All posts by Nancy McClelland

Tips

Advice from a CPA Client – How to Break the News That They Owe

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Today I’d like to share a short article from AICPA Insights written by a non-CPA, with advice on how to break the news to a client that they owe money.  The author, Adam Junkroski, points out, “Clients don’t always understand that you’ve saved them money even when they owe the IRS.”  So, how can you communicate this and alleviate some of their stress?

A summary of his advice:

1) Encourage your clients to plan for their taxes — check in with them once-a-quarter.
2) When discussing a return with a balance due, take a moment to review the steps you took to minimize their exposure.
3) Have a clear idea of what the client could have done differently in order to avoid a tax bill, and share that with them.
4) Remember that to the client, your pile of tax returns consists solely of theirs. Be patient, and don’t push them too hard to recognize otherwise.

I feel this is important information to share not just with my CPA, EA and other tax preparer colleagues, but also with my own clients.  Why?  So they can understand what we do to try to help them help themselves.  For example, I often don’t receive a response to my quarterly check-ins.  I sometimes get negative reactions even when I’ve gone through the steps I took and what they can do to minimize their exposure.  And, honestly — that I know they think their return is the only one.  It’s not.  I’ll try hard not to remind them of this, but I’d love the respect that comes from recognizing the stress I’m under at this time of year, and doing what they can to understand that the earlier they prepare, the better off we’re all going to be.

Source: Advice from a CPA Client – How to Break the News That They Owe – AICPA Insights

IRS, Tips

Is A Member’s Share Of LLC Income Subject to Self-Employment Tax?

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My absolute favorite writer on the topic of taxes, Tony Nitti, has written the clearest and most informative article on the topic of LLC member income and its related tax issues that I’ve seen yet.  I’ve excerpted this one question and its answer as a summary, but if you prepare LLC returns or you are a member of an LLC, do yourself a favor and read the whole article.  It’s concise, explanatory, entertaining, and a treasure trove of info.

Q: So what does this mean? Is the distributive share of all LLC members now subject to self-employment tax?

A: I wouldn’t go that far. This ILM was specific to the taxpayer, but there are certainly lessons to be learned. If the LLC’s members provide significant services to the LLC, and it is those services that give rise to the majority of the LLC’s income, it is clear that the IRS is going to be prepared to argue that the LLC members are not limited partners for purposes of the exception from self-employment income found at IRC Section 1402(a)(13). You may want to have a strong defense ready to go, or else be prepared to have a hard conversation with your LLC member clients in the next few days explaining why income that has not been subject to self-employment income in the past is subject to self-employment tax on their most recent tax return.

Source: IRS: Partners’ Share Of LLC Income Is Subject to Self-Employment Tax – Forbes

Site News, Tips

This Is Why I Prepare All Our Firm’s Tax Returns Myself

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Short, excellent article on how to balance workload between the data entry folks and the tax return reviewers at a CPA firm.  It’s all great advice — I recommend reading all the points the author makes regardless of whether you file your own returns, run your own firm, work at a large firm, or even do taxes at all.  Many of the comments regarding staff training, systems, and creating a culture of excellence hold true no matter what kind of work you’re doing — accounting, taxation, or… heck, architecture, human resources, photography.  Anything.

However, people are particularly emotionally stressed about their tax returns.  You simply cannot be careless with them.  And taking the time to go through someone else’s work line-by-line and sending back feedback would make me insane.  Worse, I could do as the author suggests and have someone else go through their work line-by-line — it’s a great idea, but I don’t think I could handle that… for accounting, yes.  There’s a materiality threshold.  But not for taxes.

(I’d find myself sneaking in a line-by-line verification myself regardless.  If my name is going on that return, it’d better be my work.  My mistakes.  Even if someone on my staff were perfect, I’d wonder and worry.  Not worth the stress.)

People often ask why I don’t expand further.  I have one staff accountant who is almost full-time, two very part-time Excel experts, and two very part-time bookkeepers.  The bottleneck is that I am the only staff member who prepares tax returns, so we can only grow so much.  I turn away a few clients a week.  And I’ve come to the conclusion that this is just fine.  My personality demands perfection — I don’t always achieve it, but I always strive for it.  And I read an article like this and immediately think, “oh my goodness, I’m so glad we don’t have to deal with that at my firm.”

As Khalil Gibran said, “Work is love made visible.”  Do your work and do it well.  It’s okay if you don’t make as much money as you could otherwise.  It’s okay if you don’t grow as much as other people think you should.  What’s most important is that you love your work, and that your clients can see this in everything you do.

