Business Identity Theft
Mon, 24 Sep 2018 15:11:00 +0000
Businesses aren’t immune to tax identity theft
Tax identity theft may seem like a problem only for individual taxpayers. But, according to the IRS, increasingly businesses are also becoming victims. And identity thieves have become more sophisticated, knowing filing practices, the tax code and the best ways to get valuable data.
How it works
In tax identity theft, a taxpayer’s identifying information (such as Social Security number) is used to fraudulently obtain a refund or commit other crimes. Business tax identity theft occurs when a criminal uses the identifying information of a business to obtain tax benefits or to enable individual tax identity theft schemes.
For example, a thief could use an Employer Identification Number (EIN) to file a fraudulent business tax return and claim a refund. Or a fraudster may report income and withholding for fake employees on false W-2 forms. Then, he or she can file fraudulent individual tax returns for these “employees” to claim refunds.
The consequences can include significant dollar amounts, lost time sorting out the mess and damage to your reputation.
There are some red flags that indicate possible tax identity theft. For example, your business’s identity may have been compromised if:
Keep in mind, though, that some of these could be the result of a simple error, such as an inadvertent transposition of numbers. Nevertheless, you should contact the IRS immediately if you receive any notices or letters from the agency that you believe might indicate that someone has fraudulently used your Employer Identification Number.
Businesses should take steps such as the following to protect their own information as well as that of their employees:
Of course, identity theft can go beyond tax identity theft, so be sure to have a comprehensive plan in place to protect the data of your business, your employees and your customers. If you’re concerned your business has become a victim, or you have questions about prevention, please contact meRead More...
Medical Expense Tax Issues
Sat, 22 Sep 2018 01:24:00 +0000
Reimbursing Employees for Business Expenses
Mon, 17 Sep 2018 14:21:00 +0000
Be sure your employee travel expense reimbursements will pass muster with the IRS
Does your business reimburse employees’ work-related travel expenses? If you do, you know that it can help you attract and retain employees. If you don’t, you might want to start, because changes under the Tax Cuts and Jobs Act (TCJA) make such reimbursements even more attractive to employees. Travel reimbursements also come with tax benefits, but only if you follow a method that passes muster with the IRS.
The TCJA’s impact
Before the TCJA, unreimbursed work-related travel expenses generally were deductible on an employee’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction. However, many employees weren’t able to benefit from the deduction because either they didn’t itemize deductions or they didn’t have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income (AGI) floor that applied.
For 2018 through 2025, the TCJA suspends miscellaneous itemized deductions subject to the 2% of AGI floor. That means even employees who itemize deductions and have enough expenses that they would exceed the floor won’t be able to enjoy a tax deduction for business travel. Therefore, business travel expense reimbursements are now more important to employees.
The potential tax benefits
Your business can deduct qualifying reimbursements, and they’re excluded from the employee’s taxable income. The deduction is subject to a 50% limit for meals. But, under the TCJA, entertainment expenses are no longer deductible. That means your business does not get a deduction for entertainment expenses even if you reimburse an employee.
To be deductible and excludable, travel expenses must be legitimate business expenses and the reimbursements must comply with IRS rules. You can use either an accountable plan or the per diem method to ensure compliance.
Reimbursing actual expenses
An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. To qualify as “accountable,” your plan must meet the following criteria:
Note: A plan can be as simple as a page outlining what is reimbursed and how. It does not have to be a fancy and complicated plan!
The IRS will treat plans that fail to meet these conditions as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income taxes (employee) and employment taxes (employer and employee).
Keeping it simple
With the per diem method, instead of tracking actual expenses, you use IRS tables to determine reimbursements for lodging, meals and incidental expenses, or just for meals and incidental expenses, based on location. (If you don’t go with the per diem method for lodging, you’ll need receipts to substantiate those expenses.)
Be sure you don’t pay employees more than the appropriate per diem amount. The IRS imposes heavy penalties on businesses that routinely overpay per diems.
What’s right for your business?
To learn more about business travel expense deductions and reimbursements post-TCJA, contact us. Call me at (856) 665-2121 and I can help you determine whether you should reimburse such expenses and which reimbursement option is better for you.Read More...
2018 Q4 tax calendar: Key deadlines for businesses and other employers
Mon, 10 Sep 2018 19:11:00 +0000
2018 Q4 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
Simple IRA - good for small businesses
Mon, 27 Aug 2018 15:01:00 +0000
Keep it SIMPLE: A tax-advantaged retirement plan solution for small businesses
If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help you attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2018.
SIMPLE stands for “savings incentive match plan for employees.” As the name implies, these plans are simple to set up and administer. Unlike 401(k) plans, SIMPLE IRAs don’t require annual filings or discrimination testing.
SIMPLE IRAs are available to businesses with 100 or fewer employees. Employers must contribute and employees have the option to contribute. The contributions are pretax, and accounts can grow tax-deferred like a traditional IRA or 401(k) plan, with distributions taxed when taken in retirement.
As the employer, you can choose from two contribution options:
Employees are immediately 100% vested in all SIMPLE IRA contributions.
Employee contribution limits
Any employee who has compensation of at least $5,000 in any prior two years, and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE IRA.
