Fringe Benefits: What You Need to Know

As an employer, you want to ensure your employees are happy and thriving in your business. From time to time, you may even reward them for a job well done. But before you give a reward that’s outside the scope of their pay rate, think twice.

Welcome to the world of fringe benefits.

What are fringe benefits?

Fringe benefits are any form of payment that is considered compensation beyond your employee’s normal pay rate. This could include property, services or cash.

Why do I need to think twice?

Often, fringe benefits are taxable to the employee. And if it’s taxable, you have to report it on the employee’s W-2.

Fringe benefits that are taxable include:

  • Vacations
  • Personal use of an employer-provided vehicle
  • Gym memberships
  • Bonuses
  • Moving expenses (those in excess of your qualified expenses)
  • Group term life insurance
  • Gift cards

This is by no means an exhaustive list, but it should at least get you thinking.

What else do I need to know?

When we talk about fringe benefits, we’re often talking about value. The IRS has a little rule called de minimis fringe benefit, otherwise known as “one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.”

In other words, when you talk about value in regard to de minimis fringe benefits, if the benefit is so small it makes reporting it impractical, you don’t have to worry about it. And before you ask, there’s no specific dollar amount given.

One thing to remember is that cash or cash-equivalent gifts are NEVER non-taxable. For example, gift cards have an easily ascertainable value and can be redeemed for merchandise or a cash equivalent. So they need to be reported as part of an employee’s wages.

If you give items that are not cash, you will more than likely utilize fair market value. For instance, say you have a drawing during your company holiday party and an employee wins a 60 inch TV. This would not be considered de minimis and would need to be included in their income so taxes could be withheld. In this instance you can easily ascertain the value of the TV.

In the above example, you utilize fair market value. However, there are items that don’t have an easily discernible value. In that case, look at what a willing buyer would pay for that particular item. If you need a little more help, the IRS lays out guidelines for the valuation of certain items, like the lease of an employer-provided vehicle. You can find more information on that here.

So what would be considered de minimis?

So what would be considered de minimis? An example would be giving each of your employees a T-shirt, turkey, or something similar in value. The key here is that it HAS to be something tangible (as a reminder, this doesn’t mean cash or anything with a value attached … even a $5 gift card counts).

The moral of the story?

Fringe benefits are a great way to reward your employees and help you stand out from your competition. However, you need to be careful that you’re actually reporting these benefits as part of your employee’s wages.

1099 Reminder

Way back in July, we taught you the basics of the 1099 forms. Now that the deadlines for these forms are coming into view, we thought we would give you some tips and helpful reminders for getting them filled out.

Wait, what are these for again?

The most common type of 1099, the 1099-MISC, needs to be completed for anyone who has provided services to you amounting to $600 or more. This can be anything from accounting services to snow removal – if it was $600 or greater worth of work, it goes on the 1099-MISC. However there are a few exceptions to the rule (go figure!). A 1099-MISC isn’t required if:

  • The company providing the services is incorporated – except with lawyers.
  • The person who provided services is your employee.
  • The amount of services provided is less than $600 worth.

Do I need to report anything else on the form?

The 1099-MISC requires you to report any rent paid to an individual or business that isn’t incorporated. It also requires you to report royalties of $10 or more and any other income payments such awards and prizes, and even employee wages paid after death. In other words, most miscellaneous payments are reported on the 1099-MISC.

Any other forms I should know about?

Another common 1099 is the 1099-INT. This form focuses on – you guessed it – interest reporting. Any interest paid amounting to $10 or more, any foreign tax and interest or backup federal withholdings – regardless of the interest payment amount — must be reported on this form.

So, when are they due?

Depending on the type of form you are filing, the due dates may vary. The IRS website gives a great picture of when each form is due. You can check it out here.

Anything else I should know before I get to work filling these out?

As always, these forms are more complex than meets the eye, and this list of items to include is not all-inclusive. Our pals at the IRS do a great job of explaining them, and we’ve also crafted a handy blog to help you get a picture of what these forms include.

