Tax

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.

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.

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.

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.

2018 Tax Changes: Frequently Asked Questions

The Tax Cuts and Jobs Act (TCJA) raises many questions for taxpayers looking to plan for the coming year. Below are answers to some of them.

Do I need to adjust my withholding allowances, given that tax brackets have changed?

You may notice a change in your net paycheck as a result of the tax law, which alters tax rates, brackets, and other items that affect how much tax is withheld from your pay. The IRS has already issued new withholding tables, and your employer should adjust its withholding without requiring any action on your part. But you may want to take the opportunity to make sure you are claiming the appropriate number of withholding allowances by filling out IRS Form W-4. This form is used to determine your withholding based on your filing status and other information. The IRS suggests that you consider completing a new Form W-4 each year and when your personal or financial situation changes.

Can I take advantage of the new deduction for pass-through business income?

The new rules for owners of pass-through entities — partnerships, limited liability companies, S corporations, and sole proprietorships — allow them to deduct 20% of their business pass-through income. The 20% deduction is available to owners of almost any type of trade or business whose taxable income does not exceed $315,000 (joint return) or $157,500 (other returns). Above those amounts, the deduction is subject to certain limitations based on business assets and wages. Different deduction restrictions apply to individuals in specified service businesses (e.g., law, medicine, and accounting).

Can I still deduct mortgage interest and real estate taxes paid on a second home?

Yes, but the new rules limit these deductions. The deduction for total mortgage interest is limited to the amount paid on underlying debt of up to $750,000 ($375,000 for married individuals filing separately). Previously, the limit was $1 million. Note that the new restriction will not apply to taxpayers with home acquisition debt incurred on or before December 15, 2017. Additionally, the deduction for interest on home equity loans (new and existing) is suspended and will not be available for tax years 2018-2025.

Note that the law also establishes a $10,000 limit on the combined total deduction for state and local income (or sales) taxes, real estate taxes, and personal property taxes. As a result, your ability to deduct real estate taxes may be limited.

Are there any changes to capital gains rates and rules that I should know about?

The rules concerning how capital gains are determined and taxed remain essentially unchanged. But since short-term gains (for assets held one year or less) are taxed as ordinary income, they will be taxed at the new ordinary income rates and brackets. Net long-term gains will still be taxed at rates of 0%, 15%, or 20%, depending on your taxable income. And the 3.8% net investment income tax that applies to certain high earners will still apply for both types of capital gains.

2018 Long-Term Capital Gains Breakpoints

Rate Single Filers Joint Filers Head of Household Married Filing Separately
0% Below $38,600 Below $77,200 Below $51,700 Below $38,600
15% $38,600-$425,799 $77,200-$478,999 $51,700-$452,399 $38,600-$239,499
20% $425,800 and above $479,000 and above $452,400 and above $239,500 and above

Can I still deduct my student loan interest?

Yes. Although some earlier versions of the tax bill disallowed the deduction, the final law left it intact. That means that student loan borrowers will still be able to deduct up to $2,500 of the interest they paid during the year on a qualified student loan. The deduction is gradually reduced and eventually eliminated when modified adjusted gross income reaches $80,000 for those whose filing status is single or head of household, and over $165,000 for those filing a joint return.

I have a large family and formerly got to take an exemption for each member. Is there anything in the new law that compensates for the loss of these exemptions?

The new law suspends exemptions for you, your spouse, and dependents. In 2017, each full exemption translated into a $4,050 deduction from taxable income which, for large families, added up. Compensating for this loss, the new law almost doubles the standard deduction to $12,000 for single filers and $24,000 for joint filers. Additionally, the child tax credit is doubled to $2,000 per child, and the income levels at which the credit phases out are significantly increased. Depending on your situation, these new provisions could potentially offset the suspension of personal exemptions.

I have been gifting friends and relatives $14,000 per year to reduce my taxable estate. Can I still do this?

Yes, you may still make an annual gift of up to $15,000 in 2018 (increased from $14,000 in 2017) to as many people as you want without triggering gift tax reporting or using any of your federal estate and gift tax exemption. But TCJA also doubles the exemption to an estimated $11.2 million ($22.4 million for married couples) in 2018. So anyone who anticipates having a taxable estate lower than these thresholds may be able to gift above the annual $15,000 per-recipient limit and ultimately not incur any federal estate or gift tax. Note, however, that the higher exemption amount and many of TCJA’s other changes to personal taxes are scheduled to expire after 2025, unless Congress acts to extend them.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax circumstances are different. You should contact your tax professional to discuss your personal situation.

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

Understanding The Financial Differences Between Home Renovations

Some improvements are likely to increase your home’s value. However, others may actually decrease potential buyers’ interest in your home. So, put away your toolbox until you know more about projects that typically don’t pay.

Too Much Improvement

When you remodel your house, it should be in keeping with your neighborhood. Having your house stand out as the nicest one by far is often not a good thing when you’re trying to sell. Too much improvement may not pay off since the market price of your house may be limited by your neighborhood’s home values.

House Unusual

Unusual renovations, such as converting a garage into a home gym or adding a backyard basketball court, could turn off potential buyers. Another thing to consider is keeping things standard shapes and sizes throughout the home. You also may want to stick with standard sizes and heights for countertops and kitchen and bathroom fixtures.

Amateur Workmanship

Don’t do it yourself if you’re not handy. First of all, the results will probably show that you didn’t hire a professional. And secondly, structural mistakes and building code errors will show up during a home inspection. If your home fails an inspection, you could either lose a sale or be forced to lower your selling price.

To learn more about how to make most of your home as an asset give us a call today. Our Atlanta Accounting and Tax team is always available to answer any questions you may have. Call us at 404-504-7051 or request a free consultation online.

Does The Sale of Your Home Qualify For A Federal Income Tax Exclusion?

So, you’ve sold your home and made a nice profit on the sale. Now you may be wondering if Uncle Sam is entitled to a cut of this profit. Although gain on a home sale is potentially taxable, you may qualify for a federal income-tax exclusion.

The Rules in General

If you’re a single taxpayer, you may qualify to exclude gain of up to $250,000 if you owned the home and used it as your principal residence for at least two of the five years before the sale. Married couples who file jointly may exclude up to $500,000 of gain as long as one spouse owned the home — and both spouses used the home as a principal residence — for two of the last five years.

The Frequency Factor

The exclusion is generally available to sellers only once during a two-year period. A married couple is entitled to the $500,000 exclusion only if neither partner used the exclusion within the two-year period that ended on the sale date.

Reduced But Available

Even if you don’t meet the criteria described above, you may still qualify for a reduced exclusion (of less than $250,000 or $500,000) if the primary reason for the home sale was a change in the location of your employment, a health condition, or certain other “unforeseen” circumstances. The affected individual can be you, your spouse, a co-owner of the residence, or a person sharing your household. You may also qualify for the reduced exclusion if you sell your home to care for a sick family member.

Additional restrictions on gain exclusion may apply if you’ve rented out your home, maintained a home office, or turned a second home into a principal residence.

For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.