Mid Year Tax Planning

Posted on by William A Olson, CPA

We are getting very close to the end of the third quarter in 2016 and if your tax bill for 2016 is likely to be much higher (or lower) than it was in 2015, now is the best time to take a look and adjust your income tax withholdings or estimated tax payments. It is also a good time to look at ways to potentially reduce your taxes due for 2016 and potentially save thousands of dollars.

There are several things that can be done before the end of the year and only a scant few things that can be done after 12/31 to reduce your tax bill so now is the time to look at things like:

  1. Deferring your income if you are going to be in a lower tax bracket in 2017 (moving bonus payments from 2016 to 2017).
  2. Accelerating income if you are going to be a higher tax bracket in 2017 (offer clients an early pay discount).
  3. Accelerating deductions from 2017 to 2016 (pay your property tax bill due in 2017 in 2016 or make your fourth quarter State estimated tax payment in 2016).
  4. Deferring deductions from 2016 to 2017 (pay your property tax bill due in 2017 in 2017 or make your fourth quarter State estimated tax payment in 2017).

There are also credits available for things like installing solar panels on your house… if you are thinking about doing that, doing it now will lower your 2016 tax bill.

Contact me today if you would like to see what options are available to you and how to minimize your tax bill.

William A. Olson CPA, 734-377-3641

USA Today: The importance of sending 1099s

Posted on by William A Olson, CPA

If you don’t file 1099s for your contractors, you lose protections from the federal government.

Small businesses hate paperwork.

And small businesses really hate paperwork from the Internal Revenue Service. But you’d better take care of one bit of paperwork from the IRS and do it quickly because an important deadline is approaching: Thursday, Jan. 31.

That’s the deadline for filing the 1099-MISC form.

COLUMN: Taxes are your spinach

MORE: Rhonda Abrams column index

What most people in business simply refer to as “1099s” are the forms businesses must send to any independent contractors they’ve used in the past year.

Perhaps you paid a tech consultant to help you maintain your computers. Perhaps you hired a marketing consultant to manage your Facebook accounts, or maybe you used an electrician to wire new offices.

If you paid any individual $600 or more in 2012, the IRS wants to know about it.

Small businesses like using independent contractors. They provide services on an as-needed basis, giving small companies much-desired help and expertise with flexibility. But the IRS scrutinizes few areas as much as the use of independent contractors.

One way to make sure you stay out of hot water is to be sure to file 1099s for all your contractors on time.

Whom must you send a 1099?

 

  • Any individual you’ve paid more than $600 for services during 2012.
  • Anyone — other than a real-estate agent — you’ve paid rents to during 2012.
  • Any lawyer to whom you’ve paid more than $600 in legal fees during 2012, whether incorporated or not.

 

Who don’t you have to send a 1099?

 

  • Employees on your payroll who receive a W-2.
  • Corporations. If an independent contractor has incorporated his or her business, or you’ve used a service provider that is a corporation, no 1099 is needed.
  • People you’ve hired for personal, nonbusiness, services.

 

If a company fails to file a 1099 for its independent contractors, it can have serious — and expensive — consequences. That’s because the IRS is on the lookout for companies that abuse independent contractor/employee status.

As a business, you can treat employees in one of two ways: as an employee or as an independent contractor. Many businesses would prefer to treat employees as independent contractors. Here’s why:

If you treat workers as employees, you pay additional taxes: Social Security, Medicare, unemployment, worker’s compensation, and the like, and workers get more protections under federal and state labor laws.

If you treat them as independent contractors, you pay no additional taxes and they get very few worker protections.

Eureka! You like the independent contractor choice better.

Equally obviously, the federal government, states and cities want to make certain that anyone doing the work of an employee gets treated — and protected — as such. It’s also far easier for the IRS to ensure that taxes are paid from employees via withholding than from independent contractors.

Few areas of employment law are murkier than those dealing with independent contractors. IRS guidelines on who qualifies are not crystal clear.