We’re hopeful these reminders will give you the information (see what we did there?) you need to fill out the 1099. If your head is still spinning, let us know. We’re always here to help!

Taxable v. Nontaxable Income

Tax season will be here soon, which means your friendly numbers nerds are getting ready! From balance sheets to calculators and everything in between, this is a busy time of year with a lot of moving parts. Tax day, Tuesday, April 17th, will be here in just 162 days. It’s a good idea to think ahead.

When it comes to income, it’s a fairly safe bet to assume it will be taxed. For example, salaries, bonuses, interest and business income are almost always taxable. However, there are some exceptions when it comes to what is and isn’t taxable. This stuff is important to know – different types of income can greatly impact your tax strategies for the upcoming year.

Everyone earns income in some shape or form, and knowing when you should and shouldn’t be paying tax is a must. As a business owner, it’s also important to realize what your employees may need to report on their tax filings, and how this might impact your business’ tax strategy.

To help you with your tax planning, we’re here to help break down which forms of income may be taxable.

The following types of income are taxable, and need to be reported properly:

  • Benefits from unemployment
  • Punitive damages
  • Income from bartering, which is based on the fair market value of the product or service you receive
  • Disability insurance income – if your employer paid the premiums
  • Fringe benefits you receive for performance of your services – think wellness benefits, company car use, etc.
  • Rent payments you receive for personal property – if you are operating your rental activity as a business
  • Gambling winnings and cash prizes

However, not everything is taxable. Here are some of the nontaxable types of income:

  • Workers’ compensation benefits – unless they are part of your retirement package
  • Disability insurance income – if you paid the premiums
  • Compensatory damages for getting sick or being injured
  • Cash rebates from the dealer or manufacturer of a service or product
  • Excluded fringe benefits, such as health insurance, parking and employee discounts
  • Child support payments
  • Rent money if you rent out your primary or vacation home fewer than 15 days a year. This is important to note if you use popular vacation rental sites, such as Airbnb and HomeAway. Also, note that if you rent it out more than 14 days, the activity is taxable.
  • Gifts and inheritances – if your great-great uncle passes away and leaves you his massive stamp collection, lucky you – no income tax!

It’s important to keep in mind these lists don’t include every taxable and nontaxable type of income under the sun, and there are often rules and exceptions that may apply. If you get confused, or aren’t sure if you should really be reporting something, check in with us. We’re here to help.

A version of this post first appeared in Eide Bailly’s Year End Tax Planning Guide.

Tax Changes: What’s New?

Surprise – we’re back! We disappeared for a while, but we’re back to share some important updates on, you guessed it, taxes!

It should come as no surprise there are constant changes in the tax world, and staying up to date on all these changes and regulations can be taxing (don’t worry, we haven’t lost our sense of humor).

So, what’s been changing? We’re glad you asked.

Physical Nexus

A while back we brought you info on nexus (you can check it out here if you need a refresher). States are now looking to overturn the physical nexus requirement for sales tax and replace the current presence test with a new test which would be based on sales or transaction volumes. These changes are important to pay attention to, as they just might have an effect on your nexus and filing duties.

Sales Tax Reporting

Changes are happening to sales tax reporting in Colorado, which is important if you do business in the state. Back in July, reporting requirements began for sellers who don’t currently collect Colorado sales tax and have annual sales greater than $100,000. If the seller doesn’t let the buyer know on the invoice they need to pay use tax, the seller will be penalized.

Penalties are also being imposed on those who fail to provide their buyers with a year-end transaction summary – if the customer makes more than $500 in purchases. Customer information also must be provided to the state.

Other states such as Kentucky, Louisiana, Vermont and Washington have put similar requirements in place, and it’s likely others will follow. It’s important to pay attention to these changes – your state could be next!

