Just a reminder that the “floor tax return” for the Chicago Bag Tax is due this Friday. Don’t risk a $100 fine — take a look at my comprehensive guide to the bag tax and get this off your “to-do” list asap. Please share far and wide with other small business retailers in Chicago; I’ve found very few how-to resources, and none that break it down step-by-step, and I’d love for my research for my own clients to be of use to other small business owners.
Category Archives: Tips
For Tax Preparers: Forms 1095-B and 1095-C Not Required For Filing — Alternatives Are Acceptable
I had a tough time getting 1095-B & 1095-C forms from clients last year in time for filing, as many of their health insurance providers were delayed in sending them out. Unfortunately, late last year, the IRS decided to allow providers to file extensions again, and I was dreading the same experience.
So you can imagine that I was pretty pleased to read, in today’s National Association of Tax Professionals e-newsletter:
According to Question 14 on the IRS Health Care Information Forms FAQ, you do not have to wait for either Form 1095-B or 1095-C from your client’s coverage provider or employer to file the individual income tax return. You can use other forms of documentation in lieu of the Form 1095 information returns to prepare the tax return. Other forms of documentation that would provide proof of a taxpayer’s insurance coverage include:
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Of course, many of these documents will not confirm that insurance was for the entire year, or all members of the family, so it is still best practice to get the 1095-B or 1095-C. But when it’s unobtainable, it shouldn’t delay your client’s filing — just make sure they provide it to you once they are able.
Credit Card Processing Guide for Small Businesses
(In case you know what you came here for, and don’t want to read my long-winded intro, here’s a link to the article you really want to read: Credit Card Processing Guide for Small Businesses – The Simple Dollar.)
I get contacted pretty often by companies asking if they can submit to my blog, or if I’d be willing to tout their product, website, app, etc. Generally, the answer is “no” — I started this blog as a sort of collection of searchable bookmarks for myself, to save the research and resources that I’ve found helpful in my own practice and for clients; not as a marketing tool, and certainly not as a platform for folks to sell their solutions.
However, once-in-a-while, the information that I’m sent is so valuable and useful that… well, it fits all my criteria for bookmarking and sharing, and I feel lucky that the resource landed in my lap. This is one of those posts.
I have mixed feelings about personal finance site The Simple Dollar — though much of the content is excellent, some of it is oversimplified, and certain articles seem to encourage readers to believe they can handle challenging financial situations without the advice of a professional.
But this article is the best I’ve ever seen on the topic of credit card processing for small businesses. If you are starting a small business and haven’t yet made the decision about whether or not to accept credit cards; or if you’re at the point in your business’ development where it’s time to make the leap, but you’re not sure in which direction; or if you’re already accepting cards but are worried you’re paying too much: read it. It’s comprehensive, full of information and examples, and if you’re willing to take the time to study it and take notes, you will not regret the investment. In fact, it will likely save you time — and definitely money — in the long run.
“Due to the lack of transparency and hidden fees scattered throughout the credit card processing industry, there is a gross misconception of how debit and credit card processing work. This creates a challenge for many small business owners because making an uneducated decision could cost time and money. For this reason, The Simple Dollar has developed a guide that aims to help small businesses gain in-depth knowledge about credit card payment processing, along with practical strategies to manage their fees and get the most out of their services.”
They offer advice on how to find the lowest possible credit card processing cost:
- Isolate the markup
- Choose a pricing model (pass-through pricing is cheapest)
- Compare multiple processors with fees up-front and in writing
- Calculate the total cost
- Negotiate favorable terms (they even offer a list of terms they specifically recommend working on)
As well as suggestions on how to keep costs low, including tips for avoiding punitive interchange rates:
- Track the processor’s fees
- Interchange optimization
- Avoid — Processing expired credit cards, Duplicating transactions, Setting a minimum or maximum limit on your transactions, Charging a usage fee for credit card transactions, Displaying full account numbers on your receipts, Processing Internet transactions with your retail merchant account, Running your personal card through your merchant account, and Splitting one transaction into several smaller transactions
So, give it a read, and share it with others you think might find it useful. There simply aren’t many guides out there on this topic that are as worthwhile as this one: Credit Card Processing Guide for Small Businesses – The Simple Dollar.
