General Information

CARES Act: Small Business Overview

This information is constantly changing. We will update it as we can. Please make sure to review the PPP loan under the SBA loan section below. It is something that most of our clients could and should take advantage of.

Employee Retention Credit

Qualifying employers can take a tax credit equal to 50% of employee’s wages if your business was entirely or partially shut down or closed due to COVID-19 related orders or if gross receipts declined by more than 50% when compared to the same quarter of the year before. More details are available on the IRS website here.

Delay in Payment of Employer Payroll Taxes

Although this provision is allowed we do not recommend it. Staying in the habit of paying payroll taxes is very important. Penalties for not paying payroll taxes at the deferred time can be very high.

This provision allows employers to defer payment their portion of Social Security (FICA) tax for wages from March 27, 2020 to December 31, 2020. Half of the taxes owed will be due by December 31, 2021 and the other half will be due on December 31, 2022.

In the example below the only portion that you would be able to defer would be the $6,200 of the employer’s portion of FICA or Social Security.

  • $100,000 gross wages from March 27 – December 31, 2020
  • $6,200 FICA, employee’s share
  • $1,450 Medicare, employee’s share
  • $6,200 FICA, employer’s share
  • $1,450 Medicare, employer’s share

Mandatory Paid Sick Leave and E-FMLA

See our post here describing the leave policy. Employers would receive a tax credit equal to the amount of paid sick leave and expanded family medical leave paid and the related taxes.

SBA Loans

Paycheck Protection Plan Loan (PPP Loan)

This loan is applied for through banks that are qualified to do SBA lending. Applications may begin to be sent beginning April 3, 2020. Please reach out to your banker or if you need a referral please let us know.

This loan allows you to receive up to 2.5x your average monthly payroll. If within the 8 week following the close of the loan you use the funds to pay payroll, rent, utilities or interest on loans, the amount you pay for those expenses may be forgiven and you won’t have to pay back that portion of the loan.

Most businesses will qualify including self-employed individuals (Sole Proprietors, Partnerships, etc.). There are many rules as to what is included in your average payroll and reductions in forgiveness if you have less employees than in the past. WCG Inc, another CPA firm, has a great post with many of those details.

Economic Injury Disaster Loan (EILD) and $10k Grant

This loan is applied for directly on the SBA website here. It is a basic application that is available right now.

In applying for this loan you can request that the SBA send you a one-time $10,000 grant that you do not need to pay back unless you also are participating in the PPP loan above. The $10k should arrive within a week of submitting your application.

This loan is essentially just a loan that is much easier to qualify for and the terms are favorable (3.75% interest rate, up to 30 year amortization). The entire country is in a disaster are due to COVID-19 so everyone should be eligible

Additional Resources

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CARES Act: Individual Overview

Updated 4/15/2020 11:00 AM AZ time

Stimulus Checks

On Friday the CARES Act was signed into law and one of its provisions allows individuals to receive one time stimulus checks. The Treasury Department has said that they will issue these checks starting today. Starting today the IRS has an online tool to check the status of your stimulus check (Get My Payment).

There are some rules as to who receives the stimulus checks and how the Treasury Department will be determining if you qualify for a stimulus check and how much. This post goes into a few details of how this will be determined.

How much do I get?

The IRS will be looking at your 2019 tax return first and if you have yet to file, they will look at the 2018 tax return. They will not be looking back further than your 2018 tax return. For those that haven’t filed a tax return or weren’t required to file you can go here to enter your information for direct deposit.

If you have not filed your tax returns in recent years then please reach out to us so we can get your returns filed so you can qualify for the stimulus check.

There are income limitations to receiving a stimulus check (see below) but the amount you will receive is $1,200 for a Single taxpayer or $2,400 for a married filing joint taxpayer. An additional amount of $500 per dependent child age 16 and younger at the end of the year of the tax return they are looking at will be sent as well (ex. 2019 tax returns they look at age as of December 31, 2019). This excludes dependents age 17 and older from receiving any sort of stimulus check (ex. older children, college students claimed by parents, retired parents being claimed by their child, etc.). There has not been guidance released on Married Filing Separate individuals as of yet.

Income Limitations

As mentioned above, the IRS will send out a check based on your 2018 or 2019 tax return but the stimulus check will actually be reconciled against your 2020 tax return. If in 2020 you exceed the income limitations below then you will be required to pay back any amount that you received. It is unclear on if they will require paying back any amount received for a child that was 16 or younger in 2019 but is now 17 or older in 2020.

For a Single taxpayer if your Adjusted Gross Income (AGI) is $75,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $75,001 and $99,000 then your benefit will be reduced by $5 for every $100 earned above $75,000 (see Stimulus Calculator at the end of this article). With income above $99,000 you will not receive anything.

For a Marries taxpayer if your Adjusted Gross Income (AGI) is $150,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $150,001 and $198,000 then your benefit will be reduced by $5 for every $100 earned above $150,000 (see Stimulus Calculator at the end of this article). With income above $198,000 you will not receive anything.

AGI can be found on your 2018 tax return on Form 1040, page 2 line 7. It is found on your 2019 tax return on Form 1040 (or Form 1040-SR), page 1, line 8b.

How will I get the money?

The IRS will be sending you the money using the same method that was used on your most recent tax return. If you set up direct deposit then it will go to that bank account that you set up. If you had your refund mailed to you or if you owed money last year then they will mail you a check to the address of your most recent tax return.

If you have changed bank accounts, the direct deposit will fail and they will then mail you a check instead. I imagine this will delay the check slightly but no information has been provided as of yet.

If your address is not current with the IRS then please fill out and file Form 8822 to change your address with the IRS. It is a simple form where you put your name, SSN, old address and new address. If you have set up mail forwarding you should be OK but the best option would be file update your address with the IRS.

Additional Resources

Student Loans

There were a few items changed in regards to student loans with the CARES Act:

  1. No payments due until September 30, 2020. Your balance is frozen.
  2. No interest through September 30, 2020.
  3. Skipping payments through September 30, 2020 counts towards the public service loan forgiveness program.
  4. Suspension of debt collection for student loans.
  5. Employers can provide up to $5,250 of payments tax free on student loan balances to employees.

This applies to federal student loans only, and not private student loans.

Exception to Using Retirement Funds because of Coronavirus

Under the CARES Act you are now able to withdraw up to $100k as a loan from your retirement account tax and penalty free. The withdrawal is only penalty and tax free if you pay back the entire amount withdrawn within 3 years. You must meet certain conditions (see below) in order to qualify for this loan.

  • Distribution made between 1/1/2020 and 12/31/2020
  • You are diagnosed with COVID-19 using a test approved by the CDC
  • Your spouse or dependent is diagnosed with COVID-19
  • You have experienced adverse financial conditions due to being quarantined, furloughed, laid off, or reduced work hours due to COVID-19
  • You are unable to work because you need to care for a child.
  • You own a business that has closed or reduced hours due to COVID-19
  • IRS will give further reasons in the future that may qualify.

Stoppage of Required Minimum Distributions (RMDs)

No RMD is required to be taken in 2020 by anyone. This means if were required to take an RMD for the first time in 2019 (turned 70 and 1/2 in 2019) you would normally be required to take the RMD by April 15th, 2020. Under this act you would not be required to take the 2019 or 2020 distribution this year but would begin in 2021.

Additional Charitable Deduction

Whether you itemize your deductions or not, you will be able to take a charity deduction above the line for up to $300. These contributions must be made in cash and the deduction will be claimed on your 2020 tax return.

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SBA Loans Available for COVID-19 Affected Businesses

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

We do not have the expertise or knowledge to fill out loan applications on your behalf at this time. We are able to provide necessary documentation that you may need from us if you are unable to find them in your records. We also have bank contacts that would be able to assist. Please reach out and we can pass on their information to you.

Coronavirus Emergency Loans (passed 3/27/2020)

With the passing of the CARES Act on Friday, March 27, 2020, there are some options for loan forgiveness as well for qualifying expenses. Please review the US Chamber of Commerce’s Guide and Checklist for details. This loan program is much better than the remaining information in this post.

Other SBA Loans (passed 3/6/2020)

Under the Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury as a result of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.

We’ve highlighted the following key details of the Act for you here, but you can also learn more by visiting the COVID-19 disaster assistance page on SBA’s website.

  • State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
  • Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
  • Loans can be used to cover accounts payable, debts, payroll and other bills.
  • Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
  • Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
  • SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800.659. 2955 (TTY: 800.877.8339) or e-mail  disastercustomerservice@sba.gov.

The coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.

Additional Resources

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Tax Return and Payment Deadline Pushed to July 15, 2020

The IRS has changed the tax deadline to now be July 15, 2020. This means that tax returns do not need to be submitted and payments do not need to be made until July 15th. We encourage you to still file as soon as you can. If you owe you can still wait to pay but finalizing the information and getting it into the IRS early will be critical, especially as they have slowed down as well.

If you are expecting a refund we highly encourage you to get your return filed as soon as possible. As of this posting the IRS is still issuing refunds as normal but they will become busy sending stimulus checks in the coming weeks. Below is some additional information from the IRS.

Tax Deadline Extension

Below, you will find a list of frequently asked questions in reference to the Internal Revenue Service’s (IRS) Notice 2020-18 (PDF). In this Notice, the Treasury Department and the IRS announced special Federal income tax return filing and payment relief in response to the ongoing COVID-19 emergency.

You can review the IRS page for additional information here:
https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.

Frequently Asked Questions

Question 1: Who is eligible for relief under the Notice?

Answer: Any person with a Federal income tax return or payment due on April 15, 2020 is eligible for relief under the Notice. “Person” includes any type of taxpayer such as an individual, a trust, an estate, a corporation or any type of unincorporated business entity. The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income)—regardless of the amount owed. The return or payment must be due on April 15, 2020—this relief does not apply to Federal income tax returns and payments due on any other date.

Question 2: Do I have to actually be sick, quarantined or have any other impact from COVID-19 to qualify for payment relief?

Answer: No, you do not have to be sick, quarantined or have any other impact from COVID-19 to qualify for relief. You only need to have a Federal income tax return or payment due on April 15, 2020 as described above.

Question 3: I am a fiscal year filer. My Federal income tax return for fiscal year 2019 is due on April 15, 2020. Am I an “Affected Taxpayer” eligible for relief under the Notice?

Answer 3: Yes, the relief provided in the Notice applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020. If your Federal income tax return for your fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, your due date is postponed to July 15, 2020.

Question 4: Does this relief apply to state tax liabilities?

Answer: No, this relief applies only to Federal income tax payments. State filing and payment deadlines vary and are not always the same as the Federal filing and payment deadline. We urge you to check with your state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.

Question 5: I haven’t filed my 2019 income tax return yet (that would have been due on April 15), but I expect to file it by July 15. What do I need to do?

Answer: Nothing, except file and pay any tax due with your return by July 15. You don’t need to file any additional forms or call the IRS to qualify for this automatic Federal tax filing and payment relief. If you expect a refund, you are encouraged to file your return as soon as you can so that you can receive your refund. Filing electronically with direct deposit is the quickest way to get refunds. If you need more time beyond July 15 to file your return, request an automatic extension of time to file as described next.

Question 6: What if I am unable to file my 2019 income tax return (that would have been due on April 15) by July 15, 2020?

Answer: If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15, 2020 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional, tax software or using the Free File link on IRS.gov. Businesses, including trusts, must file Form 7004.

You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.

Question 7: I already filed my 2019 income tax return (that would have been due on April 15) and I owe taxes, but I haven’t paid yet. What do I need to do to avoid interest and penalties?

Answer: To avoid interest and penalties, pay your taxes in full by July 15, 2020. If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found on line 23. If you filed Form 1040-NR, the tax payment amount can be found on line 75. For a corporation filing Form 1120, the tax payment amount can be found on line 35.

Interest and penalties will begin to be charged after July 15 for any amount remaining unpaid by that date.

Question 8: I already filed my 2019 income tax return that would have been due on April 15 and scheduled a payment of taxes for April 15, 2020. Will this payment be automatically rescheduled to July 15, 2020?

Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing, the payment will be made on the date you chose. Here is information on how to cancel and reschedule your payment:

  • If you scheduled a payment through IRS Direct Pay, you can use your confirmation number from the payment to access the “Look Up a Payment” feature. You can modify or cancel a scheduled payment until two business days before the payment date. The email notification you received when you scheduled the payment will contain the confirmation number.
  • If you scheduled a payment through the Electronic Federal Tax Payment System (EFTPS), click on “Payments” from the EFTPS home page, login, click “Cancel a Tax Payment” from the left menu and follow the instructions. You must do so at least two business days before the scheduled payment date.
  • If you scheduled a payment as part of filing your tax return (authorizing an electronic funds withdrawal), you may revoke (cancel) your payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. You must call to make a payment cancellation request no later than 11:59 p.m. ET two business days prior to the scheduled payment date.
  • If you scheduled a payment by credit card or debit card, contact the card processor to cancel the payment.

Question 9: The Notice postpones the deadline for first quarter 2020 estimated income tax payments due on April 15, 2020. What about second quarter estimated tax payments due on June 15? Have they been postponed as well?

Answer: No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.

Question 10: Does this relief provide me more time to contribute money to my IRA for 2019?Answer: Yes. Contributions can be made to your IRA for a particular year at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A – Contributions to Individual Retirement Arrangements (IRAs).

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New Sick Pay and Medical Leave Requirements Due to COVID-19

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

Family and Medical Leave Act (FMLA) expanded to provide relief to those affected by COVID-19

“The Families First Coronavirus Response Act” (FFCRA), which goes into effect April 1, 2020 and expires December 31, 2020, responds to the coronavirus outbreak by providing additional assistance in the areas of COVID-19 testing, sick leave, food assistance, and more. We’ve compiled key details of FFCRA that we believe you need to know.

The following items are mandatory unless you believe it will “jeopardize the viability of the business is a growing concern”.  You may apply for an exemption, but the Department of Labor has yet to provide details of how this exemption process will work and who qualifies.

In summary, the Act:

  • Requires employers to provide emergency paid sick leave to workers affected by COVID-19
  • Expands family and medical leave (FMLA) for employees that are required to care for children out of school or daycare.
  • Offers increased funding for state unemployment insurance, food stamp and nutritional programs.

More specifically, here’s what The Families First Coronavirus Response Act means for both business owners and employees in the areas of sick leave and expanded family and medical leave.

  • Emergency paid sick leave:
    • Employees are eligible for up to two weeks of sick leave (full pay for self, 2/3 pay for family care) for illness, quarantine or school closures.
    • Applies to employers with fewer than 500 employees
    • All employees no matter the length of employment (some exclusions may apply)
  • FMLA expansion covers:
    • Employees are eligible for up to 12 weeks of FMLA leave for school closures (2 weeks unpaid and then up to 10 weeks at 2/3 pay).
    • Employers with fewer than 500 employees
    • Employees who have been employed for at least 30 calendar days (some exclusions may apply)
    • Employees who must care for children under the age of 18 in the event of school and place-of-care closures or if care provider is unavailable due to a public health emergency with respect to COVID-19.

Qualifying Reasons for Leave related to COVID-19

  1.  Is subject to Federal, State or local quarantine or isolation order related to COVID-19
  2. Has been advised by a health care provider to self-quarantine related to COVID-19
  3. Is experiencing COVID-19 Symptoms and is seeking medical diagnosis
  4. Is caring for an individual subject to an order described in number 1 or 2 above. (Does not have to be a family member.)
  5. Is caring for his or her child whose school or place of care is closed (or child care provider is unavailable due to COVID-19 related reasons

Is experiencing any other substantially similar condition specified by the US Department of Health and Human Services.

Additional Resources

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2018 Tax Reform

What the Tax Reform Act Means for You

Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017.

You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, we recommend you schedule a tax-planning consultation to ensure you reap the most tax savings possible during 2018. 

Key changes for individuals:

Here are some of the key items in the tax reform act that affect individuals:

  • Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below).
  • Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.
  • Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:
    • Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.
    • Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt.
    • No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Tip: If you’re used to itemizing your return, that may change in coming years as the doubled standard deduction and reduced deductions make itemizing less attractive. To the extent you can, make any remaining itemizable expenditures before the end of 2017.

  • Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.
  • Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.
  • Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.
  • Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples).

What stays the same for individuals:

  • Itemized charitable deductions: Remain largely the same.
  • Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years.
  • Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest.
  • Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018.

Farewell to the healthcare individual mandate penalty

One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years.

Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero.

NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes.

 

New 2018 tax bracket structures for individuals

Single taxpayer

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

Head of household

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

 

Married filing jointly

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000   37%

 

Married filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000   37%

 

Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500   37%

This brief summary of the tax reform act is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it.

Information from Knutte & Associates, Tax Reform Newsletter 12-28-17 was used in this blog post.

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IRS Tips for the Home Office Deduction

IRS Tips for the Home Office Deduction

Taxpayers who use their home for business may be able to deduct expenses for the business use of it. Qualified persons can claim the deduction whether they rent or own their home. Use the simplified method or the regular method to claim a deduction.

Here are six tips to keep in mind about the home office deduction:

  1. Regular and Exclusive Use. Generally, taxpayers must use a part of their home regularly and exclusively for business purposes. The part of a home used for business must also be:
  • A principal place of business, or
  • A place where taxpayers meet clients or customers in the normal course of business, or
  • A separate structure not attached to the home. Examples could include a garage or a studio.
  1. Simplified Option. To use the simplified option, multiply the allowable square footage of the office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save time because it simplifies how to figure and claim the deduction. It will also make it easier to keep records. The rules for claiming a home office deduction remain the same.
  2. Regular Method. This method includes certain costs paid for a home. For example, part of the rent for rented homes may qualify. For homeowners, part of the mortgage interest, taxes and utilities paid may qualify. The amount deducted usually depends on the percentage of the home used for business.
  3. Deduction Limit. If the gross income from the business use of a home is less than expenses, the deduction for some expenses may be limited.
  4. Self-Employed. Taxpayers who are self-employed and choose the regular method should use Form 8829, Expenses for Business Use of Your Home, to figure the amount to deduct. Claim the deduction using either method on Schedule C, Profit or Loss from Business. See the Schedule C instructions for how to report the deduction.
  5. Employees. Employees must meet additional rules to claim the deduction. For example, business use must also be for the convenience of the employer. If qualified, claim the deduction on Schedule A, Itemized Deductions. This deduction is available on form 2106 for calendar year 2017. With the passing of the Tax Cuts and Jobs Act of 2017, this deduction is eliminated. It will not be available on your calendar year 2018 tax return.

 

Information from IRS Tax Tip 2017-41 was used in this blog post.

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Keeping Savings on Track with a Spousal IRA

Keeping Savings on Track with a Spousal IRA

Being a stay-at-home mom or dad, or working part-time to help take care of the children, can make a big contribution to the balance and well-being of a family. Unfortunately, time out of the workforce could put the caregiving spouse at a disadvantage when it comes to retirement savings. A spousal IRA – funded for a spouse who earns little or no income – offers an opportunity to help keep the retirement savings of both spouses on track. It also offers a larger potential tax deduction for a married couple.

Making Contributions

For the 2017 tax year, an individual with earned income (from wages or self-employment) can contribute up to $5,500 to his or her own IRA and up to $5,500 more to a spouse’s IRA- regardless of whether the spouse works or not – as long as the couple’s combined earned income exceeds both contributions and they file a joint tax return. An additional $1,000 catch-up contribution can be made for each spouse who is age 50 or older. Contributions for 2017 can be made up to the April 2018 tax filing deadline. All other IRA eligibility rules must be met.

Income Phaseouts

If neither spouse actively participates in an employer-sponsored retirement plan, contributions to a traditional IRA are fully tax deductible. However, if one or both are active participants, tax deductibility for joint filers phases out at a modified adjusted gross income (MAGI) of $99,000 to $119,000 for a participating spouse and $186,000 to $196,000 for a nonparticipating spouse (in 2017). Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may still be able to deduct an IRA contribution for a nonparticipating spouse. Contributions to a Roth IRA are not tax deductible and are not affected by participation in a workplace plan. However, eligibility to contribute to a Roth IRA phases out for joint filers with a MAGI of $186,000 to $196,000 (in 2017). Distributions from traditional IRAs are taxed as ordinary income and may be subject to a 10% federal income tax penalty if withdrawn prior to age 59 ½ . Roth IRA contributions can be withdrawn penalty-free and tax-free at any time, but in order for earnings to qualify for a tax-free and penalty-free withdrawal, a Roth IRA distribution must meet the five-year holding requirement and take place after age 59 ½. (There are IRS exceptions to the early withdrawal penalty and the five-year holding requirement.)

