A Holiday Cheat Sheet: What Your Business Needs to Know

Happy holidays from your jolly numbers nerds. Throughout the year, we’ve told you about several upcoming changes that could impact your business. As our gift to you (yeah, we’re nice like that), we’ve wrapped all these updates up in one big inclusive blog so you can find all you need to know in one spot (you’re welcome).

We’ve even thrown in a few new stocking stuffers to make sure you’re in the loop. Why? With a new presidency coming quickly, policies are bound to change, and staying up to date will help your business stay out of trouble.

Taxes

  • The deadline of the W-2 has been moved up to January 31st, rather than the typical due date at the end of February. Form 1099-MISC is also receiving this new deadline. For a refresher on when forms are due, check out this infographic.
  • Partnership tax returns and c-corporation tax returns are getting new deadlines. Partnership returns, which were previously due on April 15th, are now due on March 15th. C-corporation returns switched and are now due April 15th rather than March 15th. Of course, there are some exceptions to this based on when your business operates its fiscal year. If your corporation has a June 30th year-end, you do not get the extra month; your returns still have to be filed by September 15th. Look here for that information.

Affordable Care Act (ACA)

  • Form 1095, which previously had leniency until its March 31st due date, has now moved and become a little more strict. The form now needs to be submitted no later than January 31st to ensure your employees get this form on time. As a refresher, Form 1095 contains three different forms: 1095A, B and C.
    • Form 1095A, which is a health insurance marketplace statement, details the coverage the employee has, how much was paid for insurance and tax credits.
    • 1095B is for employers who offer health coverage with less than 50 full-time employees, while 1095C provides coverage information if your company had more than 50 full-time employees.

Form 1095 isn’t the only one with a new due date. 1094B and C have also moved up to a deadline of February 28th via snail mail, or March 31st if being submitted electronically. Form 1094 has to be provided to the IRS to report minimum essential health care coverage. In other words, it tells the IRS about the health care options your company provides. 1094B will be completed no matter the size of your business, while 1094C is for larger employers, those with 50 or more full-time employees. (Confusing? Yes, but we can help. Just ask!)

  • Don’t forget about the Critical ACA Compliance Test. Under this rule, certain employers, those with 50 or more employees, are required to offer coverage to at least 95 percent of their full time employees, and not doing so can result in huge penalties for your business. For more ACA updates and changes, look here.

Miscellaneous

  • Form I-9 received a face lift. A new form was released, which also included updated instructions to make completing it a little bit easier (how nice of them). Along with the new look came a new date. Employers must start using the new form by January 22, 2017.
  • A long, long time ago (okay, only a few months ago) our friends at the Department of Labor released a new overtime ruling. Under this new ruling, the overtime salary threshold almost doubled to $913/week, starting December 1, 2016. However, here we are at the end of December and this rule hasn’t gone into play. So, what’s going on? Some states weren’t quite impressed with this idea, and challenged this new ruling. Because of this challenge, the changes were put on hold. As of now, there isn’t any news on when and if this ruling will move forward, but if it does, we will keep you posted.
  • We’ve got some bad news for bitcoin. Back in November, the US Department of Justice (DOJ) asked a district court in the Northern District of California for a summons to be issued for bitcoin exchanger Coinbase Inc. This summons will potentially require the company to hand over information related to all bitcoin transactions it handled between 2013 and 2015. Then, the DOJ would share this info with the IRS to match against filed tax returns. Yikes. If your business used bitcoins through this time period, it’s time to review them with your tax advisor. Don’t have one? We can help.

There you have it: a handy cheat sheet to keep you updated on changes effecting your business. With a recent election and a new presidency transition coming soon, more changes are likely on the horizon. When these changes happen, we’ll make sure to fill you in. For now, sit back, relax and enjoy this holiday season.

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New Year, New Updates

One of the incredibly fun things about being an employer is keeping track of all the updates related to tax forms that impact benefits and withholdings for your employees. Okay, maybe that doesn’t sound so fun – but it is important!

As 2017 quickly approaches, here’s a brief update on some of the updates you should be prepared for in the new year:

W2s

The IRS has kindly updated the W-2 deadline to January 31 (in case you don’t remember what a W-2 is, here’s your refresh). This is an important deadline to pay attention to as employers typically used to have until the end of February, if filing on paper, or the end of March, if filing electronically, to submit this form.

Why the change? The IRS is complying with a new federal law, which is trying to make it easier for them to detect and prevent fraud. This rule also applies to Form 1099-MISC (here’s your reminder).

