Dec 23

Several questions this week about holiday pay and overtime pay that I want to respond.  When it comes to overtime pay on holidays, Santa is on the side of small business owners! Under federal law, a holiday does not have a special designation for overtime pay, nor is working on a holiday considered overtime. The law views holidays as just another business day.

You probably already know that both the federal and state law require almost every employer to pay overtime. And even a few, very few, employees are exempt from overtime. If your employee is entitled to overtime, calculating pay can be a bit tricky. The important thing to know is that under federal law, overtime is calculated weekly. This means if your employee works over 40 hours during the week of Christmas or New Year’s Day, they are entitled to “time and a half” – the employee’s hourly wage plus 50 percent – for the hours worked over 40 hours.

Of course that doesn’t mean you cannot play Santa and still add holiday pay to your employees checks for the holidays.

If you have questions please call us!  Our sister company, Payroll  South, manages payrolls for many small businesses in the south Georgia area and can help with this issue.  http://www.hurstandhurst.com/services/payroll-services/

Merry Christmas!

Robb

The Internal Revenue Service imposter scam is making the rounds.  Several Coffee County residents have reported receiving robocalls from someone claiming the IRS is about to file a lawsuit against them.

Fraud Alert Road Sign-464641_1920The caller asks for the victim to call back. The call-back numbers vary.

Don’t fall for this scam. Just hang up! The calls are from criminals wanting to put charges on victims credit cards and elicit personal information from them.

The IRS won’t call out of the blue to ask for payment, won’t demand a specific form of payment and won’t leave a message threatening to sue you if you don’t pay right away.

“We continue to see these aggressive tax scams across the county,” IRS Commissioner John Koskinen said in a statement. “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”

The IRS warned that older individuals have been targeted and seem to be more vulnerable. These scammers prey on senior citizens and may even already have some of your personal information.

Here are some of the warning signs to look out for:

  • Threats: Scammers will often use threats such as arrest or deportation. The IRS says it will never threaten to bring in local police or other law enforcement groups to have you arrested for not paying.
  • Urgent: The scammers make it seem like a transaction to remedy the supposed financial problem needs to be done immediately. The IRS, however, says it does not demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Payment method: Specifying a bank or use of a prepaid debit card to pay your taxes is something the IRS would NOT require of you. The IRS also will not ask you for banking or credit or debit card information over the phone.
  • No questions or appeals: While a scammer might not allow you to question or appeal the taxes you’re said to owe, the real IRS will allow you these.
  • Not a .gov: If correspondence is coming a .com, .net, .org or any other URL ending that’s not a .gov, it’s not the IRS.

How will the IRS contact you if you have an issue with your taxes? The IRS will write you a letter via old fashioned snail mail first. With some scammers copying IRS letterhead to seem more official, be sure to make sure none of the above happen in the letter.

Have you gotten a bogus IRS call like this?  If you did, click here to report the call to the FTC. Include the phone number it came from, along with any details you have.

If you are a victim and gave information to such callers, click here to file a complaint with the Treasury Inspector General for Tax Administration.

This is a video player of a sample call.  Click here for the sample.

And last but not least a warning video from IRS:

This lady called the number back and went through the whole process.

Be safe out there!

Robb

Sep 07

The Tax Deadline Clock is Ticking to File Corporation and Partnership Returns; Miss the September 16th Deadline and You’ll be Paying Steep Penalties.

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This year the final tax filing deadline for 2014 corporation and partnership returns is Tuesday September 15, 2015.  Partnership Form 1065, S Corporation Form 1120S and C Corporation Form 1120, which were extended in March and April, are now approaching their final filing deadline. Returns filed late incur steep penalties.

For partnership and S corporations, penalties are $195 per month or part of a month (for a maximum of 12 months) times the number of partners/shareholders. For example, if you have a partnership with five partners and you file the return in October, the penalty will be $1950. For C corporations, the penalty is 5% of any unpaid tax for each month or part of the month the return is late, up to a maximum of 25% of the unpaid tax. Returns with tax due also incur late payment interest. Additionally, Forms 5471 are required for U.S. citizens (including partnerships) who are officers, directors or shareholders in foreign corporations. These forms are required to be attached to the partnership or corporate return. The penalty for late filing for each 5471 is $10,000 for the first 90 days, and $10,000 for each subsequent 30 day period the form is late, up to $50,000 maximum. Also, corporations or partnerships that have foreign owners, or conduct transactions with foreign related parties, may be required to file Form 5472. The late filing penalty for each Form 5472 is also $10,000 for the first 90 days and $10,000 for each subsequent 30 day period.

Partnership K-1’s that flow into another partnership or corporate return often delay the filing of returns until the last minute. However, you can send all available records and information in first so that only the final information from that K-1 has to be dropped into the return when received. This will facilitate the filing of your return and help ensure that your return is filed in a timely manner.Penalties for filing late partnership and corporation tax returns can be substantial. So, the time is now to get your tax information together and to an accountant.  Hurst & Hurst CPAs can help you navigate through the process, quickly and easily so that you don’t incur these costly penalties.You can also consult the IRS website www.IRS.gov for more information and a list of all tax filing deadlines.

 

Jul 28

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Teen Child Working in Family Small Business

There are a lot of tax advantages to child labor! So here’s an idea for those running a small business as a sole proprietorship or husband-wife partnership or even a farm or rental property investors. Consider hiring your under-age-18 child as a bona fide employee. It can be part-time or full-time.  However, there are procedures you need to follow if you hire your children, and it is important you follow the right procedure or it could blow up in your face.  I bet many kids have been helping their parents over the summer that should receive a paycheck for their summer work to use this tax loophole.

The Tax-Saving Benefits

Children’s wages are exempt from all federal employment taxes (social security, medicare taxes and federal unemployment tax as long as the child is under 18 years old.

Even better, your employee-child can use his or her standard deduction to shelter up to $6,300 of 2015 wages from federal income tax. So your kid will probably owe zero federal employment taxes and zero federal income tax on the first $6,300 of his or her 2015 wages.

Your Children Shouldn’t Pay Taxes Either

Another exciting aspect to this strategy, is that all of us, including our children don’t pay federal income taxes on the first $6,300 of income this year. Hire your child and you keep it in the family tax -free. Plus, you can still claim your children on your tax return as a dependent and take the exemption.

Keep It Legitimate

I want to be crystal clear that I’m not advocating you create some sham job for your kids to shield income from taxes. They have to be legitimately involved in the business. If the Internal Revenue Service audits you, you’ll have to produce records of their time worked, and you’ll have to demonstrate that the wages paid were reasonable.

Do not hire your children simply to do “family chores.” The chores will not qualify as a valid deduction, and you could set yourself up for an audit. Pay your children for services they perform for your business, and you’ll actually generate an expense for your income taxes by pushing income to your children.  Jobs children are great at include filing, cleaning,  running business errands, data input, yard maintenance, farm labor, etc.  I bet if you put your mind to it there are several things your kids could do to help out and take advantage of this tax loophole.

Create an Even Bigger Tax Loophole by Setting up a Roth Retirement Savings Account

An incredible side benefit to this strategy is that once your kids have “earned” income they can now contribute to a Roth IRA.  In fact, the Roth IRA contributions could be pulled out later for college expenses penalty and tax free (the earnings, of course, will continue to build and grow with the Roth IRA).  This is a great opportunity to kick-start your their retirement savings or even college savings plan with tax-free dollars or income at their tax bracket.

My point is this: Quit paying taxes at your rates and paying for your kids expenses and contributing to their college savings plan…put them on the payroll and let them pay their own expenses.

I have seen this strategy not only save clients thousands of dollars in taxes, but literally change the lives of their families. Children begin to learn a work ethic, and it can draw a family together in ways never fathomed by small business owners. Talk to your accountant, and get your kids to work for you before it’s too late.