SIMPLE IRAs offer greater income deferral opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older can also make a catch-up contribution of up to $3,000. This compares to $5,500 and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for 401(k)s. (Some or all of these limits may increase for 2019 under annual cost-of-living adjustments.)
You’ve got options
A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. The more-complex 401(k) plan we’ve already mentioned is one alternative. Some others are a Simplified Employee Pension (SEP) and a defined-benefit pension plan. These two plans don’t allow employee contributions and have other pluses and minuses. Call me at (856) 665-2121 to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.Read More...
Cash vx. Accrual - what is the right accounting method?
Mon, 13 Aug 2018 17:14:00 +0000
Choosing the right accounting method for tax purposes
The Tax Cuts and Jobs Act (TCJA) liberalized the eligibility rules for using the cash method of accounting, making this method — which is simpler than the accrual method — available to more businesses. Now the IRS has provided procedures a small business taxpayer can use to obtain automatic consent to change its method of accounting under the TCJA. If you have the option to use either accounting method, it pays to consider whether switching methods would be beneficial.
Cash vs. accrual
Generally, cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid. Accrual-basis businesses, on the other hand, recognize income when it’s earned and deduct expenses when they’re incurred, without regard to the timing of cash receipts or payments.
In most cases, a business is permitted to use the cash method of accounting for tax purposes unless it’s:
Cash method advantages
The cash method offers several advantages, including:
Simplicity. It’s easier and cheaper to implement and maintain.
Tax-planning flexibility. It offers greater flexibility to control the timing of income and deductible expenses. For example, it allows you to defer income to next year by delaying invoices or to shift deductions into this year by accelerating the payment of expenses. An accrual-basis business doesn’t enjoy this flexibility. For example, to defer income, delaying invoices wouldn’t be enough; the business would have to put off shipping products or performing services.
Cash flow benefits. Because income is taxed in the year it’s received, the cash method does a better job of ensuring that a business has the funds it needs to pay its tax bill.
Accrual method advantages
In some cases, the accrual method may offer tax advantages. For example, accrual-basis businesses may be able to use certain tax-planning strategies that aren’t available to cash-basis businesses, such as deducting year-end bonuses that are paid within the first 2½ months of the following year and deferring income on certain advance payments.
The accrual method also does a better job of matching income and expenses, so it provides a more accurate picture of a business’s financial performance. That’s why it’s required under Generally Accepted Accounting Principles (GAAP).
If your business prepares GAAP-compliant financial statements, you can still use the cash method for tax purposes. But weigh the cost of maintaining two sets of books against the potential tax benefits.
Making a change
Keep in mind that cash and accrual are the two primary tax accounting methods, but they’re not the only ones. Some businesses may qualify for a different method, such as a hybrid of the cash and accrual methods.
I can work with your accountant and tax preparer to help you decide which accounting method is best for your business,
Directors and Officers should be Insured
Fri, 10 Aug 2018 14:45:00 +0000
Family Business Planning can save tax
Tue, 07 Aug 2018 19:06:00 +0000
An FLP can save tax in a family business succession
One of the biggest concerns for family business owners is succession planning — transferring ownership and control of the company to the next generation. Often, the best time tax-wise to start transferring ownership is long before the owner is ready to give up control of the business.
A family limited partnership (FLP) can help owners enjoy the tax benefits of gradually transferring ownership yet allow them to retain control of the business.
How it works
To establish an FLP, you transfer your ownership interests to a partnership in exchange for both general and limited partnership interests. You then transfer limited partnership interests to your children.
You retain the general partnership interest, which may be as little as 1% of the assets. But as general partner, you can still run day-to-day operations and make business decisions.
As you transfer the FLP interests, their value is removed from your taxable estate. What’s more, the future business income and asset appreciation associated with those interests move to the next generation.
Because your children hold limited partnership interests, they have no control over the FLP, and thus no control over the business. They also can’t sell their interests without your consent or force the FLP’s liquidation.
The lack of control and lack of an outside market for the FLP interests generally mean the interests can be valued at a discount — so greater portions of the business can be transferred before triggering gift tax. For example, if the discount is 25%, in 2018 you could gift an FLP interest equal to as much as $20,000 tax-free because the discounted value wouldn’t exceed the $15,000 annual gift tax exclusion.
To transfer interests in excess of the annual exclusion, you can apply your lifetime gift tax exemption. And 2018 may be a particularly good year to do so, because the Tax Cuts and Jobs Act raised it to a record-high $11.18 million. The exemption is scheduled to be indexed for inflation through 2025 and then drop back down to an inflation-adjusted $5 million in 2026. While Congress could extend the higher exemption, using as much of it as possible now may be tax-smart.
There also may be income tax benefits. The FLP’s income will flow through to the partners for income tax purposes. Your children may be in a lower tax bracket, potentially reducing the amount of income tax paid overall by the family.
Perhaps the biggest downside is that the IRS scrutinizes FLPs. If it determines that discounts were excessive or that your FLP had no valid business purpose beyond minimizing taxes, it could assess additional taxes, interest and penalties.
The IRS pays close attention to how FLPs are administered. Lack of attention to partnership formalities, for example, can indicate that an FLP was set up solely as a tax-reduction strategy.
