Category Archives: IRS

Why Small Businesses Should Have an Accountant on Their Team

QuickBooks Certified ProAdvisorYou may not know that Intuit, the owner of popular small business accounting software QuickBooks, has a resource center for small businesses on its website. And tucked away in there is a great article on the reasons to bring an accountant onto your team.

Now, I’ve often complained about Intuit’s sales pitch — whether it’s hawking QuickBooks Desktop, Online, Mobile or even one of its tax preparation solutions such as TurboTax — they make it sound like anyone can do their own books or taxes as long as they have the right tools. And it’s simply not true. To clarify: this is not a problem with the tools themselves — it’s an issue with the marketing and advertising. (The tools tend to be pretty great, in fact.)

The issue is that you need to know not only how to use the tools, but how the internal systems for using those tools should be customized to suit your specific situation. Accounting and bookkeeping rules — the basics, anyway — are pretty solid; but the workflow is extremely specific to each company. This is one reason it’s essential to work with a professional bookkeeper or accountant to interview you, get your books set up right, train you, and then review things on a periodic basis.

I’m not saying any of this because I’m trying to get more work — I have a waiting list that’s too long already. I share this because over and over, I’ve watched small businesses spend more time and money on clean-up or mistakes (some of which involved the IRS or state agencies) than they ever would have spent on proper set-up and training in the first place.

Intuit lists some specific reasons to engage the services of a professional bookkeeper or accountant:

  1. Getting Your Business Properly Set Up
  2. Spending Your Time Wisely
  3. Providing Expert Advice and Help
  4. Focusing on Growth
  5. Staying Up-to-Date on Tax Laws
  6. Reducing Your Tax Bill
  7. Audit Prep and Representation
  8. Accounting Mistakes Are Expensive

So if you haven’t made the commitment to seeking at least an initial professional consultation yet, maybe this is the time. Ask around within your neighborhood or industry and see if other business owners are happy with their bookkeeper or accountant and schedule an initial session where you bring a list of questions and get some answers. If you feel a connection, then maybe this is the right person for your team. If you don’t — at least you got some questions answered, and you’re better off for the experience.

Source: Why Small Businesses Should Have an Accountant on Their Team – QuickBooks

2019 IRS Form W-4

From today’s “e-News for Tax Professionals Issue 2018-38” —

Following feedback from the payroll and tax professional communities, the IRS announced the 2019 version of the Form W-4, Employee’s Withholding Allowance Certificate, will be similar to the current 2018 version, while important changes will be incorporated into the 2020 version of Form W-4.

A draft version of the 2019 Form W-4 will be available in coming weeks. The IRS will continue to work closely with the payroll and tax professionals as it makes changes to the 2020 version of the form.

Source: IRS Statement on Form W-4 | Internal Revenue Service

IRS Extends Deadlines for Victims of Hurricane Florence

This past Monday, September 17th, was a big tax deadline for business returns on extension, as well as third-quarter estimated tax payments. Unfortunately, hurricanes don’t care that we’re in a tax deadline season. As was the case with last year’s natural disasters, the IRS is offering relief for taxpayers affected by Hurricane Florence. Most notably:

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 7, 2018 in North Carolina. As a result, affected individuals and businesses will have until Jan. 31, 2019, to file returns and pay any taxes that were originally due during this period.

This includes quarterly estimated income tax payments due on Sept. 17, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2018. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2017 extensions run out on Sept. 17, 2018. Taxpayers who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018 will also have more time to file.

Source: IRS extends upcoming deadlines, provides tax relief for victims of Hurricane Florence | Internal Revenue Service

New Rules for Submission of 1099-MISC Forms

Good article recently from one of my favorite publications, CPA Practice Advisor. They note two big changes for filing of 1099-MISC forms.

New IRS rules for submitting late 1099-MISC with Box 7

After January 31, 2019, 1099-MISC with Box 7 filled in should be filed separately from 1099-MISC with any other box filled in. As an example, on February 5, if you have a 1099-MISC with Box 7 and a 1099-MISC with only Box 1 filled in and your e-file provider has put them in the same record, as per last year’s format, the MISC with Box 7 will be flagged as late, which indeed it is. The challenge is, however, that the 1099-MISC with Box 1 may also be flagged as late, even though it is not, since it is not due until Mar. 31.

If companies do accidentally submit non-Box 7 1099-MISC along with late Box 7 forms and get a Notice 972CG (A Penalty is Proposed for Your Information Returns), according to the IRS they may respond and clarify the content of the submission, indicating the number of Forms 1099-MISC that did not report Box 7.

More on this from the IRS here:
https://www.irs.gov/forms-pubs/changes-to-current-forms-publications/filing-forms-1099-misc-with-nec-in-box-7-with-the-irs-dec-2017

New 1099-K State Filing requirements with Gross Amount more than $600

The IRS does not currently require companies to submit 1099-Ks unless the Box 1a Gross Amount for the year is at least $20,000. However, individual states have become attuned to the income reporting possibilities with this form and are mandating submission of the 1099-K for gross payments more than $600. This $600 is the same threshold for 1099-MISC Box 7 reporting.

