|Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.|
|Identity Theft and Your Taxes|
Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. It presents challenges to individuals, businesses, organizations and government agencies, including the IRS.
Learning that you are a victim of identity theft can be a stressful event and you may not be aware that someone has stolen your identity. In many cases, the IRS may be the first to let you know you're a victim of ID theft after you try to file your taxes.
The IRS is working hard to stop identity theft using a strategy of prevention, detection, and victim assistance. In 2015, the IRS stopped 1.4 million confirmed ID theft returns and protected $8.7 billion. In the past couple of years, more than 2,000 people have been convicted of filing fraudulent ID theft returns. And, in 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed.
Here's what you should know about identity theft:
1. Protect your Records. Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN (social Security Number) if it's necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for all of your Internet accounts.
2. Don't Fall for Scams. Criminals often try to impersonate your bank, credit card company, and even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts.
3. Beware of Threatening Phone Calls. Correspondence from the IRS is always in the form of a letter in the mail. The IRS will not call you threatening a lawsuit, arrest, or to demand an immediate tax payment using a prepaid debit card, gift card, or wire transfer.
As schools around the nation re-open, it is important for taxpayers to be particularly aware of a new scam going after students and parents. In this latest scheme, telephone scammers have been targeting students and parents and demanding payments for non-existent taxes, such as the "Federal Student Tax."
People should be on the lookout for IRS impersonators calling students and demanding that they wire money immediately to pay a fake "federal student tax." If the person does not comply, the scammer becomes aggressive and threatens to report the student to the police to be arrested.
4. Report ID Theft to Law Enforcement. If you cannot e-file your return because a tax return already was filed using your SSN, consider the following steps:
5. Complete an IRS Form 14039 Identity Theft Affidavit. Once you've filed a police report, file an IRS Form 14039 Identity Theft Affidavit (see below). Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by filing on paper.
6. IRS Notices and Letters. If the IRS identifies a suspicious tax return with your SSN, it may send you a letter asking you to verify your identity by calling a special number or visiting a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.
7. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, he or she will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. Each year, you will receive an IRS letter with a new IP PIN.
8. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind that not every data breach results in identity theft. Furthermore, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
9. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can report it on the IRS.gov website.
10. IRS Options. Information about tax-related identity theft is available online at IRS.gov. The IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.
If you have any questions about identity theft and your taxes, don't hesitate to call the office for assistance.
|Deducting Business-Related Car Expenses|
Whether you're self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.
There are two choices for claiming deductions:
Which Method Is Better?
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
How to Make Tax Time Easier
Keep careful records of your travel expenses and record your mileage in a logbook. If you don't know the number of miles driven and the total amount you spent on the car, your tax advisor won't be able to determine which of the two options is more advantageous for you at tax time.
Furthermore, the tax law requires that you keep travel expense records and that you show business versus personal use on your tax return. If you use the actual cost method for your auto deductions, you must keep receipts.
Call today and find out which deduction method is best for your business-use car.
|Tax Planning for Small Business Owners|
Tax planning is the process of looking at various tax options to determine when, whether, and how to conduct business transactions to reduce or eliminate tax liability.
Many small business owners ignore tax planning. They don't even think about their taxes until it's time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.
Although tax avoidance planning is legal, tax evasion - the reduction of tax through deceit, subterfuge, or concealment - is not. Frequently what sets tax evasion apart from tax avoidance is the IRS's finding that there was fraudulent intent on the part of the business owner. The following are four of the areas the IRS examiners commonly focus on as pointing to possible fraud:
Tax Planning Strategies
Countless tax planning strategies are available to small business owners. Some are aimed at the owner's individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:
In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.
The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.
Maximizing Business Entertainment Expenses
Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines.
In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.
The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Bon appetite!
Important Business Automobile Deductions
If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses. In 2016, the mileage reimbursement rate is 54 cents per business mile (57 cents per mile in 2015).
If you own two cars, another way to increase deductions is to include both cars in your deductions. This works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.
Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, don't hesitate to contact the office.
Increase Your Bottom Line When You Work At Home
The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.
Try prominently displaying your home business phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.
Section 179 expensing for tax year 2016 allows you to immediately deduct, rather than depreciate over time, up to $500,000, with a cap of $2,000,000 worth of qualified business property that you purchase during the year. The key word is "purchase." Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification. Some deductions can be taken whether or not you qualify for the home office deduction itself.