Right for you?
An FLP can be an effective succession and estate planning tool, but it isn’t risk free. Please call me at (856) 665-2121 whether an FLP is right for you.Read More...
Capital Gain Tax Rate to be adjusted by inflation?
Wed, 01 Aug 2018 14:40:00 +0000
Trump administration considers taking inflation into account when taxing capital gainsAs reported by Reuters:
The Trump administration is considering bypassing Congress to grant a $100 billion tax cut (as projected over a decade) to taxpayers by taking inflation into account when determining capital gains tax liabilities, the New York Times reported on Monday, July 30.
The 20% capital gains tax rate is currently applied to the difference between an asset's value when it is purchased and when it is sold. But the calculation does not take the effects of inflation into account, which can raise the size of the tax bill significantly depending on the inflation rate.
Quoting from an interview with Treasury Secretary Steven Mnuchin, the newspaper said the Administration could change the definition of "cost" used to calculate capital gains, allowing taxpayers to adjust the value of an asset for inflation when it is sold. "If it can't get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we'll consider that", Mnuchin was quoted by the Times as saying. "We are studying that internally, and we are also studying the economic costs and the impact on growth."
Treasury officials were not immediately available to comment on the report, which said the Administration has not concluded whether it has the authority to make such a change.
Since the Internal Revenue Code is legislation which is required to be instituted in the House of Representatives according to the Constitution it does not seem that President Trump can make an executive order simply changing tax law. Adjusting the capital gain rate for inflation may make sense, but this can only be done by Congress. Read More...
Home Office Deduction after Tax Reform
Tue, 31 Jul 2018 20:08:00 +0000
Do you qualify for the home office deduction?
Under the Tax Cuts and Jobs Act, employees can no longer claim the home office deduction. If, however, you run a business from your home or are otherwise self-employed and use part of your home for business purposes, the home office deduction may still be available to you.
Homeowners know that they can claim itemized deductions for property tax and mortgage interest on their principal residences, subject to certain limits. Most other home-related expenses, such as utilities, insurance and repairs, aren’t deductible.
But if you use part of your home for business purposes, you may be entitled to deduct a portion of these expenses, as well as depreciation. Or you might be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500).
Regular and exclusive use
You might qualify for the home office deduction if part of your home is used as your principal place of business “regularly and exclusively,” defined as follows:
1. Regular use. You use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use.
2. Exclusive use. You use the specific area of your home only for business. It’s not necessary for the space to be physically partitioned off. But, you don’t meet the requirements if the area is used both for business and personal purposes, such as a home office that also serves as a guest bedroom.
Regular and exclusive business use of the space isn’t, however, the only criteria.
Principal place of business
Your home office will qualify as your principal place of business if you 1) use the space exclusively and regularly for administrative or management activities of your business, and 2) don’t have another fixed location where you conduct substantial administrative or management activities.
Examples of activities that are administrative or managerial in nature include:
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if you physically meet with patients, clients or customers on your premises. The use of your home must be substantial and integral to the business conducted.
Alternatively, you may be able to claim the home office deduction if you have a storage area in your home — or in a separate free-standing structure (such as a studio, workshop, garage or barn) — that’s used exclusively and regularly for your business.
The home office deduction can provide a valuable tax-saving opportunity for business owners and other self-employed taxpayers who work from home. If you’re not sure whether you qualify or if you have other questions, please contact me at (856) 665-2121 Read More...
Hign Tax States Sue Federal Government
Wed, 18 Jul 2018 12:43:00 +0000
The high tax States, including New Jersey, are suing the Federal Government because of the Tax Reform Act. They are arguing the $10k cap on State and Local Taxes is somehow Unconstitutional. They will lose. There is no right to have a Federal Tax Deduction for local taxes. It would be surprising if the Courts side with the States. Here is a good article on the lawsuit from Thompson-Reuters:
NEW YORK, (Reuters) - Four U.S. states sued the federal government on Tuesday to void the new $10,000 cap on the federal deduction for state and local taxes, included as part of the President Donald Trump's 2017 tax overhaul.
The lawsuit by New York, Connecticut, Maryland and New Jersey came seven months after Trump signed into law the $1.5 trillion overhaul, which also lowered taxes for many wealthy Americans and slashed the corporate tax rate.
It also adds to the many legal battles between Democratic-led and -leaning states, including several that impose comparatively high taxes, and the Trump administration.
Andrew Cuomo, New York's Democratic governor, said in a statement: "The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it".
The U.S. Department of the Treasury, which along with Treasury Secretary Steven Mnuchin is among the defendants, was not immediately available for comment.
Taxpayers had before this year enjoyed an unlimited federal deduction for state and local taxes, or the SALT deduction.
But under the cap, individuals and married taxpayers filing jointly who itemize deductions may deduct only up to $10,000 annually for state and local income, property and sales taxes.
Critics say the cap disproportionately harms high-tax states, many of which lean Democratic.
Voters in New York, Connecticut, Maryland and New Jersey favored Hillary Clinton, a Democrat, in the 2016 presidential election.
According to the lawsuit, capping the SALT deduction will force New York taxpayers alone to pay an additional $14.3 billion in federal taxes this year, and another $121 billion through 2025, when the cap is scheduled to expire.
