New Tax Payment And Tax Filing Deadlines

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Federal Changes

US Treasury Secretary Mnuchin announced today that the filing deadline for tax returns due on April 15 has been postponed to July 15.  This comes on the heels of an announcement earlier in the week regarding the timing of certain Federal tax payments also being deferred to July 15. 

Individuals and businesses who have a Federal income tax payment normally due on April 15, 2020 may delay that payment until July 15, 2020 up to $1,000,000 for individuals and $10,000,000 for corporations.  In addition to income tax, this delay includes Federal tax payments on self-employment income, but it does not include any other type of Federal tax. 

First quarter 2020 Federal estimated tax payments have also been deferred to July 15.  The limits above apply in the aggregate for all payments due on April 15. 

During the period of April 15, 2020 to July 15, 2020, no penalty, interest, or additional tax for failure to pay Federal income taxes will be assessed. 

California Changes

The California Franchise Tax Board announced an extension of time to file California tax returns and to make certain tax payments to June 15, 2020.  Tax filing and tax payment deadlines that would normally occur between March 15, 2020 through June 15, 2020 are now due on June 15. 

Taxpayers who choose to delay their California tax filings and tax payments must name the state of emergency relief being requested by writing "COVID-19" at the top of their tax returns. 

We are monitoring the situation closely and will continue to keep you updated.

Workflow Continuity Plan

In order to support the health of our clients, our staff and our community, we are closing our physical office location until further notice.  We will, however, continue to work on a modified basis within the parameters of the government health mandates and the safety of our staff. 

Our staff will continue to be available at their regular telephone extensions and email addresses.  All in-office meetings will be rescheduled to either telephone or video conference formats. 

During this time, we are unable to accept original tax documents at our office.  Please submit your tax and accounting documents electronically via the secure File Drop located on our website HERE.  Call us if you need further instructions regarding data submission. 

We fully expect to meet every deadline and ask that you work with us toward that end. Today, the Treasury Department announced that certain tax deadlines will be extended.  We will provide you with more information on key deadlines in a separate communication. 

Thank you for your patience as we navigate through these constantly changing circumstances. 

Sincerely,
 
Matt De Pretis
Managing Partner

What Business Owners Must Consider Before the Year Ends

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Fringe Benefits 

Businesses are subject to special rules regarding employee fringe benefits. Under these rules, any S corporation shareholder-employee with a 2% or greater ownership is taxed on any fringe benefits received. These types of benefits include:

  • Health insurance paid by the corporation

  • Life insurance premiums on a policy paid by the corporation for the shareholder

  • The fair market value of any personal auto use of a business auto owned by a corporation

  • Benefits provided under a cafeteria plan

These amounts need to be added to the shareholder-employee’s W-2 wages in 2019. If you have an outside service preparing your W-2's, remember to provide these amounts to them before the last payroll of the year.

Wages to Shareholders-Employees

Year-end is the best time to review the reasonableness of the wages paid to shareholder-employee. If your wages are less than the fair value of your services to the corporation, the IRS may re-characterize distributions as wages and assess FICA and Medicare taxes, along with penalties and interest. Please call us if you need guidance on determining a fair wage for your services.

Shareholder Distributions for S Corporations

As you close in on the end of the year, please assess the distributions paid throughout the year to ensure these are proportionate to shareholder ownership. If these are out of proportion, please call us to establish a plan to correct the distributions. Also, as a general guideline, distributions for the year should not exceed net income in order to avoid possible taxable long-term capital gain distributions.

Home Office Deduction

Tax reform has eliminated the employee (W-2) home office deduction by taking away the ability to claim miscellaneous itemized deductions. However, if you are self-employed, nothing has changed, as you can claim the deduction of your Schedule C as you used to. If you are an S corporation shareholder or LLC member, rent can be charged to the business and declared as rental income on Schedule E of your individual tax return. