Tax Tips for Businesses

2015 Tax Organizer

2015 Tax Organizer

The 2015 Fox Peterson tax organizer is now available in two forms. You can A) go to our resources page and fill out the organizer(s) that apply to you and submit them directly to your tax preparer or B) click here to download and print the PDF version.

A customized organizer is also available. Please email or call your tax preparer to request yours.Fox Logo

These resources are meant to be used as a tool to help taxpayers prepare for the upcoming tax season.

As always, if you have any questions you can call Fox Peterson at 480-898-7640

Happy new year!

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Reasonable Compensation

What is Reasonable Compensation for a shareholder-employee of an S Corporation?

The IRS requires that S corporations “pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.” Fox Peterson can help you determine what your compensation should be in accordance with IRS guidelines. On the IRS website under the heading of “S Corporation Compensation and Medical Issues”, the IRS states “The key to establishing reasonable compensation is determining what the shareholder-employee did for the S Corporation”.

So what factors determine what “reasonable compensation” is for a shareholder-employee? First we look at the source of the S Corporation’s gross receipts. Gross receipts are typically broken into the following three major sources:

  1. Services of shareholderReasonable Compensation Shake
  2. Services of non-shareholder employees
  3. Capital and equipment

If most of the income and profits are from the personal services of the shareholder, then most of the profit distribution should be allocated as compensation. If the majority of gross receipts and profits come from non-shareholder employees or capital and equipment, then a lower amount of the profit distribution can be allocated as compensation.

IRS auditors are also instructed that the “shareholder employee should also be compensated for administrative work performed for the other income producing employees or assets.” For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.

Some factors in determining reasonable compensation:

  1. Training and experienceReasonable Compensation Training
  2. Duties and responsibilities
  3. Time and effort devoted to the business
  4. Dividend history
  5. Payments to non-shareholder employees
  6. Timing and manner of paying bonuses to key people
  7. What comparable businesses pay for similar services
  8. Compensation agreements
  9. The use of a formula to determine compensation.

Lastly, the total of reasonable compensation cannot exceed the amount received by the shareholder either directly or indirectly. Accordingly, if the taxpayer only receives $10,000 from the S Corp during the year, the maximum “reasonable compensation” issue is limited to $10,000.

Contact the professionals at Fox Peterson for help in determining what reasonable compensation is for your S Corporation.

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Additional Medicare Tax

Additional Medicare Tax

Some taxpayers may be liable for an Additional Medicare Tax if your income exceeds certain limits. Here are six things that you should know about this tax:

  • Tax Rate.  The Additional Medicare Tax rate is 0.9 percent.
  • Income Subject to Tax.  The tax applies to the amount of certain income that is more than a threshold amount. The types of income include your Medicare wages, self-employment income and Medicare Taxrailroad retirement (RRTA) compensation. You must combine your wages and self-employment income to figure the tax.
  • Threshold Amount.  You base your threshold amount on your filing status. If you are married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours. Use the combined total to determine if your income exceeds your threshold. The threshold amounts are:
Filing Status Threshold Amount
Married filing jointly $250,000
Married filing separately $125,000
Single $200,000
Head of household $200,000
Qualifying widow(er) with dependent child $200,000
  • Withholding / Estimated Tax.  Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year. If you are self-employed you should include this tax when you figure your estimated tax liability.
  • Underpayment of Estimated Tax.  If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty.

If you owe this tax, file Form 8959, with your tax return. You also report any Additional Medicare Tax withheld by your employer on Form 8959.

Information from IRS Tax Tip 2015-41 was used in this blog.

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Tips for Filing an Amended Return

Have you found that you made an error on your federal tax return? If so, you may need to file an amended return. Here are ten tips that can help you file.

1.    Tax form to amend your return.  Use Form 1040X, 1040XAmended U.S. Individual Income Tax Return, to correct your tax return. You must file a paper Form 1040X; it can’t be e-filed.

2.    Amend to correct errors.  You should file an amended tax return to correct errors or make changes to your original tax return. For example, you should amend to change your filing status, or to correct your income, deductions or credits.

3.    Don’t amend for math errors, missing forms.  You normally don’t need to file an amended return to correct math errors. The IRS will automatically correct those for you. Also, do not file an amended return if you forgot to attach tax forms, such as a Form W-2 or a schedule. The IRS will mail you a request for them in most cases.

4.    Most taxpayers don’t need to amend to correct Form 1095-A, Health Insurance Marketplace Statement, errors.  Eligible taxpayers who filed a 2014 tax return and claimed a premium tax credit using incorrect information from either the federally-facilitated or a state-based Health Insurance Marketplace, generally do not have to file an amended return regardless of the nature of the error, even if additional taxes would be owed. The IRS may contact you to ask for a copy of your corrected Form 1095-A to verify the information.

5.    Time limit to claim a refund.  You usually have three years from the date you filed your original tax return to file Form 1040X to claim a refund. You can file it within two years from the date you paid the tax, if that date is later. That means the last day for most people to file a 2011 claim for a refund is April 15, 2015. See the Form 1040X instructions for special rules that apply to some claims.

6.    When to file for second refund.  If you are due a 1040 crumpledrefund from your original return, wait to get that refund before filing Form 1040X to claim an additional refund. Amended returns take up to 16 weeks to process. You may spend your original refund while you wait for any additional refund.

7.    Track your amended return.  You can track the status of your amended tax return three weeks after you file with ‘Where’s My Amended Return?’ This tool is on IRS.gov or by phone at 866-464-2050. It is available in English and in Spanish. The tool can track the status of an amended return for the current year and up to three years back. To use ‘Where’s My Amended Return?’ enter your taxpayer identification number, which is usually your Social Security number. You will also enter your date of birth and zip code. If you have filed amended returns for multiple years, you can check each year one at a time.
Information from IRS Tax Tip 2015-64 was used in this blog post.

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Employee Business Expenses Tips

Employee Business Expenses Tips

If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you claim allowable employee business expenses on Schedule A, Itemized Deductions. Here are six tax tips that you should know about this deduction.

  1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.
  2. Expense Examples.  Some costs that you may be travel-expense-reportable to deduct include:
  • Required work clothes or uniforms that are not appropriate for everyday use.
  • Supplies and tools you use on the job.
  • Business use of your car.
  • Business meals and entertainment.
  • Business travel away from home.
  • Business use of your home.
  • Work-related education.

This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more, check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

  1. Forms to Use.  In most cases you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction. You can deduct the amount that is more than two percent of your adjusted gross income.
  2. Educator Expenses.  If you are a K through 12 teacher or educator, you may be able to deduct up to $250 of certain expenses you paid for in 2014. These may include books, supplies, equipment, and other materials used in the classroom. You claim this deduction as an adjustment on your tax return, rather than as an itemized deduction. This deduction had expired at the end of 2013. A recent tax law extended it for one year, through Dec. 31, 2014. For more on this topic see Publication 529.
  3. Keep Records. You must keep records to prove the expenses you deduct. For what records to keep, see Publication 17, Your Federal Income Tax.

 

Information from IRS tax tip 2015-45 was used in this blog post.

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Tax Deadline Tips

File on Time Even if You Can’t Pay

Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a penalty for filing late. Here is what to do if you can’t pay all your taxes by the due date.

  • File an Extension. An automatic six month exttAx Time Calculatorension is available for all taxpayers by filling out form 4868. This allows you to avoid IRS late-filing penalties. An extension only extends the due date for the paperwork, not the payment. If you owe money, you should estimate what the amount will be and make a payment along with your extension.
  • File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.
  • Pay online with IRS Direct Pay.  IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order.
  • Pay the rest of your tax as soon as you can.  If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax. For debit or credit card options, visit IRS.gov.
  • Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead.
  • Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you face a financial hardship, the IRS will work with you.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can.

Information from IRS tax tip 2015-53 was used in this blog post.

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2015 Standard Mileage Rates

The Internal Revenue Service issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile for business miles drivenmileage-photo
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Other Helpful Info

2014 Personal Limits/Deductions

  • IRA/Roth Contribution limit   $5,500
  • 401k Maximum employee contribution   $17,500
  • 2014 Personal/Dependency Exemption   $3,950
  • Married Filing Joint Standard Deduction   $12,400
  • Head of Household Standard Deduction   $9,100
  • Single & Married Filing Separately Standard Deduction   $6,200

2014 Estates, Gifts, & Social Security

  • Annual gift, per person   $14,000
  • Estate Exemption Equivalent   $5,340,000
  • FICA Earnings Limit   $117,000
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Employer Responsibilities for the Affordable Care Act

If you are an employer, the number of employees in your business will affect what you need to know about the Affordable Care Act (ACA).

Employers with 50 or more full-time and full-time-equivalent employees are generally considered to be “applicable large employers” (ALEs) under the employer shared responsibility provisions of the ACA.  Applicable large employers are subject to the employer shared responsibility provisions.  However, more than 95 percent of employers are not ALEs and are not subject to these provisions because they have fewer than 50 full-time and full-time-equivalent employees.