Avoid the Rush: IRS Online Options To Get What You Need
Today, an important note from the IRS, with a page full of great links to help you obtain information and assistance specific to your needs. Don’t get caught on-hold forever… take a moment to see if your request can be answered more efficiently.
First, I recommend you save this 2-page pdf guide somewhere useful, or print it out and pin it to your bulletin board — the IRS Services Guide is a succinct reference for where to go to find what you need.
For further resources, all of the below comes straight from the IRS at Avoid the Rush: Online Options Help You Avoid Presidents Day Rush.
Avoid the Rush: Online Resources
Refund Delays – By law, the IRS must hold Earned Income Tax Credit or the Additional Child Tax Credit refunds until Feb. 15. Taxpayers will begin to see refunds claiming EITC/ACTC the week of Feb. 27. “Where’s My Refund?” will update for EITC/ACTC refunds on Feb. 18 for the vast majority of early filers who claimed the Earned Income Tax Credit or the Additional Child Tax Credit. Before Feb. 18, some taxpayers may see a projected deposit date or an intermittent message that the IRS is processing their return.
Where’s My Refund? – You just need a little info from your tax return to track your refund.
Finding your Adjusted Gross Income – If you changed tax preparation software products this year, you may be asked for your adjusted gross income to help verify your identity. You must use the procedures outlined on IRS.gov for getting your AGI. We cannot provide you with your AGI if you call.
Letter 4883C – We take many steps to protect you from identity theft. If you receive Letter 4883C, it’s because we stopped a suspicious tax return. Before you call, be prepared to validate your identity. See Understanding Your 4883C Letter for details.
ITIN Renewal – If you have an expired Individual Tax Identification Number and need to file a tax return, there are new rules this year.
Get Transcript – You can view your tax transcript, a summary of your tax return, online or you can order it by mail. You may need this for non-tax reasons such as student or mortgage loan income verification. Or you may need it to find your adjusted gross income.
Appointment Service – We’re trying to eliminate the long lines at our office, especially at this time of year. You must make an appointment for most services at our Taxpayer Assistance Centers. Again, most questions can be answered at IRS.gov.
Free File – Do your taxes yourself, using free, brand-name software through the IRS Free File program. A dozen partners offer free federal tax prep, and in many cases free state as well, to anyone earning $64,000 or less. Taxpayers earning more can use Free File Fillable Forms.
VITA/TCE – Need help doing your taxes? Find volunteer help near you through our Volunteer Income Tax Assistance program or AARP’s Tax Counseling for the Elderly.
Avoid the Rush: Keyword Search
Still can’t find what you’re looking for?
Use our search tool to track down your topic and get the answer at your fingertips. Or, try our Interactive Tax Assistant. This is similar to the tool used by our customer service representatives to answer your tax questions. Our Help and Resources page also contains valuable information.
Avoid the Rush: News Releases
IR-2017-32, Feb. 14, 2017, Avoid the Rush: Be Prepared to Validate Identity if Calling the IRS
IR-2017-30, Feb. 13, 2017, Avoid the Rush; Use IRS.gov for Quick Answers to Questions
Source: Avoid the Rush: Online Options Help You Avoid Presidents Day Rush
Self-Employed? Avoid These Common Tax Mistakes
I recently had the pleasure of being asked by Hustle & Co to contribute to their blog post on common mistakes that freelancers and the self-employed tend to make regarding taxes. My quotes in their article came from a longer version intended for my blog — and lucky day: you can now read the full version here.
What are common mistakes that freelancers or self-employed people tend to make when preparing for or filing taxes, and how can these mistakes be avoided?