Flex Spending Accounts

For any plan starting in 2017, the employee salary reduction for contributing to health flexible spending accounts was increased to $2,600. It was previously $2,550 in 2016.

Medical Savings Account

If your organization has a high deductible health plan, your employees (or you as the employer) can make contributions to it.

What do we mean by a high deductible plan? Well for 2017, the IRS states a high deductible plan is one with an annual deductible of $2,250-$3,350 for individual coverage (this is the same as it was for 2016). If your employee has family coverage, this deductible changes to $4,500-$6,750 (previously $4,450-$6,700 in 2016).

The maximum out-of-pocket expense has also been raised to $4,500 for individuals (previously $4,450) and $8,250 for family ($8,150 in 2016).

Social Security

The Social Security wage base was increased by $8,700 for 2017, bringing it to $127,700. The maximum tax employees and employers will pay for Social Security in 2017 will be $7,886.40.

There continues to be no limit to the wages subject to Medicare tax. In other words, all applicable wages are subject to 1.45% tax for Medicare.

And don’t forget about your organization

The IRS has also changed a few of the company filings as well. These include partnership tax returns and C-corporation tax returns.

Not quite sure what we’re talking about? Learn more about entity selection for your organization.

Partnership tax returns are now due March 15, instead of April 15. C-corporations, on the other hand, will now have their tax returns due April 15 instead of March 15.

But what if your corporation doesn’t follow a calendar year? Well, there’s still rules that apply to you too. If your partnership isn’t on a calendar year, your return is due on the 15th of the third month following your year end. The same is true for C-corporations, who will need to file on the fourth month after their year-end.

However, if your corporation has a June 30 year-end, you do not get the extra month. You will still need to file your returns on September 15th.

The moral of the story …

In case you didn’t think accounting and the financial side of your business was complex enough, there’s the issue of updates from the IRS. These must be complied with and they can be complicated. If in doubt, ask. We’re always here to help.

Taxes: When’s that due?

With the holiday season upon us, you’re probably thinking of the fun and festivities of the season and definitely not taxes.

Taxes? Why should you be thinking about taxes? Well, there have been some very important changes to tax due dates, and these deadlines will sneak up on you before you know it! Check out this infographic to see the deadlines so you’re not scrambling at the last minute!

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Taxes: Plan Ahead & Don’t Be Surprised

For many of you, the last quarter of the fiscal year-end is here. Have you talked to, or at least scheduled a meeting with, your tax professional yet?

If you haven’t, we recommend starting the conversation. What’s the point? If you expect to have taxable income, now is the perfect time to project what your taxable income might look like; giving yourself time to take action or prepare for the cash outlay to pay Uncle Sam.

Your tax professional can help you strategize legitimate ways to minimize your tax burden or help you avoid surprises on tax day.

Maybe you are a cash basis taxpayer and you can accelerate (or hold off – because it’s important to think about future tax years too!) paying your vendors.

 Maybe you are in the position to purchase fixed assets and take advantage of accelerated depreciation methods. Or again, maybe your strategy will be different based on expectations for future tax years.

 Maybe you have related party balances (we are talking transactions that aren’t at an arms-length … owner balances, related entity balances, etc.). Uncle Sam has special rules for those and you don’t want to be surprised.

 Maybe you are considering your retirement savings, deadlines for retirement plans often correlate to tax deadlines. Not sure about retirement savings options? Click here.

Whatever your situation, if you are expecting taxable income, consider talking to your tax professional. Don’t have one yet? We have hundreds of tax professionals who rock (and have access to national resources which is pretty awesome)!

What Tax Forms Do I Use?

It’s no surprise that running a business is no easy task. You have to worry about compliance, human resources and of course, that pesky accounting piece too. Another factor that adds to the confusion of running a business is tax filings. Common struggles with tax filings include knowing how to file them, when to file and what forms to use. Fear not: we are here to save the day!

Whether you’re an S-Corp, C-Corp, Partnership or Sole Proprietorship, we’ve got you covered. Not sure which you are? Look here. We’re breaking down what type of forms you need and what they cover.

If you’re an S-Corp…

As an S-Corp, there are five forms you need to focus on.