Add Up The Benefits

Let’s add up the benefits of hiring your under-age-18 child:

•   No federal employment taxes on the kid’s wages.
•   No federal income tax on the first $6,300 of the kid’s 2015 wages.
•   Valuable business deductions for you.
•   Valuable work experience for the kid.
•   Money is kept in the family instead of going to outsiders.
•   Your child can set aside some or all of the wages and invest the money. Hopefully, that cash stash can eventually be used to help pay for college, which means you won’t have to shell out as much.
•   After your child reaches age 18, Social Security and Medicare taxes will be due on the wages. However no FUTA tax is due until age 21. Your child’s standard deduction will still shelter a good chunk of the wages from the federal income tax. And you’ll still collect a nice business write-off.

Key Point: The kid’s wages must be reasonable for the work performed. So this idea works best with teenage kids who can be assigned meaningful duties. You should keep the same business records that you would for any other employee to substantiate hours worked and duties performed. Your business should issue your child a Form W-2 for each year’s wages, just like you would for any other employee.

The Bottom Line

If your small business has meaningful work that could be performed by one or more of your children, the hire-the-kid strategy is virtually a no-brainer. Go for it!

May 25

Memorial DayToday America celebrates Memorial Day. A day to remember those heroes who have sacrificed their lives for the love of our country. Sadly, I think many Americans have forgotten the meaning and traditions of Memorial Day. At many cemeteries, the graves of the fallen are increasingly neglected. Most people no longer remember the proper flag etiquette for the day. While there are towns and cities that still hold Memorial Day parades, many have not held a parade in decades.

I want to be clear…Memorial Day is for honoring those who have fallen in service to our country. So remember those who fought and died for our freedom. They deserve your appreciation first. If you or someone in your family served our country….I want to say THANK YOU!

You and your family’s bravery made a difference and allowed us to live in a much better and safer country today.

 

Feb 19

Of all the questions that I’ve received so far this tax season, the most popular is “What do I do about the new tangible property regulations and this form 3115?”

Federal form 3115, Application for Change in Accounting Method, is the form used to request a change in a method of accounting or the tax treatment of certain items. New IRS rules means that it may apply to the way we record certain kinds of tax breaks, like materials, supplies, repairs and maintenance, and purchases of equipment and other assets like real estate.

SO WHAT ARE THE REPAIR REGS?

Effective January 1, 2014 (and retroactive to January 1, 2012), the IRS issued final regulations that completely revamp the way a taxpayer must evaluate certain expenses to determine if the costs are a deductible repair or a capital improvement that has to be depreciated over time (perhaps a very long time!). In addition, regulations were also issued for new guidance on when a taxpayer can deduct “materials and supplies”.

WHY IS THIS AN ISSUE?

Because tax advisers like me are greedy, greedy people! It has been significantly less clear (a gray area if you will) how to treat certain costs paid for by taxpayers. As a general rule, when the IRS leaves a gap in guidance on a specific topic, aggressive tax advisers like myself tend to abuse the hell out of the opportunity for our business and tax clients and deduct everything under the sun. The IRS has grown weary of the abuses and audit negotiations are are issuing permanent guidelines that everyone must follow. At any rate, it appears the IRS is trying to get things straightened out by issuing these formal regulations.

HIDDEN BENEFITS FOR REAL ESTATE INVESTORS?

The regulations basically allow us to keep accounting for tax as normal with a few extra bonuses for real estate investors.  Under the prior deduction tests for real estate investors, a lot of expenses that would have been capitalized and depreciated in the past would no longer have to be depreciated over 39.5 years.

Consider a taxpayer who in 2011 spent $10,000 on an HVAC unit, one of ten in that particular building.  Under the new regs you would expense that $10,000 immediately. That’s cool. And maybe it would be worth getting a write-off of about $10,000 in 2014 rather than $256 per year for the next 39.5 years.