The biggest mistake that self-employed people tend to make when preparing for taxes is that they don’t seek professional help. (I’m not saying this just because I’m a CPA; I’m saying it because I see the results of this mistake regularly.) To clarify, by “professional help”, I’m not suggesting you go to a big tax prep chain and hand in your shoebox of receipts at tax-time; I’m saying that involving an accountant in your business should be one of the first steps a freelancer takes, well before taxes are due. 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:
1) Selection of the right type of entity: sole proprietor, single-member LLC, partnership, multi-member LLC, S-Corp, C-Corp, cooperative, not-for-profit, etc.
2) How to fund your business without tapping into retirement funds and paying a major tax-time penalty.
3) Setting up accounting software and tracking income and expenses properly.
4) Deciding whether to file taxes on the cash basis or accrual basis.
5) Understanding the home office deduction rules.
6) Sorting through the complexities of health insurance: what’s deductible and where; do you qualify for exemptions; how to minimize any penalty for lack of coverage.
7) Explaining the rules for what is deductible, and helping to identify commonly missed deductions such as travel, equipment, cell phone, meals & entertainment, dues & subscriptions, and mileage.
8) Demystifying and debunking what your “uncle’s friend’s lawyer” said you should do to save on your tax bill.
In other words, find an accountant who you feel comfortable with, ask them a million questions, and develop a relationship with them, involving them on your team.
The second-biggest mistake that self-employed people tend to make when preparing for taxes? Looking for an accountant during tax season. By that time, we’re all knee-deep in our existing clients’ needs, and most of us don’t have time to help you convert to QuickBooks or organize your receipts. If you haven’t found someone by tax time, then it might make sense to approach potential accountants with the suggestion that you’d like them to help you file an extension and get organized after tax season is over; you’re more likely to have good luck getting them to work with you.
As for mistakes that I see on a lot of prior-year tax returns that new clients bring me, here are some of the most common:
1) All income is taxable — not just the income that is reported on your 1099-MISC forms.
2) Speaking of 1099-MISC forms… double-check yours the moment they arrive and request corrections immediately. Don’t wait until April.
3) Keep a mileage log or recreate your mileage log from the last tax year based on calendar entries. The IRS does not allow vehicle mileage deductions without one.
4) Speaking of mileage — commuting is not deductible.
5) If you have inventory, count it at 12/31 or as close to it as you can. Even cash-basis taxpayers have to report inventory and cannot include it as a cost of sales.
6) Be careful deducting educational expenses. The IRS will not allow a deduction for education a) to meet minimum requirements of a job, nor b) that qualifies you for a new trade or business. They do, however, allow a deduction for education to “maintain or improve skills”.
7) Gifts to business clients, vendors and the like are only deductible up to $25 per person, per year. (Seriously — it was never indexed for inflation.)
8) Understand the rules of the entity type you chose. (For example, if you’re an S-Corp, pay yourself “reasonable compensation” via payroll; it’s the law.)
9) Depreciable basis on property does not include land. Ever. (If you own your own home and are claiming a home office deduction without using the safe harbor, this means you.)
10) Speaking of depreciation — it’s not optional. You can’t decide not to depreciate something just because you feel it’s too complicated. If the IRS audits you, they will reduce the basis of your property by the amount of the depreciation you should have taken, and you’ll pay gain on the disposal of your property without having had the benefit of the deduction. Sound complicated? (It is. Hire a professional.)
IRS Warns Of W-2 Phishing Scam
The IRS is warning taxpayers, business owners and tax preparers of a Dangerous W-2 Phishing Scam Evolving; Targeting Schools, Restaurants, Hospitals, Tribal Groups and Others. If you are a victim of or inadvertently assisted in W-2 information theft, please contact the IRS at once, so they can protect the affected taxpayers from tax-related identity theft.
Tax preparers have additional responsibilities and should read this IRS info on what to do if you suffer a data breach of client information.