The states said the cap will depress home prices, spending, job growth and economic growth, and impede their ability to pay for essential services such as schools, hospitals, police, and road and bridge construction and maintenance.
They also said it "effectively eviscerates" a deduction that has been on the books since 1861, and unconstitutionally intrudes on state sovereignty.
The lawsuit was filed in the U.S. District Court in Manhattan.
In May, the Treasury Department said it would propose regulations aimed at states trying to circumvent the cap.
New York, Connecticut and New Jersey had already adopted measures allowing taxpayers to fund local governments by making deductible charitable contributions to specified funds instead of paying taxes. Read More...
How to Avoid the !00% (6672 VCivil Penalty) for Employment Taxes
Tue, 17 Jul 2018 20:47:00 +0000
How to avoid getting hit with payroll tax penalties
For small businesses, managing payroll can be one of the most arduous tasks. Adding to the burden earlier this year was adjusting income tax withholding based on the new tables issued by the IRS. (Those tables account for changes under the Tax Cuts and Jobs Act.) But it’s crucial not only to withhold the appropriate taxes — including both income tax and employment taxes — but also to remit them on time to the federal government.
If you don’t, you, personally, could face harsh penalties. This is true even if your business is an entity that normally shields owners from personal liability, such as a corporation or limited liability company.
The 100% penalty
Employers must withhold federal income and employment taxes (such as Social Security) as well as applicable state and local taxes on wages paid to their employees. The federal taxes must then be remitted to the federal government according to a deposit schedule.
If a business makes payments late, there are escalating penalties. And if it fails to make them, the Trust Fund Recovery Penalty could apply. Under this penalty, also known as the 100% penalty, the IRS can assess the entire unpaid amount against a “responsible person.”
The corporate veil won’t shield corporate owners in this instance. The liability protections that owners of corporations — and limited liability companies — typically have don’t apply to payroll tax debts.
When the IRS assesses the 100% penalty, it can file a lien or take levy or seizure action against personal assets of a responsible person.
“Responsible person,” defined
The penalty can be assessed against a shareholder, owner, director, officer or employee. In some cases, it can be assessed against a third party. The IRS can also go after more than one person. To be liable, an individual or party must:
When it comes to the 100% penalty, prevention is the best medicine. So make sure that federal taxes are being properly withheld from employees’ paychecks and are being timely remitted to the federal government. (It’s a good idea to also check state and local requirements and potential penalties.)
If you aren’t already using a payroll service, consider hiring one. A good payroll service provider relieves you of the burden of withholding the proper amounts, taking care of the tax payments and handling recordkeeping. Contact us for more information. Read More...
New Tax Law Qualified Business Income Dedcution
Mon, 16 Jul 2018 17:00:00 +0000
Close-up on the new QBI deduction’s wage limitThe Tax Cuts and Jobs Act (TCJA) provides a valuable new tax break to noncorporate owners of pass-through entities: a deduction for a portion of qualified business income (QBI). The deduction generally applies to income from sole proprietorships, partnerships, S corporations and, typically, limited liability companies (LLCs). It can equal as much as 20% of QBI. But once taxable income exceeds $315,000 for married couples filing jointly or $157,500 for other filers, a wage limit begins to phase in.
Full vs. partial phase-in
When the wage limit is fully phased in, at $415,000 for joint filers and $207,500 for other filers, the QBI deduction generally can’t exceed the greater of the owner’s share of:
Let’s say Chris and Leslie have taxable income of $600,000. This includes $300,000 of QBI from Chris’s pass-through business, which pays $100,000 in wages and has $200,000 of QBP. The gross deduction would be $60,000 (20% of $300,000), but the wage limit applies in full because the married couple’s taxable income exceeds the $415,000 top of the phase-in range for joint filers. Computing the deduction is fairly straightforward in this situation.
The first option for the wage limit calculation is $50,000 (50% of $100,000). The second option is $30,000 (25% of $100,000 + 2.5% of $200,000). So the wage limit — and the deduction — is $50,000.
What if Chris and Leslie’s taxable income falls within the phase-in range? The calculation is a bit more complicated. Let’s say their taxable income is $400,000. The full wage limit is still $50,000, but only 85% of the full limit applies:
($400,000 taxable income - $315,000 threshold)/$100,000 = 85%
To calculate the amount of their deduction, the couple must first calculate 85% of the difference between the gross deduction of $60,000 and the fully wage-limited deduction of $50,000:
($60,000 - $50,000) × 85% = $8,500
That amount is subtracted from the $60,000 gross deduction for a final deduction of $51,500.
That’s not all
Be aware that another restriction may apply: For income from “specified service businesses,” the QBI deduction is reduced if an owner’s taxable income falls within the applicable income range and eliminated if income exceeds it. Please contact me at (856) 665-2121 to learn whether your business is a specified service business or if you have other questions about the QBI deduction. Read More...
Back from my Cruise - Frequent Flyer Miles Not Taxable!
Mon, 16 Jul 2018 13:25:00 +0000
Does Your Online Business Need to Collect Sales Tax>
Mon, 02 Jul 2018 18:13:00 +0000
Does your business have to begin collecting sales tax on all out-of-state online sales?
