhold any income, Social Security or Medicare tax.
    • Before you get too excited, this only applies to certain classes of employees, such as election workers or foreign ag workers.
  • Would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemptions from withholding on Form W-4.

What do I need to do on the forms?

Form W-2 is made up of multiple parts, all of which is necessary for the taxpayer and the IRS.

Box 1 – Wages, tips and other compensation

This box is for the total taxable wages, tips and other compensation you paid your employee during the course of the calendar year. It includes the following:

  • Total wages
  • Bonuses (including sign-on bonuses) and awards
  • Total noncash payments, including certain fringe benefits
  • Tips reported by the employee to the employer
  • Certain employee business expense reimbursements
  • The cost of accident and health insurance premiums paid on the behalf of a S corp 2% shareholder
  • Taxable benefits from a section 125 plan if the employee chooses cash
  • Employee contributions to an Archer MSA
  • Employer contributions to an Archer MSA (if includible in the income of the employee)
  • Employer contributions for qualified long-term care services (if the coverage is provided through a flexible spending or something similar)
  • Taxable cost of group-term life insurance above $50,000 (above $2,000 for dependents)
  • Payments for non-job related education expenses
  • Employee’s share of Social Security and Medicare taxes if you paid them on their behalf
  • Designated Roth contributions made under a section 401(k) plan, a section 403(b) salary reduction agreement, or a governmental section 457(b) plan.
  • Distributions to an employee or former employee from an NQDC plan (or a nongovernmental section 457(b) plan.
  • Amounts includible in income under section 457(f) because the amounts are no longer subject to a substantial risk of forfeiture.
  • Payments to statutory employees who are subject to social security and Medicare taxes but not subject to federal income tax withholding.
  • Cost of current insurance protection under a compensatory split-dollar life insurance arrangement.
  • Employee contributions to a health savings account (HSA).
  • Employer contributions to an HSA if includible in the income of the employee.
  • Amounts includible in income under an NQDC plan because of section 409A.
  • Payments made to former employees while they are on active duty in the Armed Forces or other uniformed services.
  • All other compensation, including certain scholarship and fellowship grants.


Box 2 – Federal income tax withheld

This one’s pretty self-explanatory. Here we’re talking all federal income tax withheld from an employee’s wages for the calendar year.


Box 3 – Social Security Wages

This is the total wages paid (before payroll deductions) that are subject to employee social security tax. This, however, does not include social security tips and allocated tips (you get to save that for Box 7).

Items subject to employee social security tax, and therefore should be included in Box 3 are:

  • Signing bonuses
  • Employee business expense reimbursements
  • Taxable cost of group-term life insurance over $50,000
  • Employee and non-excludable employer contributions to an MSA or HSA except those made through a cafeteria plan.
  • Employee contributions to a SIMPLE retirement account
  • Adoption benefits

As a note, the total of boxes 3 and 7 (Social Security Tips) can’t exceed $127,200, as this is the maximum social security wage base for 2017.


Box 4 – Social Security Tax Withheld

Here we’re looking for the total employee social security tax withheld, including social security tax on tips. As a reminder, only includes taxes withheld for 2017.


Box 5 – Medicare wages and tips

Similar to box 3, this is where you record the wages and tips that were subject to Medicare tax. Wages that are subject to this are the same as those listed in box 3. The only difference? There’s no wage base limit to Medicare tax.


Box 6 – Medicare tax withheld

Here’s where you put the total of the Medicare tax withheld for 2017, including any additional Medicare tax withheld (there is an additional Medicare tax of 0.9% on taxable wages that exceed $200,000 for an employee in a calendar year).


Box 7 – Social security tips

Separate from box 3, this is where you show the tips your employee reported to you. All tips need to be recorded here, even if you did not have enough employee funds to collect social security tax for the tips.

And remember, the maximum amount for boxes 3 and 7 (combined) cannot exceed $127,200.

But wait, there’s more …

  • Box 8 – Allocated tips: The tips allocated to your employees
  • Box 9 – Verification code: If you’re participating in the W-2 Verification Code Initiative, the verification code goes here.
  • Box 10 – Dependent care benefits: This is the box for total dependent care benefits paid or incurred by you for your employee. This includes fair market value of daycare provided by you.
  • Box 11 – Nonqualified plans: The purpose of this box is to determine if any of the amounts in boxes 1, 3 or 5 were earned in a prior year. The Social Security Administration uses this information to ensure they have paid the correct amount of social security earnings.
  • Box 12 – Codes: The purpose of this box is to report the amounts for various fringe benefits to the employee along with the code to denote what fringe benefit it pertains to. For instance, 401k contributions made by an employee would be reported with a code of D. The IRS has a list of all of the codes along with a description for each one in the General Instructions for Forms W-2 and W-3, which can be found on the IRS website.

 The moral of the story

These forms matter, as they’re used by your employees, the IRS, Social Security Administration, and the state and local government. It’s your legal responsibility as an employer to provide each of your employees with a W-2 that accurately reflects the above items.

Yes, these forms can be confusing and time consuming. But it’s important to ensure they’re done correctly. If you need help, ask your business advisor for guidance. Or, come see us. We’re here to help.

P.S. Learn more about Form W-2, and other forms needed for year-end planning, in our W2/1099 book.