Here’s how the scam works: Cybercriminals use various spoofing techniques to disguise an email to make it appear as if it is from an organization executive. The email is sent to an employee in the payroll or human resources departments, requesting a list of all employees and their Forms W-2.
This phishing variation is known as a “spoofing” e-mail. It will contain, for example, the actual name of the company chief executive officer. The following are some of the details that may be contained in the emails:
- Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
- Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
- I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.
In the latest twist, the cybercriminal follows up with an “executive” email to the payroll or comptroller and asks that a wire transfer also be made to a certain account. Although not tax-related, the wire transfer scam is being coupled with the W-2 scam email, and some companies have lost both employees’ W-2s and thousands of dollars due to wire transfers.
The IRS, states and tax industry urge all employers to share information with their payroll, finance and human resources employees about this W-2 and wire transfer scam. Employers should consider creating an internal policy, if one is lacking, on the distribution of employee W-2 information and conducting wire transfers.
Organizations receiving a W-2 scam email should forward it to phishing@irs.gov and place “W2 Scam” in the subject line. Organizations that receive the scams or fall victim to them should file a complaint with the Internet Crime Complaint Center (IC3,) operated by the Federal Bureau of Investigation.
Employees whose Forms W-2 have been stolen should review the recommended actions by the Federal Trade Commission at www.identitytheft.gov or the IRS at www.irs.gov/identitytheft.
Employees should file a Form 14039, Identity Theft Affidavit, if the employee’s own tax return rejects because of a duplicate Social Security number or if instructed to do so by the IRS.
The IRS also has a page offers all sorts of helpful security awareness tips for taxpayers as well as tax preparers.
Warning: Another QuickBooks Phishing Scam
According to the Better Business Bureau Northwest, there’s a new email phishing scam targeting users of QuickBooks accounting software:
Victims receive an email in their inbox with the subject line, “QuickBooks Support: Change Request.” The email claims to be a confirmation from Intuit that a business has changed its name and contains a hyperlink that the recipient can click on to cancel the request. However, if email recipients click on the link, it directs them to a site that downloads malware to their device… the malware allows criminals to capture passwords and other personal information from a device.
Some good tips from the BBB Scam Alert statement —
- Check the reply email address. One easy way to spot an email scam is to look at the reply email. The address should be on a company domain, such as jsmith@company.com.
- Check the destination of links: Hover over links to see where they lead. Be sure the link points to the correct domain (www.companyname.com) not a variation, such as companyname.othersite.com or almostcompanyname.com. Scammers can get creative, so look closely.
- Consider how the organization normally contacts you. If an organization normally reaches you by mail, be suspicious if you suddenly start receiving emails or text messages without ever opting in to the new communications.
- Be cautious of generic emails. Scammers try to cast a wide net by including little or no specific information in their fake emails. Be especially wary of messages you have not subscribed to or companies you have never done business with in the past.
- Don’t believe what you see. Just because an email looks real, doesn’t mean it is. Scammers can fake anything from a company logo to the “Sent” email address.
Source: Accounting Today — Better Business Bureau warns of QuickBooks phishing scam
Financing Sources for Small Business Owners
Gerri Detweiler — head of Market Education for Nav — is well-known for being able to share complex financial information in an easy-to-understand format. She turns her gift to the topic of small business financing in this upcoming FREE webinar, presented by CPA Academy.
Course Description: Small business owners often feel overwhelmed when looking for financing, and spend over 33 hours, on average, researching funding options. Funding is critical though; according to the SBA, insufficient capital is the second most common reason for small business failure. Many entrepreneurs turn to their accounting professional for advice, but with over 1300 alternative lenders competing with some 6500 traditional lenders to offer small business financing, you may be overwhelmed as well. So, be prepared! In this webinar you’ll learn how to help your small business clients successfully navigate the complicated world of small business financing.
