Do You Have to File an Information Return?

working on a computerIf you made or received a payment in a calendar year as a small business or self-employed individual, you most likely are required to file an information return to the IRS. Click through to learn what this means.

If you engaged in certain financial transactions during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS. Below are some of the transactions that you have to report.

  • Services performed by independent contractors — those not employed by your business.
  • Prizes and awards, as well as certain other payments — termed other income.
  • Rent.
  • Royalties.
  • Backup withholding or federal income tax withheld.
  • Payments to physicians, physicians’ corporation or other suppliers of health and medical services.
  • Substitute dividends or tax-exempt interest payments, and you are a broker.
  • Crop insurance proceeds.
  • Gross proceeds of $600 or more paid to an attorney.
  • Interest on a business debt to someone (excluding interest on an obligation issued by an individual.
  • Dividends and other distributions to a company shareholder.
  • Distribution from a retirement or profit plan, or from an IRA or insurance contract.
  • Payments to merchants or other entities in settlement of reportable payable transactions — any payment card or third-party network transaction.

Being in receipt of a payment may also require you to file an information return. Some examples include:

  • Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals.
  • Sale or exchange of real estate.
  • You are a broker and you sold a covered security belonging to your customer.
  • You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others.
  • You released someone from paying a debt secured by property, or someone abandoned property that was subject to the debt or otherwise forgave their debt to you (1099-C).
  • You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than in a permanent retail establishment.

Keep in mind that information is for businesses. You will not have to file an information return if you are not engaged in a trade or business. You also will not have to file an information return if you are engaged in a trade or business and 1) the payment was made to another business that’s incorporated, but wasn’t for medical or legal services or 2) the sum of all payments made to the person or unincorporated business was less than $600 in one tax year.

This is just an introduction to a complicated topic, and the mechanics of filing such a return are filled with essential details. If you’re running a business, even a small one, be sure to discuss the details with a qualified professional.

Roe CPA invites you to request a consultation online now or call us at 678-969-0523 to learn more about how we can help you save money on your taxes.

Family Businesses and the Next Generation

Portrait of an extended family at parkHaving your children work in the family business is a great way to teach your kids about work ethic and money management, and to kick-start their retirement or college savings plan. Click through for tips on bringing your children into the family business.

Is having your children work in your family-owned business a blessing or a curse? Here are five tips for making it a blessing and preventing it from being curse:

Have them work elsewhere for at least five years. They need time to mature, becoming their own individuals, and to gain confidence learning and doing things as distinct human beings rather than just children of successful parents. Kids need to learn how to work, to be punctual, to earn their own money and to be held accountable. Everyone wins when potential successors have excellent training and gain skills and confidence outside the nuclear family.

Consider this scenario: A family-owned restaurant in a small town occasionally has three generations working together on a Friday night. The children are under the age of 16. Assuming that child labor laws have been taken into account, the family is content that they are passing on a tradition and family trade. The kids work one or two nights during the weekend.

In this example, the family is limiting the number of hours, and their expectations are reasonable. It’s a way for children to learn the family business and helps them gain self-respect. Indeed, one adult who remembers working with his mother in a greenhouse when he was 12 and 13 recalls that the job was hot, dirty and exhausting. However, he recalls he got paid for the work he did, and it gave him a greater appreciation for the work his parents did to support their family.

Understand generational differences. Today’s young people are far more likely to want to work to live rather than adopt their parents’ “live to work” attitude. That’s why your adult children don’t want to work 80-hour workweeks. Younger children and other employees are most probably looking for a different workplace experience.

Give psychometric assessments to make their personalities/capabilities fit their jobs. One child may be temperamentally unsuited for a position demanding detail and strict deadlines; he or she may be more of a big-picture, laissez-faire personality. Assessing such things will go a long way to improving both business function and family harmony.