You’ve probably heard about the recent U.S. Supreme Court decision allowing state and local governments to impose sales taxes on more out-of-state online sales. The ruling in South Dakota v. Wayfair, Inc. is welcome news for brick-and-mortar retailers, who felt previous rulings gave an unfair advantage to their online competitors. And state and local governments are pleased to potentially be able to collect more sales tax.
But for businesses with out-of-state online sales that haven’t had to collect sales tax from out-of-state customers in the past, the decision brings many questions and concerns.
What the requirements used to be
Even before Wayfair, a state could require an out-of-state business to collect sales tax from its residents on online sales if the business had a “substantial nexus” — or connection — with the state. The nexus requirement is part of the Commerce Clause of the U.S. Constitution.
Previous Supreme Court rulings had found that a physical presence in a state (such as retail outlets, employees or property) was necessary to establish substantial nexus within a particular State. As a result, some online retailers have already been collecting tax from out-of-state customers, while others have not had to.
What has changed
In Wayfair, South Dakota had enacted a law requiring out-of-state retailers that made at least 200 sales or sales totaling at least $100,000 in the state to collect and remit sales tax. The Supreme Court found that the physical presence rule is “unsound and incorrect,” and that the South Dakota tax satisfies the substantial nexus requirement.
The Court said that the physical presence rule puts businesses with a physical presence at a competitive disadvantage compared with remote sellers that needn’t charge customers for taxes.
In addition, the Court found that the physical presence rule treats sellers differently for arbitrary reasons. A business with a few items of inventory in a small warehouse in a state is subject to sales tax on all of its sales in the state, while a business with a pervasive online presence but no physical presence isn’t subject to the same tax for the sales of the same items.
What the decision means
Wayfair doesn’t necessarily mean that you must immediately begin collecting sales tax on online sales to all of your out-of-state customers. You’ll be required to collect such taxes only if the particular state requires it. Some states already have laws on the books similar to South Dakota’s, but many states will need to revise or enact legislation. Some States, such as Connecticut already have a new law requiring some online vendors to collect sales tax.
Also, keep in mind that the substantial nexus requirement isn’t the only principle in the Commerce Clause doctrine that can invalidate a state tax. The others weren’t argued in Wayfair, but the Court observed that South Dakota’s tax system included several features that seem designed to prevent discrimination against or undue burdens on interstate commerce, such as a prohibition against the retroactive application and a safe harbor for taxpayers who do only limited business in the state.
Note: There are many planning opportunities to limit or eliminate your company's exposure to this disastrous ruling. It requires immediate action. Please call me at 856 665-2121.
LLC vs. C Corporation vx. S Corporation under the new Tax Cuts
Mon, 25 Jun 2018 15:01:00 +0000
Choosing the best business entity structure post-TCJA
For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.
On the surface, that may make choosing C corporation structure seem like a no-brainer. But there are many other considerations involved.
Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations: A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.
Although C corporations are still potentially subject to double taxation under the TCJA, their new 21% tax rate helps make up for it. This issue is further complicated, however, by another provision of the TCJA that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, the break is available only for tax years beginning in 2018 through 2025.
There’s no one-size-fits-all answer when deciding how to structure a business. The best choice depends on your business’s unique situation and your situation as an owner.
3 common scenarios
Here are three common scenarios and the entity-choice implications:
1. Business generates tax losses. For a business that consistently generates losses, there’s no tax advantage to operating as a C corporation. Losses from C corporations can’t be deducted by their owners. A pass-through entity will generally make more sense because losses pass through to the owners’ personal tax returns.
2. Business distributes all profits to owners. For a profitable business that pays out all income to the owners, operating as a pass-through entity generally will be better if significant QBI deductions are available. If not, it’s probably a toss-up in terms of tax liability.
3. Business retains all profits to finance growth. For a business that’s profitable but holds on to its profits to fund future growth strategies, operating as a C corporation generally will be advantageous if the corporation is a qualified small business (QSB). Why? A 100% gain exclusion may be available for QSB stock sale gains. If QSB status is unavailable, operating as a C corporation is still probably preferred — unless significant QBI deductions would be available at the owner level.
These are only some of the issues to consider when making the C corporation vs. pass-through entity choice. I can help you evaluate your options.
Sales tax Disaster for Small Online Businesses
Thu, 21 Jun 2018 21:39:00 +0000
Supreme Court issues an Opinion Allowing States to Force online US Retailers to Collect Sales Tax
What a disaster for US online businesses! In SD v. Wayfair, the US Supreme Court slapped online retailers the burden of collecting Sales Tax on sales out-of-state. This means small businesses must comply with thousands of state and local sales tax rates and the different laws of each jurisdiction. This was backed by the big online companies such as Amazon, Apple, Walmart, as well as the big storefront retailers.
Compliance will be next to impossible with expensive services and will drive small US online companies out of business, jacking-up prices for consumers. The large online companies and non-US companies will have a big advantage. Starting a new online business means many people will choose a foreign entity and complicated ownership structures to remain competitive.