I was so disappointed that I found out about their last presentation of this webinar too late to promote it, and was delighted when she let me know she would be giving another 1-hour live talk on January 24th (1:00pm Eastern, 12:00pm Central, 11:00am Mountain, 10:00am Pacific — http://www.cpaacademy.org/webinars/a0D1A000011dIjgUAE
She’s shared her slide deck with me, and I can tell you that as a small business owner in need of financing, this is one 1-hour well-spent.
Role of the Board of Directors & Audit Committee Within a Cooperative
One of my favorite educational organizations is the National Society of Accountants for Cooperatives. They have regular webinars and live seminars, as well as their annual conference. This upcoming webinar on the role of a cooperative’s board of directors and audit committee sounds like it might be of particular interest to many of my clients and colleagues.
An overview of the duties, legal responsibilities and issues related to service as a Director in a Cooperative, including the interaction of Directors with Officers and Members and how the Audit Committee fits into the “best practices” model of cooperative governance.
This webinar will be held on Tuesday, January 24, 2017 @ 02:00 PM ET / 01:00 PM CT / 12:00 PM MT / 11:00 AM PT.
New Due Dates for Many Tax Returns in 2017
The biggest news for 2017, in the world of tax preparers, came back in 2015, but didn’t make much of a splash outside of our world.
Lady Gaga: They’re changing the due dates for partnership returns, C-corps, and 1099s!
Nancy: THEY’RE CHANGING THE DUE DATES FOR PARTNERSHIP RETURNS, C-CORPS AND 1099S???
Lady Gaga: Yes, that’s what I said! Can you believe it?!!
Nancy: Aaaaaaaaaaaaauuuuuuuuuuuuugggggggggggggggggggaaaaaaaaaaaaaaggggggghhhhhhhhhhhhhhhhhhhhhh!
We were all a-flutter, but no one else really cared. From our perspective, having lobbied for it for so long, it’s seriously one of the most significant pieces of tax legislation for years. So I get that maybe this doesn’t seem like big news to non-tax-preparers, but for us, this is huge. The IRS never changes due dates. I mean, sure — you’ve got your weekends and totally random federal holidays (Emancipation Day, anyone?) here or there, but that just temporarily pushes things forward a day or two. We’re talking about a permanent change for all eternity. Or until the next time. As I said: THIS IS HUGE.
And it’s ultimately a good thing. But it is going to be a major challenge for us this season, so we’re asking you to be patient. And kind. (Please both.)
So what are these huge changes I’m going on about?
The main bits:
1) 1099s used to be due to recipients postmarked January 31, and e-filed with the IRS by March 31. The due date for recipients hasn’t changed, but now they’re due to be efiled with the IRS two months earlier, on January 31.
2) Partnerships used to be due April 15. They’re now due a month earlier, on March 15.
3) C-Corps used to be due March 15. They’re now due a month later, on April 15.
Why? And so what?
I’ll deal with the “why?” first.
The problem with the prior due dates was that it was hard for the IRS to match reported income against the income you said you had on your personal return, and sometimes, it was even hard for you to tell them about it in a timely fashion. For example —
1099s: you’re a freelancer (or more likely, a Chicago landlord) and you get your 1099s from clients (or renters) in early February. You decide to ignore it, because you didn’t really want to report that income anyway. You file in mid-February and get your refund. The IRS receives your 1099 copies on March 31. Now they have to chase you down for the refund that you weren’t entitled to. Make it due two months earlier — problem solved.
Partnerships: so you get a partnership K-1 sent out on April 15. This is a flow-through document that needs to show up on your personal return… ALSO DUE ON APRIL 15. That’s an easy one. Make it due a month earlier — problem solved.
C-Corps: the opposite of above. No flow-through documents. No reason to have it due a month early.