Another great example is a client with a tenant that requires the taxpayer spend $25,000 getting the property ready to meet the new tenant’s needs. In the past these costs had to be capitalized and depreciated.  Under the new regs we can potentially expense the costs immediately!  This was never possible in the past.

SO DO YOU FILE THE FORM OR NOT?

The IRS has stated we can make the change for materials and supplies related expenses as of now and not file the form 3115.  Nothing is free and the cost is taxpayers will not get retroactive coverage of the rules back to prior years like they would if they file the form 3115.

The tax community is split on the issue. Since the user fees have been waived for filing the form 3115 for this year and virtually no risk in filing, I tend to agree on the side of protecting taxpayers from the IRS and recommend filing the form to get the automatic consent and protection.

Filing the form has some benefits beyond peace of mind.

First, you can avoid the potential loss of deductions and tax breaks for the prior periods. Without the form 3115 the IRS could later disallow those changes. That means that any related tax deductions would be disallowed.

It also potentially affords the taxpayer some audit protection for previous years. Filing form 3115 is our way of telling the IRS that we previously complied with the IRS regulations. In return, the IRS agrees not to impose any penalties and interest on any tax underpayments as a result of the inconsistent deductions for materials, supplies, repairs and maintenance.

And lastly, the regulations could result in huge tax breaks for some taxpayers, particularly when the taxpayer is a lessor making tenant improvements as discussed above.

You don’t have to file the form 3115. But remember, the three safe harbors for de minimus materials and supplies, small building, and routine repairs and maintenance exceptions are all annual elections that apply only on a go forward basis. These still must be attached to all returns.

SUMMARY

The form 3115 is extraordinarily complex. The issues surrounding the new real estate requirements are complex.  I don’t have all the answers. This is the first year that taxpayers have had to deal with many of these changes and the IRS hasn’t had to deal with the confused taxpayers over the issues either.

My advice is to be proactive and file the protective form 3115.  It won’t hurt and could really help cut your taxes a lot!  I know we are taking care of our clients by filing the elections!!!

 

 

Feb 03

Top 50 Percent of All Taxpayers Paid 96.7 Percent of All Federal Income Taxes; Top 1 Percent Paid 38.1 Percent; and Bottom 90 Percent Paid 29.7 Percent of All Federal Income Taxes

The tax burden on upper-incomers is rising, according to the new IRS statistics.  The top 1% of all filers paid about 38.1% in 2012, the most recent year IRS has analyzed.  That’s a 3% increase from the previous year.  The top 1% only reported 21.9% of total adjusted gross income (AGI), yet they paid a whopping 38.1% of all taxes, a 16.2% difference.  Filers needed to have AGI of at least $434,682 to qualify for the top 1% of earners.  That tax burden should be even higher when 2013 stats are available since the top tax rates were increased under the Obama administration. The data shows that these taxpayers in this 1% level pay much higher effective income tax rates than lower-income taxpayer, in fact, nearly seven times higher than the bottom 50% of taxpayers.  The effective tax rate for 1% was 22.8% vs only 3.3% for the bottom 50%.

The highest 5% paid 58.9% of total income tax and accounted for 36.8% of all adjusted gross income.  $175,817 of AGI put you in the top 5% of earners.  The top 10% of filers, those with AGIs of $125,195 or more, bore 70.2% of the total tax burden while bringing in less than 48% of the total adjusted gross income. That means the bottom 90% of AGI returns paid less than 30% of the income tax in the country

The top 50% of filers paid 97% of the total federal income tax while the bottom 50% of filers only paid 3% of the total federal income tax take.  The adjusted gross income at 50% is approximately $36,000.

Data was from the Tax Foundation

Feb 01

Lots of questions this past week about who should be receiving Form 1099s! Knowing when to send a Form 1099 to vendors can be confusing, but it is very important to get it right. Failure to file a correct information return may result in penalties, which can be as much as $100 per missing or incorrect form. In addition, there is now a question on the income tax return confirming all required 1099s were filed, which must be signed by an officer of the company.