If you're ready to meet with a tax professional to discuss tax planning strategies for your business, call the office today.
|Small Business: Deductions for Charitable Giving|
Tax breaks for charitable giving aren't limited to individuals, your small business can benefit as well. If you own a small to medium size business and are committed to giving back to the community through charitable giving, here's what you should know.
1. Verify that the Organization is a Qualified Charity.
Once you've identified a charity, you'll need to make sure it is a qualified charitable organization under the IRS. Qualified organizations must meet specific requirements as well as IRS criteria and are often referred to as 501(c)(3) organizations. Note that not all tax-exempt organizations are 501(c)(3) status, however.
There are two ways to verify whether a charity is qualified: use the IRS online search tool or ask the charity to send you a copy of their IRS determination letter confirming their exempt status.
2. Make Sure the Deduction is Eligible
Not all deductions are created equal. In order to take the deduction on a tax return, you need to make sure it qualifies. Charitable giving includes the following: cash donations, sponsorship of local charity events, in-kind contributions such as property such as inventory or equipment.
Lobbying. A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks the loss of its tax-exempt status. As such, you cannot claim a charitable deduction (or business expense) for amounts paid to an organization if both of the following apply.
Further, if a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues.
3. Understand the Limitations
Sole proprietors, partners in a partnership, or shareholders in an S-corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Corporations (other than S-corporations) can deduct charitable contributions on their income tax returns, subject to limitations.
Note: Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Likewise, if the payments are charitable contributions or gifts, you cannot deduct them as business expenses.
Sole ProprietorshipsAs a sole proprietor (or single-member LLC), you file your business taxes using Schedule C of individual tax form 1040. Your business does not make charitable contributions separately. Charitable contributions are deducted using Schedule A, and you must itemize in order to take the deductions.
Partnerships do not pay income taxes. Rather, the income and expenses (including deductions for charitable contributions) are passed on to the partners on each partner's individual Schedule K-1. If the partnership makes a charitable contribution, then each partner takes a percentage share of the deduction on his or her personal tax return. For example, if the partnership has four equal partners and donates a total of $2,000 to a qualified charitable organization in 2016, each partner can claim a $500 charitable deductions on his or her 2016 tax return.
Note: A donation of cash or property reduces the value of the partnership. For example, if a partnership donates office equipment to a qualified charity, the office equipment is no longer owned by the partnership and the total value of the partnership is reduced. Therefore, each partner's share of the total value of the partnership is reduced accordingly.
S-Corporations are similar to Partnerships, with each shareholder receiving a Schedule K-1 showing the amount of charitable contribution.
Unlike sole proprietors, Partnerships and S-corporations, C-Corporations are separate entities from their owners. As such, a corporation can make charitable contributions and take deductions for those contributions.
4. Categorize Donations
Each category of donation has its own criteria with regard to whether it's deductible and to what extent. For example, mileage and travel expenses related to services performed for the charitable organization are deductible but time spent on volunteering your services is not. Here's another example: As a board member, your duties may include hosting fundraising events. While the time you spend as a board member is not deductible, expenses related to hosting the fundraiser such as stationery for invitations and telephone costs related to the event are deductible.
Generally, you can deduct up to 50 percent of adjusted gross income. Non-cash donations of more than $500 require completion of Form 8283, which is attached to your tax return. In addition, contributions are only deductible in the tax year in which they're made.
5. Keep Good Records
The types of records you must keep vary according to the type of donation (cash, non-cash, out of pocket expenses when donating your services) and the importance of keeping good records cannot be overstated.
Most organizations will give you a letter stating it received a contribution from your business, but you should still keep canceled checks, bank and credit card statements, and payroll deduction records as proof or your donation in case of an IRS audit.
If you're a small business owner, don't hesitate to call if you have any questions about charitable donations.
|Tax Records: Which Ones to Toss and When|
Now is a great time to clean out that growing mountain of financial papers and tax documents that clutter your home and office. Here's what you need to keep and what you can throw out.
Let's start with your "safety zone," the IRS statute of limitations. This limits the number of years during which the IRS can audit your tax returns. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.