Taxpayers and preparers were struggling with problems created when flowthrough entities’ Schedules K-1 arrived late, sometimes within days (before or after) of the extended due date of their partners’/owners’ personal returns and up to a month after the extended due date of their partners’/owners’ business returns. Late Schedules K-1 made it difficult, if not impossible, to file a timely, accurate return. The Tax Division found that much of the issue related to late Schedules K-1 were a result of the increasing quantity and complexity of flowthrough entities.
Source — http://www.thetaxadviser.com/issues/2016/aug/nex-season-due-dates-have-new-logical-order.htmlMuch of the issue related to late Schedules K1 were a result of the increasing quantity and complexity of flowthrough entities. The interconnection of business entities and those that own them demanded a more logical flow of information between parties.
Source — http://www.journalofaccountancy.com/newsletters/2015/oct/new-tax-return-due-date-changes.html
Now, the “so what?”
Well, I’ll tell you what.
1099s: DO YOU HAVE ANY IDEA HOW HARD IT IS TO GET W-9 INFO (what you need to file a 1099) FROM PEOPLE WHO DON’T WANT TO GIVE IT TO YOU??? DO YOU???
No, you probably don’t. But try owning a business or consulting with business owners, and you’ll find out fast. People are either actively trying to avoid taxation of income, or they are simply not super-responsible about reading emails and following up with requests. Either way, getting W-9 info from folks by the due date of January 31 is nearly freaking impossible. (Which is why I STRONGLY suggest that small business owners get W-9s before they give vendors their initial check. See my blog post on the topic, here.)
So. Someone doesn’t get their info to you on time and their 1099 goes out late. The only way you’ll be penalized for this is if THEY report it to the IRS. Now… why would they report it to the IRS if THEY are the ones who didn’t respond to the request for a W-9 in a timely manner? Yes, that’s my point. In effect, if someone were impeding your ability to send them a 1099, you really sort of had an extra two months to follow up and argue with them about it — or rather, provide a persuading picture of what will happen if they DON’T respond. Furthermore, let’s say you’re in the rare situation of having a recipient’s W-9 info in a timely fashion, and you send them their 1099 on time… and it’s wrong, and they notice it! You have time to go back and fix the 1099 before it even gets filed with the IRS.
No longer. Now you are required to e-file those 1099s with the IRS on the same day you put them in the mail to recipients. Not only are we going to see a lot of late-filed 1099s, but we’ll also see a lot of amendments. This is all going to increase the burden on accountants during a time of year when they’re already trying desperately to help close out client books (and in my case, implement new Point-Of-Sale systems for clients who end up making the transition in January; don’t ask).
Partnerships: Okay, I’ll admit, I really do like this new due date, in theory. I’ve often been delayed in filing a client’s personal tax return by lingering K-1s, or I’ve filed their return and a K-1 gets submitted after the return is filed. This is a great change, in theory.
But I’m a small business accountant, and I’m the only one in my firm that does taxes! NOW ALL MY S-CORPS AND PARTNERSHIPS ARE DUE ON THE SAME DAY!
I no longer get to take a 5-day vacation at the begining of February. I deal with 4th-quarter taxes in the first two weeks of January, 1099s all-month-long, and launch straight into tax prep before the end of the month. By March 15th, I will be a shell of my former self.
Send help.
C-Corps: Oh, yay. We get an extra month. I’m sorry… are there actually non-fiscal-year small businesses who file as C-Corps? I think I have two. Yeah, this does not help me at all.
In summary — I may die, but it’s okay. These changes are ultimately a good thing. They make sense. I just don’t know how we’re going to deal with them as a firm without my completely losing it.
RESOURCES:
LOVE this chart that summarizes many of the new due dates and compares them to the old ones; one-stop shopping —
http://www.aicpa.org/interestareas/tax/resources/compliance/downloadabledocuments/due-dates-summary-chart.pdf
http://www.journalofaccountancy.com/newsletters/2015/oct/new-tax-return-due-date-changes.html
http://www.thetaxadviser.com/issues/2016/aug/nex-season-due-dates-have-new-logical-order.html