The full case:
Key deadlines for businesses and other employers
Mon, 18 Jun 2018 15:48:00 +0000
2018 Q3 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
Midyear - Tax and Financial Checkup
Fri, 15 Jun 2018 16:04:00 +0000
Hardship 401(k) Withdrawals
Tue, 12 Jun 2018 17:43:00 +0000
Tax Law changes that may affect your business’s 401(k) plan
When you think about recent tax law changes and your business, you’re probably thinking about the new 20% pass-through deduction for qualified business income or the enhancements to depreciation-related breaks. Or you may be contemplating the reduction or elimination of certain business expense deductions. But there are also a couple of recent tax law changes that you need to be aware of if your business sponsors a 401(k) plan.
1. Plan loan repayment extension
The Tax Cuts and Jobs Act (TCJA) gives a break to 401(k) plan participants with outstanding loan balances when they leave their employers. While plan sponsors aren’t required to allow loans, many do.
Before 2018, if an employee with an outstanding plan loan left the company sponsoring the plan, he or she would have to repay the loan (or contribute the outstanding balance to an IRA or his or her new employer’s plan) within 60 days to avoid having the loan balance deemed a taxable distribution (and be subject to a 10% early distribution penalty if the employee was under age 59½).
Under the TCJA, beginning in 2018, former employees in this situation have until their tax return filing due date — including extensions — to repay the loan (or contribute the outstanding balance to an IRA or qualified retirement plan) and avoid taxes and penalties.
2. Hardship withdrawal limit increase
Beginning in 2019, the Bipartisan Budget Act (BBA) eases restrictions on employee 401(k) hardship withdrawals. Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. Hardship withdrawals are subject to income tax and the 10% early distribution tax penalty. You can withdraw the money but you will pay a big tax penalty!
Currently, hardship withdrawals are limited to the funds employees contributed to the accounts. (Such withdrawals are allowed only if the employee has first taken a loan from the same account.)
Under the BBA, the withdrawal limit will also include accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal.
Nest egg harm
These changes might sound beneficial to employees, but in the long run they could actually hurt those who take advantage of them. Most Americans aren’t saving enough for retirement, and taking longer to pay back a plan loan (and thus missing out on potential tax-deferred growth during that time) or taking larger hardship withdrawals can result in a smaller, perhaps much smaller, nest egg at retirement.
So consider educating your employees on the importance of letting their 401(k) accounts grow undisturbed and the potential negative tax consequences of loans and early withdrawals. Please contact me at (856) 665-212 if you have questions.Read More...
Put Children on the Payroll
Wed, 06 Jun 2018 01:44:00 +0000
Putting your child on your business’s payroll for the summer may make more tax sense than ever
If you own a business and have a child in high school or college, hiring him or her for the summer can provide a multitude of benefits, including tax savings. And hiring your child may make more sense than ever due to changes under the Tax Cuts and Jobs Act (TCJA).
How it works
By shifting some of your business earnings to a child as wages for services performed, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done must be legitimate and the child’s wages must be reasonable.
Here’s an example: A sole proprietor is in the 37% tax bracket. He hires his 20-year-old daughter, who’s majoring in marketing, to work as a marketing coordinator full-time during the summer. She earns $12,000 and doesn’t have any other earnings.
The father saves $4,440 (37% of $12,000) in income taxes at no tax cost to his daughter, who can use her $12,000 standard deduction (for 2018) to completely shelter her earnings. This is nearly twice as much as would have been sheltered last year, pre-TCJA, when the standard deduction was only $6,350.
The father can save an additional $2,035 in taxes if he keeps his daughter on the payroll as a part-time employee into the fall and pays her an additional $5,500. She can shelter the additional income from tax by making a tax-deductible contribution to her own traditional IRA.
Family taxes will be cut even if an employee-child’s earnings exceed his or her standard deduction and IRA deduction. Why? The unsheltered earnings will be taxed to the child beginning at a rate of 10% instead of being taxed at the parent’s higher rate.
Avoiding the “kiddie tax”
TCJA changes to the “kiddie tax” also make income-shifting through hiring your child (rather than, say, giving him or her income-producing investments) more appealing. The kiddie tax generally applies to children under age 19 and to full-time students under age 24. Before 2018, the unearned income of a child subject to the kiddie tax was generally taxed at the parents’ tax rate.
The TCJA makes the kiddie tax harsher. For 2018-2025, a child’s unearned income will be taxed according to the tax brackets used for trusts and estates, which for 2018 are taxed at the highest rate of 37% once taxable income reaches $12,500. In contrast, for a married couple filing jointly, the 37% rate doesn’t kick in until their taxable income tops $600,000. In other words, children’s unearned income often will be taxed at higher rates than their parents’ income.
But the kiddie tax doesn’t apply to earned income.
Other tax considerations
If your business isn’t incorporated or a partnership that includes nonparent partners, you might also save some employment tax dollars. Contact me at (856) 665-2121 to learn more about the tax rules surrounding hiring your child, how the kiddie tax works or other family-related tax-saving strategies.Read More...
Bitcoin and Digital Currencies are Taxable Property in the US
Mon, 04 Jun 2018 16:56:00 +0000
What businesses need to know about the tax treatment of bitcoin and other virtual currencies
Over the last several years, virtual currency has become increasingly popular. Bitcoin is the most widely recognized form of virtual currency, also commonly referred to as digital, electronic or crypto currency.