Below is information to assist you with filing your 1099s. The rules for information returns are lengthy and the information below does not cover everything.

Form 1099-MISC

A 1099-MISC must be filed if your company makes payments for services totaling over $600 or more in the year to non-corporate entities. A non-corporate entity could include an individual sole proprietor, a partnership, or a limited liability company (LLC).  Some examples could be, but are not limited to:

– Rent paid to your landlord

– Your lawn maintenance company

– Job contractors

– Your plumber, electrician, air conditioner man

– Your cleaning company

– Other independent contractors

A 1099-MISC needs to be filed for payments to all attorneys, even when they are a corporation. A 1099-MISC does not need to be filed for payments made to any other corporations.

BEST PRACTICE

It is a best practice to always collect Form W-9 from your vendors before making any payments to the vendor. This will protect you and ensure you have all the information you need from them when preparing your 1099s at the end of the year. If you are not using the IRS Form W-9 revised in December 2014, please obtain that from the www.irs.gov website.

You should retain indefinitely the Form W-9 to support your filing or lack of filing a 1099.

If you are unable to get the EIN of your vendor, the IRS requires you to withhold 25% from any payments you make to that company or person. This is referred to as backup withholding the the IRS holds you responsible.

Please note that all payments to an employee should be reported on their Form W-2.

If you have further questions, you can read the instructions on the IRS website (www.irs.gov) or call us here at Hurst & Hurst CPAs. We would be glad to assist you in any way.

Dec 31

Just a reminder to our do-it-yourself S-Corporation payroll and bookkeeping clients.

Health insurance premiums paid by the company for shareholders/owners is NOT DEDUCTIBLE at the S-Corp level any longer.

The premiums must be included in the employee payroll on the W-2 and then a deduction is allowed on the personal 1040 if the W-2 reporting is correct. This is a target area of IRS and this is an effort to make sure clients are aware of the issue.

Good News!! If you are using Payroll South to process your payroll then proper adjustments have already been made. Also, if you are a Hurst and Hurst client using Small Business Services monthly then we already have you in compliance to be able to maximize the deduction.

We are concerned that many of our Do-It-Yourself accountants/bookkeepers/business owners are going to be very disappointed if they do not follow the requirements. It is not too late to move your payroll to us for the 2015 and get the 2014 compliance for health insurance handled properly.

Don’t forget!! It’s the little things that can make a huge difference in the amount of taxes you pay. Please contact us if you have questions or concerns.

Robb Hurst

Blog

Dec 22

A Meaningful Message for Christmas

As Christmas nears (after we get over the shock of how it could possibly be December already) our thoughts naturally turn to feelings of gratitude.

What makes us most grateful about our relationship with you?

We are grateful to have the opportunity to play such an important, ongoing role in your family’s life.When we are able to help you achieve the goals and dreams that are most important to you, we feel rewarded in ways that dollars cannot count.

We are grateful that we are able to advance our own livelihoods doings something we love and care for so much, day in, day out. Nobel Laureate Eugene F. Fama echoed our own thoughts when he commented about his career “I love my work. I have no intention of stopping as long as I’m breathing – and I may even do it after that.”

We are grateful, perhaps above all else, that so many of our clients have welcomed us into their lives, not just their professional advisor and wealth manager, but as their trusted friend.

On the value of friendship, C.S Lewis has written: ”I have no duty to be anyone’s Friend and no man in the world has a duty to be mine. No claims, no shadow of necessity. Friendship is unnecessary, like philosophy, like art, like the universe itself …it has no survival value; rather it is one of those things which gave value to survival.

We are grateful that you have entrusted us with your business and your friendship. We, in turn, value the enduring relationships we have formed with so many of you. Merry Christmas and, as always, please be in touch if there are additional ways we can be of service to you and yours.

Warmest wishes,

Hurst and Hurst, CPAs

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