Whether an employer is an ALE is determined each calendar year based on employment and hours of service data from the prior calendar year. An employer can find information about determining the size of its workforce in the employer shared responsibility provision questions and answers section of the IRS.gov/aca website and in the related final regulations.

In general, beginning January 1, 2015, ALEs with at least 100 full-time and full-time equivalent employees must offer affordable health coverage that provides minimum value to their full-time employees and their dependents or they may be subject to an employer shared responsibility payment.  This payment would apply only if at least one of its full-time employees receives a premium tax credit through enrollment in a state based Marketplace or a federally facilitated or Marketplace.  Also, starting in 2016 ALEs must report to the IRS information about the health care coverage, if any, they offered to their full-time employees for calendar year 2015, and must also furnish related statements to their full-time employees.

For 2014, the IRS will not assess employer shared responsibility payments and the information reporting related to the employer shared responsibility provisions is voluntary.  In addition, the employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.  Specifically, ALEs that meet certain conditions regarding maintenance of workforce size and coverage in 2014 are not subject to the employer shared responsibility provision for 2015.  For these employers, no employer shared responsibility payment will apply for any calendar month during 2015 (including, for an employer with a non-calendar year plan, the months in 2016 that are part of the 2015 plan year). However these employers are required to meet the information reporting requirements for 2015, this is why understanding aca reporting is so important to a business.  The employer shared responsibility provision questions and answers section of the IRS.gov/aca website and the preamble to the employer shared responsibility final regulations describe the requirements for this relief in more detail.  Both resources also describe additional forms of transition relief that apply for 2015.

Small employers, specifically those with fewer than 25 full-time equivalent employees, may be eligible for the small business health care tax credit.

Regardless of the number of employees, if an employer sponsors a self-insured health plan, it must report to the IRS certain information about its health insurance coverage plan for each covered employee.

If you have questions about your responsibility as an employer, please feel free to contact us at Fox Peterson

Information from IRS tax tip 2014-21 was used in this posting.

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Affordable Care Act

New IRS Publication Helps You Find out if You Qualify for a Health Coverage Exemption

Taxpayers who might qualify for an exemption from having qualifying health coverage and making a payment should review a new IRS publication for information about these exemptions. Publication 5172, Health Coverage Exemptions, which includes information about how you get an exemption, is available on IRS.gov/aca.

The Affordable Care Act calls for each individual to have qualifying health insurance coverage for each month of the year, have an exemption, or make an individual shared responsibility payment when filing his or her federal income tax return.

You may be exempt if you:

  • Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than eight percent of your household income,
  • Have a gap in coverage for less than three consecutive months, or
  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage or belonging to a group explicitly exempt from the requirement.

On IRS.gov/ACA, you can find a comprehensive list of the coverage exemptions.

How you get an exemption depends upon the type of exemption. You can obtain some exemptions only from the Marketplace in the area where you live, others only from the IRS when you file your income tax return, and others from either the Marketplace or the IRS.

Additional information about exemptions is available on the Individual Shared Responsibility Provision web page on IRS.gov. The page includes a link to a chart that shows the types of exemptions available and how to claim them. For additional information about how to get exemptions that may be granted by the Marketplace, visit HealthCare.gov/exemptions.

Information from IRS Tax Tip 2014-19 was used in this posting

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Helpful Tips for Dealing with the IRS

Disappearing “Service” at the IRS

Don’t expect much in the way of service from the IRS this filing season. Budget cuts have forced the agency to pare back on services that filers have relied upon in the past. Folks who call the IRS don’t have a great chance of speaking to a person, even after a wait of 20 minutes or more. And if you finally reach someone, you’ll get no help with complicated questions. The IRS will answer only basic queries, such as those regarding filing status, dependents and whether income is taxable. Those with tougher issues will be sent to IRS publications or its Web site.

It’s Not the IRS Calling

A phone scam is targeting taxpayers across the nation. Callers claiming to be IRS officials (and altering caller ID information to make it appear as if the IRS is calling) are telling their victims that they owe taxes and must pay up fast with a prepaid debit card or wire transfer. Unsuspecting victims are being threatened with arrest, deportation or loss of their driver’s license if they fail to comply. The fraudsters sometimes follow up with bogus e-mails, and often will use fake names and IRS badge numbers. Don’t be tricked. The IRS never makes unsolicited calls to people to tell them that they owe more taxes. The agency normally contacts people first by mail. And it doesn’t ask for personal or financial information via e-mail or on social media sites.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at www.FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov

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