Hold them accountable, but not to an unreasonable standard. Give your kids crystal-clear roles and responsibilities and regular reviews so they know whether they’re living up to their job descriptions. The biggest morale killer in small businesses is underperforming or dysfunctional family members who are allowed to meander through various roles with virtually no accountability and to inflict themselves on others in your organization. In that case, pruning the family tree almost always results in improved business productivity.

Communicate formally and regularly with a third-party facilitator. Virtually every family employee thinks he or she works harder and contributes more than anyone else and stews over this. Family businesses have a greater need for formal communication to resolve perceived contribution issues, especially if you decide a family member is ill-suited to working at your company. You need to be able to discuss volatile topics constructively and productively. Seek the help of a talented facilitator to get the most from your family business.

It can be a wonderful experience for all involved to have your children work with you. Just remember that it’s a delicate balancing act that needs your attention.

Roe CPA invites you to request a consultation online now or call us at 678-969-0523 to learn more about how we can help you save money on your taxes.

Not Using QuickBooks Online? What You’re Missing Out On

Roe CPA Firm DuluthIf you dread every minute of the time you spend on accounting, you should know how QuickBooks Online can change your outlook.

How long would it take you to determine:

  • What your total expenses for this quarter are?
  • Whether or not your business is profitable as of today?
  • How much you’ve sold every month this year?
  • Which invoices are overdue?

If you’re using QuickBooks Online, you can get answers to all those questions—and more—in the time it takes you to sign on to the website.
That’s not an exaggeration. The first thing QuickBooks Online displays is what’s called its Dashboard. This is the site’s home page, which contains an array of charts and account balances that provide a quick overview of your finances. Click on an element here—say, a checking account balance—and you’ll be able to drill down and see the details behind it (in this case, an online account register). Click on the Expense graph, and a transaction report opens.

Your First Hours with QBO

QuickBooks Online is not one-size-fits-all. Its setup tools help you customize it to meet your own company’s needs.

QuickBooks Online works like other online productivity applications you may have used. It uses toolbars and buttons for navigation, drop-down lists and blank fields for data entry, and clickable links to open new related screens to trigger actions. Which is to say, the site is easy to use once you understand its structure. We can walk you through the early steps that are required, which involves tasks like: Using the provided setup tools to customize the site. Connecting QuickBooks Online to your bank and credit card company websites so you can work with transactions. Creating records for your customers, vendors, and the products and services you sell (you’ll be able to add new ones as your business grows). Learning about QuickBooks Online’s pre-built reports. Familiarizing yourself with the site’s workflow. Making the transition from your current accounting system.

How You’ll Benefit

Once you’re comfortable using QuickBooks Online, you’ll discover what millions of small businesses have already learned, that the site helps you:
Get paid faster. You can sign up with a payment processor to accept credit cards and direct bank withdrawals, which can speed up your customers’ responses to invoices. You’ll also be able to accept payments when you’re out of the office on your mobile devices.

Minimize errors. Once you enter data, QuickBooks Online remembers it. No more duplicate data entry that can cause costly mistakes.

Find any detail in seconds. QuickBooks Online has powerful search tools that allow you to find what you’re looking for quickly.
Better service customers. Because your customer profiles include transaction histories, you’ll be able to deal with questions and problems quickly and accurately.

Bill time as well as invoice products. QuickBooks Online supports sales of time-based services with capable time-tracking tools.

Improve your customers’ and vendors’ perception of you. Your business associates will know that you’re using state-of-the-art technology by the forms you share and the customer service you provide.

Save money and time. It does take some time to make the transition to QuickBooks Online. But you’ll quickly make that up with the hours you’ll save on accounting tasks, and be able to concentrate on tasks that improve your bottom line.

Be prepared to grow. Because all of your financial data is organized and easily accessible, you’ll be able to quickly generate reports that help you plan for a more profitable future. Banks and investors will need some of these if you decide to seek financing.