Tips

Academy time: Five films to inspire CPAs

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“My father was fond of saying you need three things in life: a good doctor, a forgiving priest, and a clever accountant. The first two, I’ve never had much use for.”  -Oskar Schindler

I know, we’re all busy with tax season right now, but take a short break and read this charming (and brief) article from AICPA’s Journal of Accountancy, and maybe add a couple to your Netflix queue for April 19th.

Source: 5 films to inspire CPAs

Illinois, Tips

Fullerton/Milwaukee Small Business Improvement Fund — Learn How To Apply for a Grant for Capital Improvements

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Do you have a small business in Chicago along Milwaukee Ave. from Armitage to Belmont?  Please come to a meeting this Thursday from 9:30-10:30 am at Hairpin Lofts to learn about city grants to help pay for capital improvements!

A map of the TIF district is here — http://www.cityofchicago.org/city/en/depts/dcd/supp_info/tif/fullerton_milwaukeetif.html

Please spread the word.

Source: Fullerton/Milwaukee SBIF(Small Business Improvement Fund) Rollout Meeting

Education, Illinois, Tips

Chicago Business Workshops for February

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Business Workshops for February
All workshops are free and are located at the City of Chicago Department of Business Affairs & Consumer Protection – City Hall, 121 N. LaSalle St., Chicago, Room 805.
2/10: How to Obtain a Sidewalk Cafe Permit
3:00 to 4:30 p.m.
Presented by BACP, Small Business Center (SBC) – Public Way Use (PWU) Unit, Anthony Bertuca
Attendees will learn the Sidewalk Cafe Permit Application process, and the requirements which will assist in preparation to submit an application. The entire application process may take 30 – 45 days, and the 2016 Sidewalk Cafe Season begins on March 1st.
2/17: Understanding Employee Classification: Hourly vs. Salaried & Contractors vs. Employees
3:00 to 4:30 p.m.
Presented by Charles Krugel, a Management Side Labor, Employment & Human Resources Attorney
There are changes coming to the definitions of hourly & salaried employees (overtime eligible vs. not) & independent contractors vs. employees (W2 vs. 1099). Over the next few years, fewer businesses will be able to avoid overtime & classifying workers as W2 employees. Management side labor & employment attorney Charles Krugel will discuss these proposals, including enforcement, & answer any of your questions concerning these topics.
2/19: Setting the Groundwork
9:30 to 11:00 a.m.
Presented by Lema Khorshid, Fuksa Khorshid, LLC
There are many legal considerations to keep at the forefront of your mind before starting your new business. This presentation explores different sources to fund your business venture, basic principles of how to protect yourself in the claws of litigation, employment laws, lease agreements and how to implement a solid intellectual property plan.
2/24: C Corp, S Corp, LLC – Which Is Right for My Business?
3:00 to 4:30 p.m.
Presented by The Law Project
The Law Project’s Small Business Program offers legal support to entrepreneurs who are starting or have their own small businesses as a strategy to create financial independence. Since most entrepreneurs operate on a shoestring budget, obtaining legal advice is often unaffordable. This workshop will provide entrepreneurs with information about choosing the correct corporate structure for their business.
2/26: Tax Issues for Self-Employed Individuals & Businesses
9:30 to 11:00 a.m.
Presented by Eric Sternberg of the Center for Economic Progress & Yolanda Ruiz of the Internal Revenue Service
This workshop will give an introductory understanding of common tax issues that self-employed individuals often encounter. Participants will learn when they must file a tax return, how to identify worker classifications, how to prepare for an IRS audit, how to make quarterly estimated payments, and how to navigate the IRS website. Participants will benefit from the perspectives of both the individual taxpayer and the Internal Revenue Service.
Click here to view a full monthly calendar.
Illinois, IRS, Tips

Tax-time Resources for Clients

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Information on tax return due dates, some answers to the most-commonly-asked questions from clients during tax season, and some additional resources I’d recommend; enjoy!

The IRS will begin accepting individual tax returns on January 19. Of course, most taxpayers won’t receive their information returns (Forms W-2, 1099, 1098, 1095, etc.) until the first week of February, so at our firm (which specializes in small businesses and more complex individual returns) we typically wait to file until February 6th.

Corporate tax returns (both C- and S-Corps) are due by March 15, and partnership tax returns are due April 18th.  (Spoiler alert: stay tuned for an upcoming post on due date changes for next year that will line these up better with individual tax due dates and extensions.)

Individual tax returns are due April 18 (Saturday, April 16, 2016 is Emancipation Day in the District of Columbia, and the holiday is observed on Friday, April 15… this pushes the tax deadline to Monday, April 18, since the IRS deadlines never land on weekends).

