BIDaWIZ Blog

Webinar: Year End Tax Planning For The Small Business

The BIDaWIZ Team — Sun, 05 Nov 2017 15:56:51 +0000

Please join us for this webcast in which we will identify and assess effective small business year-end strategies for 2017 and beyond. We will cover techniques for managing overall income tax liabilities, timing of income and deductions, and the latest regulatory developments applicable to business taxation.

Learning Objectives

Discuss current issues regarding federal tax laws impacting businesses
Identify complexities of the tax code as it relates to businesses
Generate tax planning opportunities for businesses.

Do I Have To Repay The First Time Homebuyer Credit Immediately?

The BIDaWIZ Team — Wed, 03 Jun 2015 11:01:40 +0000

The first-time homebuyer credit for homes purchased in 2008, with few exceptions, must be repaid over a 15 year period and takes the form of a $7,500 interest-free loan. What happens if the home is sold or no longer is your primary residence? In this instance, the repayment may be due in the year that chance occurs as referenced in IRC Section 36.

Is the repayment limited if I sell to an unrelated party?
Possibly. The tax increase due to accelerated repayment is limited to the amount of gain (if any) from the sale. To determine the gain for this purpose, a taxpayer must reduce the adjusted basis in the home by the amount of the first-time homebuyer credit that has not been repaid. This means that if you had a loss, you would reduce the basis in the property.

What if there is an involuntary conversion of the home?
In this case, the accelerated repayment requirement does not apply if a taxpayer purchases a new primary residence within two years from the date when the disposition or the cessation of use occurs. The general repayment rules apply to the new principal residence as if it were the converted home.

What if the taxpayer passes away?
If a taxpayer dies during a repayment period, no credit repayment is required for the year of death or any subsequent taxable year.

How is the credit repaid?
To repay the credit, the taxpayer must increase the Federal income taxes by 6 2/3% (or 1/15) of the amount of the credit for each taxable year in the 15 year repayment period. The repayment period begins with the second taxable year following the year of qualifying home purchase.

Tax Nexus For Employers That Allow Employees To Telecommute

The BIDaWIZ Team — Fri, 08 May 2015 21:24:32 +0000

Employers that allow their employees to telecommute across state lines may be at risk for exposing their company to additional tax filings. Each state has a different set of rules for establishing nexus or “doing business” in their state, but there are a few general principles to follow.

Telecommuting and state tax nexus
Generally speaking, a business can establish state tax nexus if they have a business location, perform services or generate sales within a particular state. In certain states, this includes employees that regularly and consistently telecommute across state lines. This may be the case even if the out-of-state employer made no sales in the state and the employee telecommuted only part time. Furthermore, there are some states in which nexus is triggered even if the telecommuters are performing back office administrative functions.

Do we have nexus?
The first step is to determine the specific activities that the employee is conducting within their state of residence. You will also need to determine if any company sales are generated from that state. Then you’ll need to review these activities in accordance to state specific rules. For instance, each state has a different definition of, “doing business” in their state and whether or not nexus is created. It’s also important to note that the guidance in the State Department of Revenue websites and specific State citations may not always explicitly cover every specific situation. For example, the term “generally” will be used often in the state citations to cover the exceptions. You also may need to reference past State Supreme Court cases. If you have an employee telecommuting from Florida, an example would be the Florida Technical Assistance Advisement No. 09A-058,17. In this advisory, it was determined that a mail order seller’s use of a Florida-based independent contractor consultant to provide process improvement services to personnel of the company at its corporate headquarters located outside Florida did not cause the company to have sales/use tax nexus in Florida. Working out of her Florida home, the consultant helped the company to research and select new products that it would offer for resale in its mail-order business. The consultant did not have any contact with customers of the company, nor did she provide any services that were detectable by the company’s customers. The Department of Revenue agreed with the company that the term “transaction of business” in the Florida use tax nexus statute “generally … includes activities that further the taxpayer’s ability to establish and maintain a market in this state.” Finding that the consultant’s process improvement activities were provided directly to the company’s corporate headquarters personnel rather than to customers in Florida, the Department ruled that the company was not required to collect and remit Florida use tax on its mail-order sales of merchandise. While this specific case covers use/sales tax, it may be referenced if there are no other similar cases covering telecommuting.

What are the implications for establishing tax nexus?
The result is that the out-of-state employer may be subject to additional corporate tax liabilities and required to file additional returns. The implications can also be long-lasting as several states also have trailing nexus rules.

Should your company offer telecommuting as an option?
While telecommuting provides employees with significant work/life balance, the business must evaluate the financial benefits for providing that option versus the potential additional corporate income tax liabilities and the administrative costs of filing additional state income tax returns. It’s certainly possible that it may be worthwhile to offer telecommuting, but the state tax requirements must first be reviewed.