  1. Form 2553 — Election by a Small Business Corporation – This is the required form to elect to be treated as an S-corporation for income tax purposes. Without filing this form, your business will be considered a C-corporation, partnership, or sole proprietorship for income tax purposes. Generally, it must be filed within 2 1/2 months after the effective date of the S-election or anytime during the preceding year leading up to the effective date. There are provisions for late S-corp election in certain instances.
  2. Form 1120S — US Income Tax Return for an S Corporation – This form includes information on the corporation’s profits and losses, deductions and credits. This is the S-corp’s annual income tax return. It is due on the 15th day of the third month.
  3. Form 7004 — Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns – If you need more time to file income tax, information and other returns, you can file this form for a six-month extension. The due date varies depending on the last day of the corporation’s tax year.
  4. Form 1120W — Estimated Tax for Corporations – Although this form will not apply in most cases, quarterly estimated tax payments must be paid in order to avoid penalties if the total of the taxes on built-in gains, excess net passive income tax and the investment credit recapture tax are more than $500.
  5. Schedule K1– Shareholder’s Share of Income, Deductions, Credits, Etc. – This form is part of the annual income tax filing (Forms 1120s) and will tell each individual shareholder what their portion of the S-corp’s income, deductions and credits of the tax payment is. This activity will be reported on the shareholder’s personal income tax return.

If you’re a C-Corp…

There are four important forms you need to be aware of.

  1. Form 1120 — US Corporation Income Tax Return – This is the annual income tax return filed with the IRS. The corporation’s taxable income will be subjected to the appropriate corporate rates. Any dividends paid to shareholders will also be taxed at the individual level.
  2. Form 7004 — Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns – This form allows for a six-month extension if more time is needed to file income tax. The due date will vary based on the last day of the corporation’s tax year.
  3. Form 1120W — Estimated Tax for Corporations – A C-Corp must make quarterly estimated tax payments if it expects tax for the year to be estimated at $500 or more. If payments are not made by their due date, the C-Corp can face an underpayment penalty.
  4. Form 1099 – DIV-Dividends and Distributions — This form is required to be issued to shareholders for dividends and other distributions on stock of $10 or more.

If you’re a Partnership…

If you are a partnership, the following three forms require your attention.

  1. Form 1065 — US Return of Partnership Income – This form reports income, gains, losses, deductions and credits from the partnership’s operations.
  2. Form 7004 — Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns – Form 7004 will give your business a five month extension to get your returns and paperwork in order. To qualify, this form must be filed by the original due date of Form 1065.
  3. Schedule K1 — Partner’s Share of Income, Deductions, Credits, Etc. – This form serves to tell each partner what their individual portion of the taxable income or loss is. It also states any credits and any other pass-through income and deductions.

If you’re a Sole Proprietorship…

More than likely, you can easily recognize if this is your business. A Sole Proprietorship is owned by a sole proprietor (hence the name) alone.

A Sole Proprietorship utilizes the following four forms.

  1. Form 1040 — US Individual Income Tax Return– One of the most common forms, it is used to report an individuals’ income, gains/losses, deductions and credits. It must be filed by the 15th day of the fourth month.
  2. Schedule C — Profit or Loss from Business (Sole Proprietorship) – This form is to be filed alongside the 1040. It reports the taxable income/loss from the sole proprietorship.
  3. Form 1040ES — Estimated Tax for Individuals – If you expect to owe at least $1000 in tax for the year, after subtracting your withholding and refundable credits, quarterly payments are required in order to avoid underpayment penalties. For more information on estimating tax amounts, check out this blog.
  4. Form 8832 — Entity Classification Election –This form is required to change the entity status of your business. For example, LLCs are not considered corporations by default. (They are classified as partnerships or sole proprietorships for income tax purposes by default.). However, by filing this form, LLCs can choose to be taxed as corporations.

If you have employees…

Having employees working for you is great, but you need to acknowledge these five forms to stay compliant.

  1. Form 940 — Employer’s Annual Federal Unemployment (FUTA) Tax – This is your annual payroll report which will also detail your business’s unemployment taxes. This form is due January 31st.
  2. Form 941– Employer’s Federal Quarterly Tax Return — This form is due quarterly, and reports info on employee withholding and wages.
  3. Form W3 — Transmittal of Wage and Tax Statements — Filed with the Social Security Administration, this form is the transmittal of wage and tax statements. It is due by February 28th.
  4. Form 943 — Employer’s Annual Federal Tax Return for Agricultural Employees – Due quarterly, this form must be filed if there are any agricultural employees within a company.
  5. W2 — Wage and Tax Statement – A form you are probably familiar with, this form must be given to employees at the end of the tax year to report their wages and tax payments made on their behalf. More information can be found here.

Miscellaneous filings

1099s – There is a series of information returns, referred to as 1099s, that all business are required to file to report various types of activity. Examples are 1099-INT to report interest, 1099-DIV to report dividends, 1099-MISC to report rent, non-employee compensation, and various other types of income. The list is goes on and on!