Some important tax-time resources for IRS and Illinois taxpayers:

Where’s My IRS Refund — https://www.irs.gov/Refunds
Where’s My IDOR Refund — https://mytax.illinois.gov –> Click on Individuals –> Click on “Where’s My Refund?”

Look Up IDOR Estimated/Extension Tax Payments — https://mytax.illinois.gov –> Click on Individuals –> Click on “Look up my estimated/extension payments”

Order an IRS tax return transcript online — https://www.irs.gov/Individuals/Get-Transcript
Order a copy of a prior tax return — https://www.irs.gov/pub/irs-pdf/f4506.pdf

Make An Online Payment to the IRS — https://www.irs.gov/uac/EFTPS-The-Electronic-Federal-Tax-Payment-System
Make An Online Payment to IDOR — https://mytax.illinois.gov –> Click on Individuals –> Click on “Make an IL-1040, IL-1040-ES, or IL-505-I payment”

Where’s My IRS Amended Return — https://www.irs.gov/Filing/Individuals/Amended-Returns-(Form-1040-X)/Wheres-My-Amended-Return-1

2016 Standard Mileage Rates — https://www.irs.gov/uac/Newsroom/2016-Standard-Mileage-Rates-for-Business-Medical-and-Moving-Announced

The Affordable Care Act and your tax return — https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Health-Care-Law-and-Your-Tax-Return

IRS FAQ — https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers

Contact the IRS by phone — https://www.irs.gov/uac/Telephone-Assistance
Contact your local IRS Office (long lines; don’t recommend it) — https://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

IRS

Due Dates for Forms 1095-B and 1095-C Extended — why do we care?

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A new requirement for the 2015 tax year is that health insurance companies now need to issue Form 1095-B to those insured, confirming that they have minimum essential health insurance coverage.  Similarly, large employers providing insurance must issue Form 1095-C to their employees stating the coverage and their share of its cost.  The forms are due to be postmarked by the end of January 2016.

But it turns out that many of these folks weren’t ready for this unexpected deadline.  (Sarcasm: this deadline has been in the plan for years — ever since the ACA passed.)  So the IRS, with Notice 2016-04, issued an extension until March 31st.  Quick summary here.

So why do we care?  We’re not health insurance companies or large employers.  Well, the issue is that on individual returns, tax preparers need to indicate whether the taxpayer had minimum essential coverage or not, as well as calculate whether the taxpayer qualifies for any premium assistance credit.  Without these forms, we won’t necessarily have that information — unless the taxpayer is getting health insurance directly through the Marketplace: their Form 1095-A is still slated to arrive by the end of January, as was originally the deadline for the other forms.

As a result of these extensions, individuals might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns. The IRS is allowing us to depend on other information from insurance providers and employers that would give us the same answer, so as not to file extensions for all these taxpayers.  But this could be hard to come by… if these companies weren’t ready to send out these forms, they may not have anything else that has similar information on which we can rely.  Expect this to be a tax season challenge.

Questions?  The IRS has a great chart on how these forms matter to taxpayers on their returns, what they should expect to receive, and what they should do when they receive it: https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Health-Care-Law-and-Your-Tax-Return

As a side note, the IRS isn’t requiring these companies to file the IRS copies of the same forms until June 30th, so I think it’s safe to bet we won’t see a matching program in place this season, and with the IRS so woefully understaffed, audits of coverage and credits will be far down the line, if they happen at all for this filing year.

IRS

2016 Tax Season Opens January 19

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Accountants everywhere, rejoice!  For the first time in years, tax season will open on time!

From the National Assocation of Tax Practitioners:

The IRS states in IR-2015-139 that despite the recent passing of the tax extenders legislation, the IRS will begin accepting individual electronic returns as scheduled on January 19. The IRS will also begin processing paper tax returns at the same time. The IRS states there is no advantage to filing paper returns in early January instead of waiting for e-file to begin.

Although the IRS begins accepting returns on January 19, many tax software companies will begin accepting tax returns earlier in January and submitting them to the IRS when processing systems open.

Take note: the due date for the 2015 Form 1040 is April 18, 2016, due to Washington, D.C.’s observance of Emancipation Day.

I prepare tax returns in the order I receive completed packets, which usually means waiting until the second week of February, at which point most folks will have received their 1099s and W-2s, and businesses will have closed out and reconciled their books.  But it’s nice to know that simple returns can be filed early, and that our software company will already have weeded out any filing issues by the time we begin e-filing.

Source: 2016 Tax Season Opens Jan. 19 for Nation’s Taxpayers