While most smaller businesses aren’t yet accepting bitcoin or other virtual currency payments from their customers, some larger businesses are. And the trend may trickle down to smaller businesses. Businesses also can pay employees or independent contractors with virtual currency. But what are the tax consequences of these transactions?
Bitcoin has an equivalent value in real currency and can be digitally traded between users. It also can be purchased with real currencies or exchanged for real currencies. Bitcoin is most commonly obtained through virtual currency ATMs or online exchanges.
Goods or services can be paid for using “bitcoin wallet” software. When a purchase is made, the software digitally posts the transaction to a global public ledger. This prevents the same unit of virtual currency from being used multiple times.
Questions about the tax impact of virtual currency abound. And the IRS has yet to offer much guidance.
The IRS did establish in a 2014 ruling that bitcoin and other convertible virtual currency should be treated as property, not currency, for federal income tax purposes. This means that businesses accepting bitcoin payments for goods and services must report gross income based on the fair market value of the virtual currency when it was received, measured in equivalent U.S. dollars.
When a business uses virtual currency to pay wages, the wages are taxable to the employees to the extent any other wage payment would be. You must, for example, report such wages on your employees’ W-2 forms. And they’re subject to federal income tax withholding and payroll taxes, based on the fair market value of the virtual currency on the date received by the employee.
When a business uses virtual currency to pay independent contractors or other service providers, those payments are also taxable to the recipient. The self-employment tax rules generally apply, based on the fair market value of the virtual currency on the date received. Payers generally must issue 1099-MISC forms to recipients.
Finally, payments made with virtual currency are subject to information reporting to the same extent as any other payment made in property.
Deciding whether to go virtual
Accepting bitcoin can be beneficial because it may avoid transaction fees charged by credit card companies and online payment providers (such as PayPal) and attract customers who want to use virtual currency. But the IRS is targeting virtual currency transactions in an effort to raise tax revenue, and it hasn’t issued much guidance on the tax treatment or reporting requirements. So bitcoin can also be a bit risky from a tax perspective.
The other issue of concern is the repaid fluctuation in value. If the amount of Bitcoin received has the value of $100 on the day received, and only $90 on the day it is disposed of, the business has income of $100 even though it has $90 in assets. There may be some tricky accounting and tax questions for the treatment of gain or loss.
To learn more about tax considerations when deciding whether your business should accept bitcoin or other virtual currencies — or use them to pay employees, independent contractors or other service providers — contact me at (856) 665-2121. Read More...
Australians lose freedom of choice and pay higher costs due to tax law changes
Fri, 01 Jun 2018 20:10:00 +0000
The Australian government is attacking its own citizens with a new sales tax designed to harm international sales.
The Australian government has the equivalent of a sales tax, known as the Goods and Services Tax, on international online sales of less than $1000. The purpose of this tax is to prevent Australians from purchasing a wider range of goods at cheaper prices from online services such as Amazon. As part of its protectionist policy to boost local retailers, Australia is imposing this unwieldy tariff. As a result, Amazon had no choice but to block sales to Australia from its main site. Australians will have less choice, and pay more for it, to subsidize local business.
This is another way of hurting the consumer and limiting free choice.
Here is a good article from Thompson-Reuters on the issue:
Amazon geoblocks Australia from US site as tax change kicks inBy Stephen Coates and Byron Kaye
SYDNEY (Reuters) - Amazon.com Inc said on Thursday it will force Australians to use its Australian website instead of its much larger U.S. site to avoid a new sales tax, setting the stage for a showdown with rival eBay Inc in the No. 12 economy.
The retail giant said it would subject Australians to the process known as "geoblocking" from July 1, when a 10 percent Goods and Services Tax (GST) applies to imported online goods worth less than A$1,000 ($756).
"While we regret any inconvenience this may cause customers, we have had to assess the workability of the legislation as a global business with multiple international sites", an Amazon spokesman said, adding that the firm was taking the measure to comply with the legislation and not to avoid paying tax.
The move will likely drive traffic to Amazon's Australian website, testing the patience of shoppers who have complained about its thin product range - a tenth the range of its U.S. site - and uncompetitive prices since it began taking orders in December.
It may also benefit Amazon's main rivals, from California-headquartered online market eBay to smaller Australian merchants which had campaigned to have the GST apply to all goods shipped from overseas.
National Retail Association CEO Dominique Lamb said Amazon's move was a surprise.
"You have to wonder if they are trying to funnel more traffic to its Australan website", she said.
An eBay spokesman said the U.S. company was working on a way to collect the Australian tax from sellers around the world without cutting access for Australians.
"eBay's GST solution ... allows imports to Australia to continue without any structural barriers, redirects or blocks to the buyer experience", he said.
Until now, GST has applied only to most goods sold in Australia and imported goods worth over A$1,000, making relatively low-cost imported items cheaper than their equivalents in local stores.
Australian Treasurer Scott Morrison announced the change in April 2017, eight months before Amazon opened its Australian unit.
"The second-biggest company in the world, run by the richest man in the world, shouldn't get a leave pass from paying tax in Australia", Morrison said in an email statement on Thursday.