Talk to one of the Professionals at Fox Peterson to learn about how to take advantage of this opportunity. Information from Cambridge Financial Services was used in this blog post.

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Things to Know about Taxes and Starting a Business

Four Things to Know about Taxes and Starting a Business

New business owners have tax-related things to do before launching their companies. IRS.gov has resources to help. Here are some items to consider before scheduling a ribbon-cutting event.

Choose a business structure

When starting a business, an owner must decide what type of entity it will be. This type determines which tax forms a business needs to file. Owners can learn about business structures at IRS.gov. The most common forms of businesses are:

Determine business tax responsibilities 

The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.

  • Income tax – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
  • Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
  • Self-employment tax – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
  • Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
  • Excise tax – These taxes apply to businesses that:
    • Manufacture or sell certain products
    • Operate certain kinds of businesses
    • Use various kinds of equipment, facilities, or products
    • Receive payment for services

Choose a tax year accounting period

Businesses typically figure their taxable income based on a tax year of 12 consecutive months. A tax year is an annual accounting period for keeping records and reporting income and expenses. The options are:

  • Calendar year: Jan. 1 to Dec. 31.
  • Fiscal year:12 consecutive months ending on the last day of any month except December.

Set up recordkeeping processes

Being organized helps businesses owners be prepared for other tasks. Good recordkeeping helps a business monitor progress. It also helps prepare financial statements and tax returns. See IRS.gov for recordkeeping tips.

Information from IRS Tax Tip 2017-67 was used in this blog post. Please contact the professionals at Fox Peterson for a free, no obligation initial consultation regarding your new business.

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Is that knock on your door really the IRS?

Is that knock on your door really the IRS?

Every Halloween, children knock on doors pretending they are everything from superheroes to movie stars. Scammers, on the other hand, don’t leave their impersonations to one day. They can happen any time of the year. Your encounter with these scammers will most likely be over the phone, but there is a possibility you could have someone come to your home or place of business impersonating an IRS agent.

People can avoid taking the bait and falling victim to a scam by knowing how and when the IRS does contact a taxpayer in person. This can help someone determine whether an individual is truly an IRS employee.

Here are eight things to know about in-person contacts from the IRS.

  • The IRS initiates most contacts through regular mail delivered by the United States Postal Service.
  • There are special circumstances when the IRS will come to a home or business. This includes:
    • When a taxpayer has an overdue tax bill
    • When the IRS needs to secure a delinquent tax return or a delinquent employment tax payment
    • To tour a business as part of an audit
    • As part of a criminal investigation
  • Revenue officers are IRS employees who work cases that involve an amount owed by a taxpayer or a delinquent tax return. Generally, home or business visits are unannounced.
  • IRS revenue officers carry two forms of official identification.  Both forms of ID have serial numbers. Taxpayers can ask to see both IDs.
  • The IRS can assign certain cases to private debt collectors. The IRS does this only after giving written notice to the taxpayer and any appointed representative. Private collection agencies will never visit a taxpayer at their home or business.
  • The IRS will not ask that a taxpayer makes a payment to anyone other than the U.S. Department of the Treasury.
  • IRS employees conducting audits may call taxpayers to set up appointments, but not without having first notified them by mail. Therefore, by the time the IRS visits a taxpayer at home, the taxpayer would be well aware of the audit.
  • IRS criminal investigators may visit a taxpayer’s home or business unannounced while conducting an investigation. However, these are federal law enforcement agents and they will not demand any sort of payment.

Taxpayers who believe they were visited by someone impersonating the IRS can visit IRS.gov for information about how to report it. Information from IRS Tax Tip 2017-67 was used in this blog post.

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