Mobile Access

Although you may do the bulk of your accounting work on your desktop or laptop, you’ll have access to many of the site’s features on your smartphone. Your home page displays both an abbreviated version of your browser-based dashboard and a list of recent transactions. You can view, edit, and build new customer, vendor, and product or service records. Snap a photo of a receipt to document an expense and look up or create invoices, estimates, and sales receipts. Record payments, view critical reports, and add notes. Of course, your mobile data is always synchronized with the site itself.

QuickBooks Online lets you do much of your accounting work when you’re away from the office with its mobile app.

Happy to Help

QuickBooks Online was designed for small businesspeople, not accountants. But it includes features that are best used in conjunction with our consulting services, like advanced reports, payroll, and the Chart of Accounts. In fact, the site makes it easy for us to have access to your data so we have the ability to monitor and troubleshoot.

We’ve helped countless sole proprietors and small businesses move their accounting operations to QuickBooks Online, and we’ve seen the difference it’s made in their productivity as well as their attitude toward financial management. Contact us, and we’ll be happy to do the same for you.

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Still doing your accounting manually? You’re spending unnecessary hours and experiencing needless frustration. Talk to us about QuickBooks Online.

Did you know you can do much of your accounting work and accept customer payments on your smartphone? Let us introduce you to QuickBooks Online.

Are you often away from the office? QuickBooks Online lets you handle accounting tasks from anywhere there’s an internet connection. We can tell you how.

Does your manual accounting system make it hard to keep track of customers and inventory? QuickBooks Online can organize and manage both. Contact us.

Call Roe CPA, P.C. today at 404-504-7051 and learn why our clients would not think of using another Atlanta CPA firm for QuickBooks training and support.

Lock In Those Business Deductions

Roe CPA Firm DuluthIf you run a small business, you already have a full plate. The last thing you need is for the IRS to question any of your business expense deductions. But it could happen. And that’s why having records that prove your expenses is so important. Even deductions for routine business expenses could be disallowed if you don’t have appropriate records.

What Records Are Required?

Except in a few instances, the tax law does not require any special kind of records. You’re free to have a recordkeeping system that is suited to your business, as long as it clearly shows your expenses. In addition to books that allow you to track and summarize your business transactions, you should keep supporting documents, such as:

  • Canceled checks
  • Cash register receipts
  • Credit card sales slips
  • Invoices
  • Account statements

The rules are stricter for travel and transportation expenses. You should retain hotel bills or other documentary evidence (e.g., receipts, canceled checks) for each lodging expense and for any other expense of $75 or more. In addition, you should maintain a diary, log, or account book with the information described below.

  • Travel. Your records should show the cost of each separate expense for travel, lodging, and meals. For each trip, record your destination, the dates you left and returned, and the number of days spent on business. Also record the business purpose for the expense or the business benefit you gained or expected to gain. Incidental expenses, such as taxi fares, may be totaled in reasonable categories.
  • Transportation. As with travel and entertainment, you should record the amount and date of each separate expense. Note your business destination and the business purpose for the expense. If you are deducting actual car expenses, you’ll need to record the cost of the car and the date you started using it for business (for depreciation purposes). If you drive the car for both business and personal purposes or claim the standard mileage rate, keep records of the mileage for each business use and the total miles driven during the year.

Don’t Mix Business and Personal Expenses

Things can get tangled if you intermingle business and personal expenses. You can avoid headaches by having a separate business bank account and credit card.

We invite you to request a consultation online now or call us at 404-504-7051 to learn more about how we can help you save money on your taxes.

 

Payroll Taxes: Who’s Responsible?

Roe CPA Duluth GAAny business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare taxes (known as Federal Insurance Contributions Act taxes, or FICA), and forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld taxes in a timely manner will find itself in trouble with the IRS.

The IRS may levy a penalty, known as the trust fund recovery penalty, on individuals classified as “responsible persons.” The penalty is equal to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.

Who’s a Responsible Person?

Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.