More questions? Browse answers or ask nexus tax questions online.

Recap Of Our Small Business Twitter TaxChat

The BIDaWIZ Team — Tue, 07 Apr 2015 22:39:12 +0000

We had the pleasure of hosting a small business Twitter TaxChat15 with Andrew Schrage from Money Crashers with the help of MasterCard. We asked 9 thought provoking tax questions to Andrew and the rest of the community. If you were unable to join the chat, we’ve compiled the key highlights from the discussion below.

Not ready to file?
We opened the discussion by asking what a small business should do if they are not ready to file their tax return because they don’t have all of their documentation in place. We recommended that you file and pay as much as you can of the estimated tax liability.

@BIDaWIZ Don't put your head in the sand! File for an extension

— Money Crashers (@MoneyCrashers) April 7, 2015

Does filing an extension increase our chances of an audit?
To the surprise of some, filing for an extension does not in itself increase the probability that the tax return will be subject to an audit.

@BIDaWIZ That is a commonly held belief but there is no reason that will be the case as long as you do your due dilligence #taxchat15

— Money Crashers (@MoneyCrashers) April 7, 2015

Should we file with software or hire a tax professional?
The consensus from the community was that working with a tax professional is easier, quicker and in some cases cheaper than using software to file a small business tax return. We tend to agree.

@BIDaWIZ If you can find a tax pro to help you I'd go that route because software can have extra time-consuming hurdles #taxchat15

— Money Crashers (@MoneyCrashers) April 7, 2015

Do we need to keep all of our receipts to claim expenses?
There were some differences in opinion on this inquiry. Some respondents indicated that we need to keep all receipts if the business is claiming an expense, while others didn’t think you need to have them for small expenses. As we advised, it depends on the type of expense, but it certainly doesn’t hurt to keep receipts for a certain period of time.

@BIDaWIZ @MoneyCrashers I didn't realize that it was so high. Lodging we always keep #taxchat15

— Linda F (@CTSweeper) April 7, 2015

Who is responsible for mistakes on the tax return?
Even if you work with a tax professional, your business is still responsible for any mistakes. Of course, the professional is expected to prepare a return in accordance with the regulations, but the small business still needs to review and ensure the accuracy of the tax return.

@BIDaWIZ @MoneyCrashers Q8 probably since the business signs the return and provides the info #taxchat15

— Linda F (@CTSweeper) April 7, 2015

To follow the entire discussion, you can visit the hashtag: #TaxChat15

Join Our TaxChat For Small Businesses on Tuesday 4/7, 1:30PM EST

The BIDaWIZ Team — Thu, 02 Apr 2015 13:29:47 +0000

BIDaWIZ and our partner, MasterCard, will be hosting a Twitter TaxChat on Tuesday, April 7th at 1:30PM EST to discuss last minute tax filing tips for small businesses with Andrew Schrage from Money Crashers. Andrew is a personal finance and small business expert that leads the Money Crashers team in developing a community of people who try to make financially sound decisions. Andrew as well as our team of tax professionals will be answering all of your last minute tax filing questions in 140 characters or less. Also, BIDaWIZ and Money Crashers will be giving away a $15 Amazon gift card to two lucky winners that participate on the chat as detailed in the Terms & Conditions.

Hashtag: #TaxChat15

Twitter Handles to follow: @bidawiz @moneycrashers @mastercardbiz

How to participate: Follow the hashtag #TaxChat15 and you can easily keep track of the conversation by using our special chatroom here. Anyone can participate, but you must be following @BIDaWIZ and RSVP below so we can send you reminders and a $15 Amazon gift card to two lucky winners*.

Signup for a Reminder & Win A $15 Amazon Gift Card*:To Make it easier for us to keep track of attendees and provide a gift card to the winner*, please RSVP below with your twitter ID (put that in the “Link Title” field), email address, and your twitter URL (put that in the “URL” field, do not put your blog’s url in there).

Update
Our winners for the Tax Chat are @ctsweeper and @OHsportsgirl

*:Terms & Conditions Apply

Are Travel Expenses Deductible When On A Long-Term Project?

The BIDaWIZ Team — Fri, 27 Mar 2015 21:09:48 +0000

The short answer is that it depends. Generally, the rules for deducting travel and living expenses while away from home depend on how long the work is being performed away from your family home.

Where is your tax home?
The first step we need to do is establish where your tax home is as per IRS Publication 463 and the Internal Revenue Code (IRC) Sections 162 & 274. This is your regular place of business, regardless of where you maintain your family home. Generally speaking, if you and your spouse do not live at your tax home, you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home. However, there is an exception to the rule in which you are only on a temporary assignment. This means that you expect to be at your temporary assignment for less than a year. In this case, your tax home does not change to your work location, but continues to be where you reside. Thus, you would be able to deduct travel expenses and living expenses that are not reimbursed by your employer.