"If multinationals aren't forced to pay their fair share of tax, they will have a competitive advantage over retailers here in Australia, on our own main streets and in our shopping centres."
Shares of local e-commerce site Kogan.com Ltd closed up 0.8 percent while shares of electronics retailers JB Hi-Fi Ltd and Harvey Norman Holdings Ltd, seen as direct Amazon competitors, closed up 2.2 percent and 1.4 percent respectively. The broader market rose 0.4 percent.
($1 = 1.3224 Australian dollars)
[ top ] Read More...
Cherry Hill West HS Career Day
Wed, 30 May 2018 19:57:00 +0000
Cherry Hill West High School
May 31, 2018
How to Become a Lawyer and What Lawyers Do
How To Become A Lawyer:
1. You are required to obtain a bachelors degree. There is no such thing as “pre-law” although some schools have prelaw advisors. You can choose any major, but the key is to choose courses that require you to hone your skills in reading, and analysis and in writing. Since a lawyer’s job is to communicate with clients, courts, administrative agencies, and adversaries, the ability to write well and to communicate well orally are extremely important.
Majors That Can Be Particularly Useful Are:
A. Social sciences such as English, History, Political Science, Economics
B. Business so long as you are required to do a lot of writing.
C. Engineering or Science if you are contemplating Patent Law.
2. While you are in school, grades are exceptionally important. It is important to take a major that you are interested in and that you will do well so you can have a high GPA and class rank. Law schools pay a lot of attention to this. Also, activities are important such as Debate Team, Student Government and anything that improves your ability to negotiate. Journalism groups are also a good choice because they showcase your investigative skills.
3. The LSAT, also known as the Law School Admissions Test is very similar to the verbal portion of the SAT. Many schools have practical cutoffs of what they will accept for the LSAT. It is not uncommon for students to take prep courses for the LSAT.
4. You must attend law school which is generally three years and earn a Juris Doctorate (J.D.) Although lawyers customarily are not called “doctor” in the United States, in fact they earn a doctorate degree similar to physicians, dentists, veterinarians and other professionals. The law school you get into will be important for your future career.
5. Most lawyers are becoming specialized even though we do not hold ourselves out as “specialists” because of legal ethics. Tax lawyers generally receive the decree known as a LL. M. (Tax). It takes an additional year of full-time study plus a thesis.
6. After law school, you must pass a “Bar Exam” in the State where you wish to practice. There is a different test in each state and a common portion called the Multi-State Bar Exam and Professional Responsibility Exam.
Copyright 2018 - All Rights Reserved
Ronald J. Cappuccio, J.D., LL.M. (Tax)
What Do Lawyers Do?
1. The essence of being a professional is you have a “forensic” responsibility to find the issues and problems of your client, as well as creatively establishing a path to solve the problems and issues.
2. Most lawyers work in private practice although there is a very high percentage of lawyers that work for the government (such as prosecutors and lawyers for various governmental agencies) and as “in-house counsel” for businesses. The in-house counsel for a business can be as small as just one person working have very large teams of lawyers.
3. Some lawyers are sole practitioners, particularly if they are very specialized. Most lawyers work in law firms of two to three people although there are larger firms including firms above 2,000 lawyers.
4. A Lawyers main daily job is negotiating with adversaries, whether it is a governmental agency such as the IRS, large businesses such as banking financial institutions, or other private parties.
5. Typical areas of practice include:
Real Estate Lawyers
Family Law Lawyers
Estate Planning and Elder Law
Note: If you have additional questions about you becoming a lawyer or the practice of law you may contact me.
New tax Law Changes Business Loss Deductions
Mon, 21 May 2018 16:02:00 +0000
TCJA changes some rules for deducting pass-through business losses
It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions.
Before the TCJA
Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless:
The TCJA temporarily changes the rules for deducting an individual taxpayer’s business losses. If your pass-through business generates a tax loss for a tax year beginning in 2018 through 2025, you can’t deduct an “excess business loss” in the current year. An excess business loss is the excess of your aggregate business deductions for the tax year over the sum of:
For business losses passed through to individuals from S corporations, partnerships and LLCs treated as partnerships for tax purposes, the new excess business loss limitation rules apply at the owner level. In other words, each owner’s allocable share of business income, gain, deduction or loss is passed through to the owner and reported on the owner’s personal federal income tax return for the owner’s tax year that includes the end of the entity’s tax year.
Keep in mind that the new loss limitation rules apply after applying the PAL rules. So, if the PAL rules disallow your business or rental activity loss, you don’t get to the new loss limitation rules.
Expecting a business loss?
The rationale underlying the new loss limitation rules is to restrict the ability of individual taxpayers to use current-year business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains.
The practical impact is that your allowable current-year business losses can’t offset more than $250,000 of income from such other sources (or more than $500,000 for joint filers). The requirement that excess business losses be carried forward as an NOL forces you to wait at least one year to get any tax benefit from those excess losses.
If you’re expecting your business to generate a tax loss in 2018, contact us to determine whether you’ll be affected by the new loss limitation rules. We can also provide more information about the PAL and NOL rules. Please feel free to call me at (856) 665-2121
Ron Cappuccio Read More...