The IRS states that a responsible person may be:

  • An officer or an employee of a corporation
  • A member or employee of a partnership
  • A corporate director or shareholder
  • Another person with authority and control over funds to direct their disbursement
  • Another corporation or third-party payer
  • Payroll service providers
  • The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.

Working With the IRS

If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to a tax advisor if you need to know more about the requirements.

We invite you to request a consultation online now or call us at 404-504-7051 to learn more about how we can help you save money on your taxes.

Renting Residential Real Estate — A Tax Review for the Nonprofessional Landlord

Roe CPA Real Estate AccountingInvesting in residential rental properties raises various tax issues that can be somewhat confusing, especially if you are not a real estate professional. Some of the more important issues rental property investors will want to be aware of are discussed below.

Rental Losses

Currently, the owner of a residential rental property may depreciate the building over a 27½-year period. For example, a property acquired for $200,000 could generate a depreciation deduction of as much as $7,273 per year. Additional depreciation deductions may be available for furnishings provided with the rental property. When large depreciation deductions are added to other rental expenses, it’s not uncommon for a rental activity to generate a tax loss. The question then becomes whether that loss is deductible.

$25,000 Loss Limitation

The tax law generally treats real estate rental losses as “passive” and therefore available only for offsetting any passive income an individual taxpayer may have. However, a limited exception is available where an individual holds at least a 10% ownership interest in the property and “actively participates” in the rental activity. In this situation, up to $25,000 of passive rental losses may be used to offset nonpassive income, such as wages from a job. (The $25,000 loss allowance phases out with modified adjusted gross income between $100,000 and $150,000.) Passive activity losses that are not currently deductible are carried forward to future tax years.

What constitutes active participation? The IRS describes it as “participating in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense.” Examples of such management decisions provided by the IRS include approving tenants and deciding on rental terms.

Selling the Property

A gain realized on the sale of residential rental property held for investment is generally taxed as a capital gain. If the gain is long term, it is taxed at a favorable capital gains rate. However, the IRS requires that any allowable depreciation be “recaptured” and taxed at a 25% maximum rate rather than the 15% (or 20%) long-term capital gains rate that generally applies.

Exclusion of Gain

The tax law has a generous exclusion for gain from the sale of a principal residence. Generally, taxpayers may exclude up to $250,000 ($500,000 for certain joint filers) of their gain, provided they have owned and used the property as a principal residence for two out of the five years preceding the sale.

After the exclusion was enacted, some landlords moved into their properties and established the properties as their principal residences to make use of the home sale exclusion. However, Congress subsequently changed the rules for sales completed after 2008. Under the current rules, gain will be taxable to the extent the property was not used as the taxpayer’s principal residence after 2008.

This rule can be a trap for the unwary. For example, a couple might buy a vacation home and rent the property out to help finance the purchase. Later, upon retirement, the couple may turn the vacation home into their principal residence. If the home is subsequently sold, all or part of any gain on the sale could be taxable under the above-described rule.

For more in-depth information about our real estate accounting services, please visit our Real Estate Accounting website.

What is Deductible when Your Trip is for Both Business and Fun

Roe CPA Accounting and Tax ServicesBusiness owners who travel out of town on business sometimes like to extend their trips and take a little time to relax and see the sights. When a trip is partly for business and partly for pleasure, various expenses may still be deductible.

Domestic Travel

A self-employed individual whose trip is primarily for business may deduct the full cost of the travel itself (such as airfare or train fare) even though some of the trip is devoted to personal activities. Additionally, various other expenses allocable to business, such as lodging and 50% of meal costs incurred on the business days, are deductible.

If a trip is primarily for personal reasons, the entire cost of the travel is a nondeductible personal expense. However, expenses incurred while at the destination that are directly related to the taxpayer’s business may be deducted.