The concept behind it is that after a period of years, records are lost or misplaced, and memory isn't as accurate as we would hope. There's a need for finality. Once the statute of limitations has expired, the IRS can't go after you for additional taxes, but you can't go after the IRS for additional refunds, either.
The Three-Year Rule
For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you're looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:
Assuming that you've filed on time and paid what you should, you only have to keep your tax records for three years, but some records have to be kept longer than that.
Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old.
Here's a checklist of the documents you should hold on to:
|Don't Wait to File an Extended Return|
If you filed for an extension of time to file your 2015 federal tax return and you also chose to have advance payments of the premium tax credit made to your coverage provider, it's important you file your return sooner rather than later. Here are four things you should know:
1. If you received a six-month extension of time to file, you do not need to wait until the October 17, 2016, due date to file your return and reconcile your advance payments. You can--and should--file as soon as you have all the necessary documentation.
2. You must file to ensure you can continue having advance credit payments paid on your behalf in future years. If you do not file and reconcile your 2015 advance payments of the premium tax credit by the Marketplace's fall re-enrollment period--even if you filed for an extension--you may not have your eligibility for advance payments of the PTC in 2017 determined for a period of time after you have filed your tax return with Form 8962.
3. Advance payments of the premium tax credit are reviewed in the fall by the Health Insurance Marketplace for the next calendar year as part of their annual re-enrollment and income verification process.
4. Use Form 8962, Premium Tax Credit, to reconcile any advance credit payments made on your behalf and to maintain your eligibility for future premium assistance.
If you have any questions about filing an extended return, help is just a phone call away..
|Renting Out Your Vacation Home|
Renting out a vacation property to others can be profitable. If you do this, you must normally report the rental income on your tax return. You may not have to report the rent, however, if the rental period is short and you also use the property as your home. If you're thinking about renting out your home, here are seven things to keep in mind:
1. Vacation Home. A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
2. Schedule E. You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
3. Used as a Home. If the property is "used as a home," your rental expense deduction is limited. This means your deduction for rental expenses can't be more than the rent you received. For more information about these rules, please call.
4. Divide Expenses. If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between rental use and personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
5. Personal Use. Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also considered personal use.
6. Schedule A. Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes, and casualty losses.
7. Rented Less than 15 Days. If the property is "used as a home" and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case, you deduct your qualified expenses on Schedule A.
Please call the office if you have any questions about renting out a vacation home.
|Understanding the Gift Tax|
If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax.
1. Nontaxable Gifts. The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:
2. Annual Exclusion. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2016, the annual exclusion is $14,000 (same as 2015).
3. No Tax on Recipient. Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.
4. Gifts Not Deductible. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. Forgiven and Certain Loans. The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.
6. Gift-Splitting. In 2016, you and your spouse can give a gift up to $28,000 ($14,000 each) to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
7. Filing Requirement. You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return if any of the following apply:
Still confused about the gift tax? Please call for assistance.
|Bitcoins Treated as Property for Tax Purposes|
Many retailers and online businesses now accept virtual currency for sales transactions. Despite IRS issuing a set of FAQs last year regarding virtual currency, the U.S. federal tax implications remain relatively unknown to many retailers. If you're a retailer who accepts virtual currency such as bitcoins for transactions, here's what you need to know.
Sometimes, virtual currency such as bitcoins operate like "real" currency, i.e. the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance.
But bitcoins do not have legal tender status in any jurisdiction. If you've been paid in virtual currency, you should be aware that virtual currency is treated as property for U.S. federal tax purposes. In other words, general tax principles that apply to property transactions also apply to transactions using virtual currency. Among other things, this means that:
If you're a business or individual with questions about virtual currency such as bitcoins, don't hesitate to call the office for assistance.
|Small Business Health Care Tax Credit: The Facts|
As a small employer, you may be eligible for a tax credit that lets you keep more of your hard-earned money. It's called the small business health care tax credit, and it benefits employers that:
Here are five facts about this credit:
Contact the office today if you'd like more information about the small business health care tax credit page.
|Tax Due Dates for September 2016|
Employees Who Work for Tips - If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.
Individuals - Make a payment of your 2016 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2016.
Corporations - File a 2015 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension.
S corporations - File a 2015 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.
Partnerships - File a 2015 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1.
Corporations - Deposit the third installment of estimated income tax for 2016. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.
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