Economic Standard

As if changing the sales tax reporting requirements wasn’t enough, states are also imposing an economic standard for any business conducted in a state that leads to an income tax requirement. The standard for “doing business” generally looks like:

  • $50,000 in property or payroll in a state
  • $500,000 of sales into a state
  • An amount of activity in the above categories that is more than 25% of the company’s total

Of course, these minimum amounts of sales, payroll and property can vary by state. The following states currently have similar definitions for doing business:

  • Alabama
  • California
  • Colorado
  • Connecticut
  • Michigan
  • New York
  • Ohio
  • Tennessee
  • Virginia
  • Washington

The Market-Based Method

Businesses who don’t sell tangible property have been using the “cost of performance” method of revenue sourcing for quite some time. However, states are now starting to source this kind of revenue using a market-based method.

Unsure of what a market-based method is? This method means the sale is attributed to the actual location of the customer, rather than where the work was performed. This change has been adopted by many states, with a lot more likely to play copycat. Stay aware of these changes – filing requirements and taxes may be due in states where taxpayers haven’t previously filed.

This is great info, but why should I care?

Understanding these issues and changes can help you prevent costly surprises. Simply filing in a state where a company has a physical location is no longer valid, and is even considered an invalid excuse for failing to handle sales and income taxes.

Taxes are important. To learn more, or ask some questions, reach out. We’re here to help you!

A version of this blog first appeared on eidebailly.com

Our Journey to 100

Have you ever heard of a birth-month rather than a birthday? A few weeks ago, we celebrated our 100th birthday, but we haven’t stopped celebrating.

In fact, we’ve had so much fun being 100 that we want to share with you some history on our journey to 100! Check out the video below:

We’d love to help you get to 100, too! Contact us for more information.

Meet the Team: Stephanie Berggren

StephWhat is my role? My role is to help business owners by sharing and teaching what I love – accounting. Owners can focus on the fun stuff, like making their business grow, while my team and I can provide the accounting skills and knowledge to help them make smart growth decisions. My team and I can help them interpret the story the numbers are telling so they can have a better understanding of where their business is and where it’s going.

Why are numbers important for business?  Numbers are the story of your business. They tell the owner important statistics that, when understood and applied correctly, can help the business owner make informed decisions. Numbers tell the business owner what works and what doesn’t.

Why do I want you to succeed? When you succeed, we all succeed. I love the feeling of seeing businesses I worked with become successful. It develops a sense of pride in what I’ve accomplished, but also makes me excited to see where your business will go next!

#ILoveSmallBiz – Small businesses truly make the world go round. From job opportunities to innovative ideas, small businesses provide success and growth opportunities for our communities, which is a win-win for everyone.

Meet the Team: Chad Flanagan (@chadflan)

chad

What is my role?

Clients can expect an advisor that will help them in any stage of their business. I help clients in early stages of their business by understanding value and proper capitalization. I help mature businesses to increase value and plan for growth and manage risk. Finally, I help businesses understand exit opportunities and challenges with business succession.

I also specialize in valuing intangible assets including technology, patents and contracts. I also offer my business valuation services for estate and gift tax purposes, litigation and even the buying and selling of businesses. Basically, if it involves valuation, I’m your guy.

I enjoy sharing what I know and because of this, I have had the opportunity to present for the Business Law Institute in Minnesota, the Red River Estate Planning Council, Prairie Family Business Association and various other organizations.

Why are numbers important for business?

Numbers and financial metrics tell the story of where your business has been and where it is going. What you can measure you can improve. I work with a cool tool that allows me to look at real time numbers to benchmark clients against their industry and identify how they can improve cash flow, reduce risk and increase the value of their business.

Why do I want you to succeed?

I find it very rewarding to work with clients and help them grow their most important asset – their business. Watching businesses grow to reach their full potential means I have helped my clients reach their goals through all the necessary business steps. I take pride in knowing the advice and work I provided led to success for the client.

#iLoveFargo

I come from a small town in North Dakota, so being in Fargo always feels like home to me. Fargo offers great opportunities in business, a great entertainment scene and a ton of dining choices. There is enough going on here to give it that big city feel, while still having the small town vibe I enjoy. The people here are friendly, and it’s always nice to walk down the street and run into someone you know.