The main issue the IRS tries to determine is who “controls” the worker. Auditors look at three areas:

Behavioral. Does the worker control how he does the work? The IRS looks at issues such as who controls:

 

  • When and where the worker does the work.
  • What tools or equipment the person uses.
  • Who determines where the person purchases supplies.
  • What order or sequence of work to follow.

 

Financial. Does the worker have a significant investment, such as owning his own tools; can she make a profit or loss; does she make their services available to others, work for other businesses?

The relationship. How permanent is the relationship, do you have written contract, is the worker responsible for his or her own benefits, and is the work performed a critical and regular part of the business?

The IRS is particularly aggressive in pursuing companies that intentionally — or unintentionally — pay workers as independent contractors instead of employees.

But the IRS does provide some protection for businesses that make mistakes in good faith. Agents will look to see whether a business relied on advice of a lawyer or accountant, followed industry practice, treated workers consistently.

But, and this is important, a company that fails to file a Form 1099 for an independent contractor has absolutely no protection.

So don’t let Jan. 31 slip by without getting those 1099s in the mail.

Rhonda Abrams is president of The Planning Shop and publisher of books for entrepreneurs. Her most recent book is Entrepreneurship: A Real-World Approach. Register for Rhonda’s free newsletter at PlanningShop.com. Twitter:@RhondaAbrams. Facebook: facebook.com/RhondaAbramsSmallBusiness.Copyright Rhonda Abrams 2013.

Start of Tax Filing Season Delayed (AICPA Article)

Posted on by William A Olson, CPA

The IRS announced on Tuesday that it plans to open the 2013 filing season and begin processing many individual income tax returns on Jan. 30 (IR-2013-2). However, not all taxpayers will be able to start filing tax returns on that date.

The IRS says it will be able to begin accepting tax returns on Jan. 30 after updating forms and completing programming and testing of its processing systems to account for most of the tax law changes enacted Jan. 2 by the American Taxpayer Relief Act of 2012, H.R. 8. The IRS says that this will allow “the vast majority of tax filers—more than 120 million households” to start filing tax returns on Jan. 30. The delayed start of tax season applies to both electronic and paper returns. The IRS had originally planned to open electronic filing of tax returns on Jan. 22.

The IRS says that on Jan. 30 it will be able to accept tax returns affected by the late change in the alternative minimum tax (AMT) exemption amount as well as three other major extended provisions: The state and local sales tax deduction (Sec. 164(b)), the higher education tuition and fees deduction (Sec. 222), and the deduction for certain expenses of elementary and secondary schoolteachers (Sec. 62).

Some returns delayed

Because of the need for more extensive form and processing systems changes, many taxpayers will not be able to file returns until February or March. For example, the IRS says taxpayers who claim residential energy credits or general business credits or who depreciate property will not be able to file starting Jan. 30. However, the IRS in its press release downplays this delay, claiming that most of these taxpayers “typically file closer to the April 15 deadline or obtain an extension.”

Forms that will require more extensive programming changes include Form 5695, Residential Energy Credits, Form 4562, Depreciation and Amortization, and Form 3800, General Business Credit. The IRS is promising to post a full list of the forms that it will not accept until later on its website. The list was not yet available as this item went to press.

The IRS will announce a specific date when it will start accepting these forms in the near future.

—Alistair M. Nevius (anevius@aicpa.org) is the JofA’s editor-in-chief, tax.

Link to the full article here from the AICPA.

Year End Checklist for businesses

Posted on by William A Olson, CPA

Closing Your Books

As you are cleaning up your accounting records for year-end, here are some steps you can take now to make tax-time easier:

  • Verify that you have W-9 forms for each of your independent contractors or at least have their Tax Identification Number on file.  You will need this information in order to prepare 1099 forms in January. Going forward, it’s a good practice to obtain a completed W-9 form from each new vendor before you pay them.
  • Review your Accounts Receivable.  Are all of them collectible?  If you have any bona fide bad debts on your hands, it is time to write them off before year-end. You should also review your receivables to reconcile them against your customer accounts, confirming the balance of each.
  • Review your Accounts Payable. Wherever possible, you should reconcile your vendor accounts against a statement from that vendor.
  • Reconcile all of your bank accounts using the year-end bank statements. When reconciling your bank account, be careful to review any “Uncleared” transactions, as they may be duplicate entries, checks that were lost in the mail, or simply entries that should have been deleted.
  • Reconcile all of your credit card accounts, lines of credit and outstanding loans.
  • If you carry inventory, it’s time to do a physical count of your inventory and reconcile it against the inventory reported on your balance sheet. Take this opportunity to adjust your inventory for shrinkage, spoilage, or obsolescence.
  • Make a list of all new equipment and other fixed assets acquired during the year, including the purchase date, amount and description.  If you’ve disposed of any old equipment, whether by selling it or by putting it in the dumpster out back, make a note of that, too.
  • Review your payroll liability balances (941, Michigan Withholding, unemployment, etc.) and adjust if necessary. Also double-check that all payroll tax forms have been filed as necessary.
  • Similarly, review your sales tax liability balance and confirm that your sales tax filings are up-to-date.
  • For paper records, prepare to archive any records that you need to retain. For any records considered vital, make a copy that can be kept off-site.
  • Finally, make a backup of your QuickBooks file or accounting records file to be kept off-site.

W-2s and 1099s

1. If you have employees, you must send W-2s to your employees by January 31st.

2. If you make payments to non-corporate taxpayers in excess of $600 for services or rent, you must file form 1099 to your subcontractors and/or landlord. If you have not already obtained the tax ID of the subcontractor or landlord, use form W-9. 1099s are also due to the recipients on January 31st.

If you would like me to fill out your W-2s or 1099s, please contact me with the appropriate information. If I have already been preparing your payroll and payroll tax returns, I will automatically prepare your W-2s, but will most likely need the information to prepare any 1099s you are required to issue.

Year End Tax Projections

Posted on by William A Olson, CPA

Although September is not even over, it is a good time to start thinking about year end tax planning. I know it does not sound like fun, but a little advance planning will almost always help you reduce the taxes you owe.

This purpose of this blog post is to make you aware that offer year-end tax planning report to all my clients and potential clients. The report will show you how much Federal and State of Michigan income tax you will owe in 2012 based on a projection of your income and deductions for the tax year 2012. It will also show how much of a refund you can expect or how much you are projected to owe on April 15th, 2013.

If you are projected to get a refund, you can lower your tax withholdings to get your refund now. Or if you are projected to owe taxes, you can increase your tax payments to avoid or reduce late payment penalties and interest.

But that is not the main advantage of doing a tax projection. A projection will also give you an opportunity to play the “what-if” game and see how employing various tax planning techniques will impact your income taxes this year and into the future.

People that are likely to benefit from this type of analysis include:

  • Individuals whose income fluctuates from year to year significantly because they own a business.
  • Individuals who have large amounts of investment income from the sale of capital assets (stocks, bonds, etc.).
  • Individuals who receive income from which there is no income tax withheld (e.g., interest, dividends, and Social Security).
  • Individuals who can manipulate their deductions from year to year by paying bills before December 31 or waiting until 2013. For example, buying a new computer for your business in 2012 instead of 2013 or paying your 2012 Winter property tax bill before it is due in 2013.
  • Individuals who plan on making a contribution to their retirement fund in 2012 (e.g., IRA), but want to know just how much money they will save by doing so.

Your customized tax plan will include:

  • A professionally prepared report based on your specific situation.
  • A tax analysis for 2012 under as many as 10 different “what-if” scenarios.
  • A tax analysis for as many as 10 years into the future.

The cost to produce this analysis will depend on the complexity of your situation. However, most plans will likely be in the $100 to $200 range which could easily be offset by potential tax savings and/or avoiding underpayment penalties and interest. If you are interested in receiving your analysis, please contact me to set up a time to meet to discuss your specific situation.

Reminder: Happy Emancipation Day… this year’s tax filing due date is 4/17/12.

Posted on by William A Olson, CPA

Taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns. Remember that an extension is an extension of time to file and not an extension of time to pay. If you expect you will have a balance due, the IRS expects you to pay this with your extension.