Foreign Travel

The deductibility rules for combined business/pleasure trips outside of the U.S. are a little more complicated in some respects. Even if the primary purpose of the trip is business, the cost of the travel itself generally has to be allocated, and only the business portion is deductible. However, no allocation has to be made — and the full travel cost is deductible — if:

  • The trip lasts for no more than seven consecutive days (excluding the day of departure but including the day of return); or
  • Personal days total less than 25% of the total days spent on the trip (including both the day of departure and the day of return); or
  • The taxpayer can establish that the opportunity to take a personal vacation was not a major consideration for the trip.

For these purposes, business days include days when business is conducted for only part of the day, days spent traveling to and from a business destination, and weekend days or holidays that fall between two business days.

As this brief overview suggests, with smart planning, self-employed business owners can maximize their write-offs for combined business/pleasure travel.

Call our CPA today at {site_phone} or request a free consultation online to learn more about our tax preparation services.

As an S Corporation Shareholder do You Need to Worry about Taxes?

Roe CPA Incorporation ServicesS corporation shareholders have an added reason to worry about their company’s annual performance: It has a direct impact on their own income taxes.

How It Works

Unlike a regular C corporation, an S corporation usually doesn’t pay federal income taxes itself. Instead, each shareholder is allocated a portion of the corporate income, loss, deductions, and credits on a special “K-1″ tax form. The shareholder then must report the items listed on the K-1 on his or her personal tax return.

The K-1 allocations are based on stock ownership percentages. So, for example, if an S corporation has $100,000 of taxable business income for the year, a person who owns 75% of the stock in the corporation would be allocated 75% of that income, or $75,000.

This scheme can get complicated. Case in point: The K-1 may show more income than the shareholder actually received from the company during the year. That’s because the K-1 figure is based on the corporation’s actual taxable income — not on the distributions made to the shareholder.

Here’s an example: Tom starts a new corporation, electing S status. In the first year, Tom draws a $30,000 salary and receives no other distributions from the company. The company’s ordinary business income (after deducting his salary) is $10,000. Since Tom is the only shareholder, all the company’s $10,000 of income is allocated to him on his K-1. Tom must include both the $30,000 of salary and the $10,000 on his personal income tax return, even though all he actually received from the corporation was his salary.

This result seems harsh, but it’s not the end of the story. Special rules in the tax law prevent the same income from being taxed again. Essentially, Tom will be credited with already having paid taxes on the $10,000 so that any future distribution of the funds will not be taxable.

Tracking Basis

To determine whether non-dividend distributions are tax free, S corporation shareholders must keep track of their stock basis.1 The computation generally starts with a shareholder’s initial capital contribution (or the stock’s cost if it was purchased) and changes from year to year as the shareholder is allocated corporate income, loss, etc. Non-dividend distributions that don’t exceed a shareholder’s stock basis are tax free.

Note that starting in 2018, S corporation shareholders may be eligible to deduct up to 20% of their S corporation pass-through income.  Eligibility depends on taxable income and other factors. S shareholders will want to consult their tax advisor to see if they can take advantage of the deduction to lower the taxes on their business income.

We offer a free, confidential consultation for new clients, so call 404-504-7051 today to learn more about our new business advisor and incorporation services.

Source/Disclaimer:

1Most distributions made from an S corporation are non-dividend distributions. Dividend distributions can occur if the company was previously a regular C corporation (or in other limited situations).

Making Sense of the 2018 Standard Deduction

Donald Trump’s tax reforms have attracted, if nothing else, a lot of attention and the usual political controversy that follows his administration when he announces changes. However, the 2018 Standard Deduction is not reserved only for the wealthy and/or high-income earners. It covers 70% of all taxpayers. So, we’ve created a succinct overview of the implications posed by this new tax item, as a guide for you and your family.

The first thing to capture one’s attention is that the 2018 Standard Deduction has nearly doubled versus 2017, for all 3 primary categories of taxpayers. So, if you are a single filer, your deduction jumps from $6,350 to $12, 000; similarly, ahead of the household filer goes from $9,350 to $18,000, and joint filers enjoy a leap from $12,700 to $24,000.