At the moment, Massachusetts and Vermont have implemented the reporting requirement for 1099-K with more than $600. Be sure to stay up to date with your particular state’s rules as they may pick up this requirement in the future.

Source: New Rules for Submission of 1099 Forms | CPA Practice Advisor

IRS Withholding Calculator: Give Yourself A ‘Paycheck Checkup’

Funny story: Last week I attended the IRS Tax Forum and our keynote speaker was Kirsten Wielobob, Deputy Commissioner for Services and Enforcement. In sharing her enthusiasm for various IRS tools and features, she encouraged us to suggest to our clients that they use the “Paycheck Checkup” (then proceeded to joke about how that phrase makes her think of “how much wood could a woodchuck chuck”).

But that’s not the funny part of the story. That part came when she said that she decided to go ahead and try it out herself, in her own tax situation, and the results came back that she was under-withholding by $500 per paycheck!

My main take-away was that the new “tax reform” has made calculating taxable income so complex that even the revised IRS W-4 form isn’t properly estimating taxpayer withholding. And clocking in at 11 pages of instructions… it’s unlikely most taxpayers will bother with it.

So if you have any concerns whatsoever that you might not be having enough taken out of your check to cover federal taxes, especially if you’re participating in the “sharing economy” — which complicates things exponentially — please do yourself and your tax preparer (so they don’t get shot as the tax-time messenger) a favor and give the new IRS Withholding Calculator a try.

And for the record:

New York state wildlife expert Richard Thomas found that a woodchuck could (and does) chuck around 35 cubic feet of dirt in the course of digging a burrow. Thomas reasoned that if a woodchuck could chuck wood, he would chuck an amount equivalent to the weight of the dirt, or 700 pounds. –American Forest Foundation

 

Source: IRS Withholding Calculator | Internal Revenue Service

City of Chicago Small Business Center on the Road Expo, Sept 8th

The Small Business Center on the Road Expo series is back for 2018! The next expo will be at Truman College Saturday, September 8th from 10:00 a.m. – 2:00 p.m. The expos are free and open to the public.

Keynote Speaker will be Josh Deth, Chairman of the Party at Revolution Brewing in Chicago’s Logan Square neighborhood. Revolution Brewing operates two facilities, an award-winning brewpub and a production brewery growing by leaps and bounds. After landing his first brewery job cleaning kegs at age 20, Josh spent three years at Goose Island Beer Company before launching Revolution Brewing in 2010.

You can also expect:
– FREE assistance from business consultants to begin the licensing process
Resources on Procurement, Financial, Insurance, Consumer information
Financial Advisers on hand to answer questions
– Learn how to perfect your Elevator Pitch
– FREE Tax Clinic: One-on-One counseling sessions provided by Center for Economic Progress (CEP)
– FREE Law Clinic: Legal advice and support provided by The Community Law Project
– FREE Networking Hour: Connect and exchange ideas with like-minded entrepreneurs provided by Chicago’s Office of the City Treasurer from 1:00 – 2:00 p.m.

Source: City of Chicago :: City of Chicago’s Small Business Center on the Road

New Law gives More Time to Challenge Wrongful IRS Levy

The IRS sent out an important bulletin today, explaining that:

Businesses and individuals have additional time to file an administrative claim or bring a civil action for wrongful levy or seizure, according to the Internal Revenue Service. The Tax Cuts and Jobs Act of 2017, the tax reform law enacted in December, extended the time limit for filing an administrative claim and for bringing a suit for wrongful levy from nine months to two years.

The change in law applies to levies made after Dec. 22, 2017, and on or before that date, if the previous nine-month period hadn’t yet expired.

The timeframes apply when the IRS has already sold the property it levied. As under prior law, there is no time limit for the administrative claim if the IRS still has the property it levied.

Source: New law gives individuals and businesses more time to challenge a wrongful IRS levy; newly-revised publication can help | Internal Revenue Service

2018 Tax Software Survey Results

The Tax Adviser (an AICPA publication) does a great job every year collecting information on which tax preparation packages are being used by professionals and what they like and dislike about each. This year was no exception — the article is chock-full of useful metrics and covers 13 products. It also lists favorite software by firm size, which I think is a great perspective, and “best for a new practice” ratings.

Check it out — definitely worth a read.

Source: 2018 tax software survey

Being Paid “On the Books” Pays Off

I recently received this email from someone considering a new position:

“I haven’t worked a job that wasn’t under the table in nearly a decade, so forgive my ignorance on this matter. Basically, I’m thinking about accepting a part-time job that will be a W-2 situation. The hourly rate is $20, but I’m concerned that after taxes, it would only be about $16 per hour. I have an 18-year-old daughter, who will be starting college in the Spring. My question is: Will I still get the Earned Income Credit (EIC) on my tax return? I will only be making approx $15,000 per year or less with this job. Even without EIC, would I get a tax refund because my income will still be so low? I’m just not sure how taxes work. I imagine they’re all taken out as I go with a W-2, and then if I prepare a tax return, I get some or all of the money back? Last year my employer gave me a 1099 & I still got a refund.”