What if my assignment is longer than a year?
If you expect to work for more than 1 year in the new business location, you would not be able to deduct travel and living expenses as your tax home changes to the new location. Travel and living expenses are considered personal expenses in this instance.

How does a taxpayer claim these expenses?
Please note that if the taxpayer meets the temporary assignment requirement for a tax home, they can deduct the expenses on Form 2106, which flows to Schedule A of your form 1040. If the taxpayer is self-employed, the expenses are reported on Schedule C, assuming the business is taxed as a sole proprietorship or disregarded entity.

More questions? Browse answers or ask travel expense tax questions online.

What If My Client Doesn’t Disclose A Foreign Financial Account?

The BIDaWIZ Team — Fri, 27 Mar 2015 20:33:41 +0000

If your client holds foreign financial accounts with a value exceeding $10,000, it most likely needs to be reported on the report of Foreign Banks and Financial Accounts (FBAR) FinCEN 114. Unfortunately, sometimes clients do not disclose this information to their accountant even if the client questionnaire requests it. What should you do if your client does not report this account until after the filing deadline passes?

What if a client does not disclose their foreign accounts?
First, it is important to note that the FinCEN 114 is due on June 30th of the following calendar year and is filed via the BSA E-Filing System. If this reporting will be filed late, the client needs to include a reason for filing late on the cover page of the electronic report or enter a customized explanation using the “Other” option.

Is there a penalty for filing FinCEN 114 late?
The IRS may not impose a penalty for the failure to file the delinquent FinCEN 114 as long as the income from the account has been reported properly and taxes are paid on the US tax return. In addition, the client must not have been previously contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent forms are submitted.

Are there any other forms that need to be filed?
The client may also need to file Form 8938, if the account was $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad). This is filed with the tax return. If this is filed late, the taxpayer may need to amend the tax return and include this form. There are certain exceptions and other considerations to filing though. For instance, is the taxpayer the sole owner of the account or is this a shared interest? Is the taxpayer married? It may be possible that this form doesn’t need to be filed if an exception is met and the taxpayer is below the reporting threshold. Specifically, if the $110,000 is a joint account with a spouse and they file separately, the taxpayer’s interest is actually $55,000 and below the form 8938 threshold.

What if the client doesn’t want to file the FinCEN Form 114?
We would recommend that you explain to the client the risks and penalties for not reporting should an audit reveal the client’s failure to report the account and income. Explain that you’re simply following the rules as per IRS guidance. If you receive further push-back, this may be one of the scenarios when you have to seriously consider giving the client an ultimatum; either they report it correctly or they find another accountant. However, try to first explain the risks and penalties for not doing so. You can even share with them IRS publications and the IRC references.

More Questions? Ask your foreign tax questions or find a tax accountant online.

Do You have Any Unclaimed Tax Refunds?

The BIDaWIZ Team — Fri, 13 Mar 2015 20:08:03 +0000

If you haven’t filed your 2011 tax return and claimed your refund yet, you may be one of the 1.2 million taxpayers that are owed $1 billion in 2011 tax refunds. The IRS estimates more than half of the refunds are for at least $698.

When is the deadline to claim your 2011 tax refund?
The clock is ticking, so you’d better act fast if you want your tax refund. You need to file a return for 2011 no later than April 15th, 2015. If you don’t file by then, the monies will be handed over to the US Treasury.

The total tax refunds may be even higher
If you don’t file a tax return, the IRS does it for you in what is called a substitute for a return or ghost return. The return is constructed based on the income reported by third parties on W-2 and 1099 forms. However, the IRS usually claims the standard deduction for you as they don’t have access to your itemized deductions and the associated supporting documentation. Therefore, there could potentially be than the $1 billion in reported unclaimed tax refunds as itemized deductions haven’t been applied to these ghost returns.

Why is there so much in unclaimed tax refunds?
In some cases, people earned too little income so they didn’t need to file a tax return, even though they had taxes withheld from their wages, or they made quarterly estimated tax payments.

In other cases, people with low or moderate incomes might not have claimed the maximum Earned Income Tax Credit (EITC) of $5,751 for having three or more children. You might have been eligible for the EITC in 2011 if you had three or more children and earned less than $43,998 ($49,078 married filing jointly). The income limit was $40,964 ($46,044 married filing jointly) for those with two children. The income limit was $36,052 ($41,132 married filing jointly) for those with one child, and $13,660 ($18,740 married filing jointly) for those who were childless.

Do I simply need to file a 2011 tax return to get the money owed to me?
While you just need to submit your return to claim a refund, the money won’t be sent to you unless your financial house is in order. You must have filed your tax returns for 2012 and 2013. And if you owe money to the IRS, your refund will be applied to that balance. It also might be used to offset unpaid child support or federal debts, like student loans.