As a rule, eye-popping changes like this come with a caveat. Very often apparent big benefits as outlined above are accompanied by a deletion or reduction of another tax allowance. And, that’s also the case here where the longstanding personal exemption has left the stage – effectively eliminating $4,050 for each member of the family. This naturally embraces not only the filer but also dependents such as children and elderly parents, thus making it a focal issue for large families. The removal of the personal exemption per individual (possibly multiple times on a single return) has the effect of pushing taxable income up – perhaps considerably depending on family circumstances.

We advise that you temper any excitement that the 2018 Deduction creates at first glance in favor of making a more sober assessment of the overall situation. Inevitably it means approaching things in a measured way by answering one important question: can the new Standard Deduction offset this clear disadvantage or even override it?

The answer is a little convoluted but comprehensible for most. It should be kept You’ll also want to keep in mind that the new tax laws have also introduced changes in child credit and lower tax rates across the board. Therefore, evaluating the opposite effects of improved deductions and removal of personal exemptions involves looking at things in a collective manner. All of these items end up coming together to converge on the bottom line, resulting in a net effect that varies substantially depending on your family size.

One big change of note: the 2018 Deduction law requires you to detail specific allowable deduction claims through Schedule A. This creates the opportunity to derive obtain extra savings and is a departure from simply relying on one’s filing status. The latter is still nonetheless an option available to filers, although relatively less accommodating if you’re looking to gain every possible tax advantage. The suggested Schedule A route involves more time and forethought but yields bigger tax reductions to make it well worth the effort.

In conclusion, the 2018 tax changes with special emphasis on the Standard Deduction seem, at first glance, to favor single filers and two-member family joint filers. However, larger families who make the effort to expand their overview of their taxable affairs should derive a net benefit as well; or at very least minimize potential tax increases.

It goes without question that the input of a tax professional can help to clear these muddy waters and will go a long way towards creating a good tax plan. For many, it will go further and propel them into the light at the end of this new twisty tax tunnel. So, give us a call today and see how we can help with your tax questions.

Call 404-504-7051 to set up a free initial consultation with Roe CPA, P.C.

What is Qualified Business Income (QBI) and Why Does It Matter?

The new Section 199A provides self-employed taxpayers the ability to deduct up to 20% of their Qualified Business Income (QBI) on their tax returns. In general, QBI is net income that is received from a Qualified Trade or Business. However, there are some exclusions, the most common of which are capital gains, dividend and interest income. Additionally, any guaranteed payments or “reasonable compensation” paid to owners is excluded.

How Does the New Tax Law Define QBI?

Section 199A(c) defines QBI as, “the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer.” The section further states that qualified REIT dividends, qualified cooperative dividends, and qualified publicly traded partnership income are specifically excluded from the definition of QBI.

What are “Qualified Items of Income, Gain, Deduction, and Loss?”

Qualified items of income, gain, deduction, and loss are defined as items that are connected with a trade or business that is operated in the United States and are generally included or allowed when a business determines its taxable income for the year. However, there are items that are specifically excluded:

  • Short-term capital gains and losses
  • Long-term capital gains and losses
  • Dividends
  • Interest income
  • Foreign personal holding income
  • Income from an annuity if not received in connection with the business

These items may not be income or deductions for purposes of calculating QBI. A basic method of viewing QBI is “ordinary” income less “ordinary” expenses. In other words, investment gains and expenses are not QBI for Section 199A purposes.

Reasonable Compensation and Guaranteed Payments

In addition to the items discussed above, any reasonable compensation paid to the taxpayer by the business, including guaranteed payments, is not QBI. For example, if you receive $50,000 in wages from an LLC that you own and your share of income at the end of the year is $100,000 – only the $100,000 would be considered QBI.

Roe CPA, P.C. offers a variety of tax preparation and planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 404-504-7051 and request a free initial consultation to learn more.