Income and payroll taxes can certainly be confusing, especially if the person is used to being paid “under the table”… I’ll do my best to explain it, though my ability to give personal tax advice is limited by how little I know of the taxpayer’s individual situation, and because there are liability issues if they’re not a client of mine. However, I felt my blog audience might benefit from the exercise.

First: there are two types of ways of being paid that are referred to as “under the table” — and given the small amount of information in the excerpt I received, I’m taking a guess that it’s the second kind.
1) Real “under the table” pay means that none of the money the worker receives is documented to the required federal and state agencies, and neither the employer nor the employee is reporting it and paying taxes.
2) An independent contractor situation is where an employer gives a 1099 to the employee, meaning that the employer did not pay taxes for the employee, and the employee gets stuck with all the taxes.

Neither of these is desirable for the employee/taxpayer. If it’s #1, then that means the neither the employee nor the employer paid into Social Security, Medicare, Unemployment or Workers’ Compensation… which means that when it’s time to claim from any of those programs, they’re out of luck. If it’s #2, then it means the employer isn’t paying their share of Social Security or Medicare — the employee has to pay all of it in the form of self-employment tax. And again, there’s no Unemployment tax or Workers’ Compensation insurance being paid, which is nice for the employer… but awful for the employee if they lose their job or get hurt.

Secondly, the Earned Income Credit has nothing to do with whether a taxpayer is paid as a W-2 employee or 1099 independent contractor. As long as a person is single with one child (which sounds like the situation here), they can make up to $40,320 and still qualify for the credit — the maximum credit is $3,461 in this case, for 2018.

The problem with truly getting paid under the table with the EIC is that some people lie and report less than they actually made, in order to make it look like they qualify under the limit. But remember, that’s #2 above. If the taxpayer is getting a 1099 or a W-2, there’s no difference with the credit either way.

Lastly, I know it seems like a $20/hr job only ends up paying $16/hr, but that’s not accurate. All the taxes that are being withheld are potentially eligible to be refunded at the end of the year when the employee/taxpayer prepares their tax return — if their tax liability ends up being less than they paid in, then they get the balance returned to them — the EIC generally increases that amount, but they may get a refund even if they don’t qualify for the EIC… in which case they may want to adjust their tax withholding for the following year to have less taken out with each paycheck. A tax preparer can help fill out the W-4 form to get this as close as possible when an employee takes on a new job.

The amazing part is that their employer is paying half of the Social Security and Medicare taxes for the employee! This doesn’t happen with a 1099, which is why usually an employer is taking advantage of their employees when they try to do that instead of using a W-2 form. When the taxpayer goes to claim Social Security and Medicare, the reason the system can afford it is all of the employers that pay part of these taxes on behalf of their employees, along with paying the Unemployment tax to the state and springing for Workers’ Compensation insurance. Being an employee is WAY better than being a 1099 contractor. And they’re both better than being truly paid “under the table”, since when those folks go to claim Social Security or Medicare, there’s nothing there for them… because they never paid into the system. It can come as a horribly unfortunate shock.

Here are a few good articles that back up what I just explained:

I hope this is a helpful lesson on being an employee. It’s really a great way to go, because the employer is taking care of their staff… instead of taking advantage of them.

 

My Three Top Accounting Tips

I recently received the honor of being named one of the Top Accounting Influencers of 2018 by Fit Small Business. As part of the interview process, they asked me for a list of three “top accounting tips” — and they picked one for their article. I figured in announcing the award, I should share all of the tips I provided in a related post, so here you go!

1) Involving an accountant in your business should be one of the first steps a business-owner takes, well before taxes are due. (I’m not saying this just because I’m a CPA; I’m saying it because I see the results of this oversight regularly.) This doesn’t mean you can’t file your own taxes… but if you take the time to consult with an expert first, you’ll make way fewer mistakes when you do. A qualified accountant who specializes in your industry can help you with so many of the key issues that otherwise might come back to haunt you at tax-time — from entity choice to software selection to funding your business.

2) Selecting the right type of entity (sole proprietor, LLC, partnership, S-Corp, etc.) can make a huge difference in both liability and taxation issues. It’s important to understand the rules of the entity type you choose — for example, if you’re an S-Corp, pay yourself “reasonable compensation” via payroll; it’s the law. With the changes in the new tax law, this piece of the puzzle has become even more complex and more important.

3) Technology should play a role in every aspect of your business — accounting, tax and bookkeeping are no exception. Find a CPA who understands and embraces the ways in which tasks can be automated, with an eye toward improving efficiency, accuracy, and audit-proofing your company. The right technology stack can improve inventory and ordering, point of sale, collections, payroll, workflow, forecasting and cash-flow. Almost every system can be leveraged such that the books become a daily source of information for making real-time management decisions… not just a requirement for tax compliance.

Follow these three tips, and in my opinion — the rest will follow.

Source: Accounting Software Reviews You Can Trust: Top Accounting Influencers