More tax questions? Browse answers or ask tax refund questions online.

What If Your Business Missed The 1099 Filing Deadline?

The BIDaWIZ Team — Fri, 06 Mar 2015 20:52:32 +0000

The initial 1099 filing deadline passed on February 2nd, 2015. This may have many businesses scrambling. What should businesses do if they are in this predicament and how can they avoid facing penalties. We address this concern and other 1099 tax questions below.

First, take a deep breath, you can still issue the 1099 and possibly avoid a filing penalty if you can show reasonable cause. This would mean that your business was unable to send the 1099 form on time because there was an unforeseen event such as an office fire that made it impossible to do so.

Separately, while this is after the fact for the 2014 tax year, the business can file Form 8809 to request an additional 30 days to file the 1099 or other information return. This form must be filed on or before the earliest 1099 due date or February 2nd, 2015 for the 2014 tax year.

When are the 1099 filing deadlines?
Please note that there are separate 1099 filing deadlines. The deadline is February 2nd, 2015 to send the form to the recipients or independent contractors. The deadline to send the form on paper to the IRS is March 2nd and if you e-file it, the deadline is March 31st.

Is the earliest due date February 2nd, 2015 for all 1099 forms?
The earliest due date is February 2nd for most 1099 Forms. However, if the transaction is to report the following items, the due date is February 17th.

All payments reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
All payments reported on Form 1099-S, Proceeds From Real Estate Transactions.
Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 14 of Form 1099-MISC, Miscellaneous Income.

Do we issue a 1099 form for goods provided as well as services?
Please note that the 1099-Misc form is generally issued for payment of services provided. However, if the goods and supplies are part of the services provided by the independent contractors & LLCs, they would be included in the 1099-Misc form. If they are not part of the service provided, the payer should not report payments for equipment, supplies, or other tangible goods, including inventory. This is referenced in the 1099-Misc instructions as well as Internal Revenue Code Section 6041(a).

How do we know that the information from the W-9 Form is correct?
The IRS has a taxpayer identification number (TIN) matching program to allow businesses to verify that the information provided by the payee/recipient on the W-9 form is accurate. As a side note, the W-9 form should be completed by the recipient before any payment is made by the payer. The TIN matching program is helpful, but not as much after payment is made and you find an incorrect TIN.
If you find an incorrect TIN, request a corrected W-9 from the payee. This will prevent issues such as receiving a whole series of CP2100 notices from the IRS (i.e. CP2100) and following up with the payee.

More Questions? Browse Answers or ask your 1099 tax questions online.

Are Health Insurance Reimbursement Plans Now Allowed Per The IRS?

The BIDaWIZ Team — Mon, 23 Feb 2015 19:29:23 +0000

If you haven’t already heard, the IRS released an update on the tax rules for health insurance reimbursement plans as it relates to the Affordable Care Act (ACA) and S Corporations. This update addresses small businesses that do not offer healthcare coverage, but do reimburse employees for insurance purchased on the healthcare exchanges. The IRS is now waiving noncompliance penalties for the 2014 tax year and the first half of 2015. How does this impact your business and what else has changed?

Is there still a noncompliance penalty?
No, the IRS has provided relief for businesses to transition to the new ACA rules. Specifically, any employer with less than 50 full-time employees will not be subject to the infamous $36,500 Section 4980D penalty per employee. The relief applies to employers that are conducting an employee reimbursement plan for 2014 and through June 30th, 2015. However, penalties will still be applied beginning on July 1, 2015.

What about S Corp owners?
As you may recall, notice 2013-54 indicated that if an S Corporation is reimbursing or paying premiums on non-employer sponsored health insurance for more than one S corporation employee, then the reimbursement arrangement may be considered a “group plan” subject to ACA because it covers more than one employee. In this instance, the S Corporation would be required to include FICA on the reimbursed amount because the ACA provisions have been violated. However, per this latest Notice 2015-17, the IRS will not assert the Section 4980D penalty on an S corporation that reimburses the insurance premiums of a more than 2% shareholder. Furthermore, the notice indicates that the IRS and the DOL are contemplating publication of additional guidance on reimbursement plans for 2% plus S Corp owners.

Are the new rules set in stone for S Corps?
As of now, the guidance suggests that S Corporation owners fall within the definition of an employee and are subject to the ACA provisions. However, it is certainly possible that the IRS and/or the Department of Labor (DOL) will issue a clarifying notice that supports IRS Notice 2008-1 and excludes all S Corporation owners from the requirement.

Can employers increase employee pay to cover the cost of insurance?
Yes, the IRS notice confirms that an employer can increase an employee’s compensation as long as it is not conditioned upon the employee using those funds to cover out-of-pocket health insurance costs.

More Questions? Browse Answers or ask your IRS notice 2015-17 questions online.