Various state filings — In addition to the common federal forms previously referenced, most states (and some cities) have their own reporting requirements. Common examples are state unemployment, workers’ compensation, sales & use tax, personal property tax, state payroll filings, and state income or franchise tax filings.

Tax season won’t be upon us for a while, but it is never too early to start thinking of what you may need to do to make sure your business is up to date. Sound like a lot to keep track of? We can help!

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Work Opportunity Tax Credit: What You Need to Know

Did you know that you can get a tax credit for employing people from certain targeted groups? Welcome to the Work Opportunity Tax Credit (WOTC).

Sounds pretty sweet. What is it?

The WOTC is a credit given to employers who hire someone from a certain targeted group. It’s a credit against income tax for a percentage of the first year of compensation for an employee. Generally, this amounts to 40 percent of the first $6,000 of qualified wages, although it does vary by group and individual hours worked.

What do you mean by targeted groups?

The groups specifically called out by the WOTC include:

  • Qualified IV-A recipients
  • Qualified veterans
  • Qualified ex-felons
  • Vocational rehabilitation referrals
  • Qualified summer youth employees
  • Designated community residents at least 18 years of age but under age 40
  • Qualified food stamp recipients
  • Qualified supplemental security income recipients
  • Long-term temporary assistance recipients

In addition. “qualified long-term unemployment recipients” was added to the list of targeted groups effective January 1, 2016. This refers to those who have been employed for 27 weeks or more.

How do I get it?

In order to claim the WOTC, you as an employer must do one of the following:

  1. Obtain certification from a designated local agency (typically a state employment security agency). This validates an employee is in fact a member of a targeted group and must be completed on or before the day the person begins work.
  2. Complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit), on or before the day the person is offered employment. In addition, you must submit it to the appropriate designated local agency no later than 28 days after the employee begins. But wait, there’s more. You also must submit a Department of Labor (DOL) Employment and Training Administration Form 9061/9062.

Why are we talking about this now?

Originally, the WOTC was one of the tax measures that expired in 2014. Now don’t worry, you didn’t read this blog for nothing. The Protecting Americans from Tax Hikes Act of 2015 (more commonly known as the PATH Act), extended the WOTC from January 1, 2015 to December 31, 2019. So you have plenty of time to use it.

A version of this blog first appeared on eidebailly.com.

Tax Records & the Statute of Limitations

Recently, we discussed a little thing called record retention (you can read about it here), otherwise known as when to keep it and when to throw it away. Today, we’re talking about the statute of limitations in regards to your taxes. No, they’re not the same thing.

The statute of limitations does not refer to the amount of time you hang on to your tax records. Rather, the statute of limitations refers to the length of time you and your pals at the IRS can make changes to your tax return. In other words, this is the length of time when the IRS can assess additional tax, or you can claim a refund.

There’s no one set rule related to the statute of limitations and the IRS (shocking, we know). Rather, it depends on a few things:

Did you file a return?

The following assumes you did (if you didn’t, we have a bigger problem). In general, the statute of limitations for the IRS is three years from the due date of the return or the date of filing (whichever is later). We say in general because there are a whole bunch of “ifs” related to this. Here are just a few.

If you had a substantial omission (more than 25 percent) of your gross income on your tax return, the IRS extends the statute of limitations. How long? Six years from the time the IRS makes its assessment.

If the IRS files suit against the taxpayer to collect previously assessed taxes, the statute of limitations is generally 10 years. In other words, once the IRS issues an assessment, the IRS has 10 years to pursue legal action and collect on tax debt. They do this through a variety of mechanisms, including garnishing your wages.

If you paid late or failed to pay the full amount of your taxes, you can incur interest fees and additional penalties. These vary, obviously, based on the severity of the situation. We will say this, though: missed filings or errors in filing can actually be considered a crime with criminal ramifications. So it’s best to get your taxes paid on time and in full.

Be aware that other tax authorities (a.k.a. state and local governments) set their own statutes of limitations.

Did you attempt to file a fraudulent return? Or not file a tax return at all (intentionally)?

Then congratulations, there’s no statute of limitations. No, this doesn’t mean the IRS can never audit you. Rather, what it means there is no deadline for the IRS if it can establish that you, the taxpayer, have: 1) filed a false or fraudulent return; 2) willfully attempted to evade tax; or 3) failed to file a return.

In other words, if you have intentionally not filed taxes, or filed them fraudulently, the IRS always has the option to come after you. Further, they raise the interest and penalties related to these transactions. And we really shouldn’t have to say this, but we will. Tax evasion and tax fraud are CRIMES. So if you mess up, it’s best to come forward voluntarily and work with the IRS to establish a payment plan and resolve the issue.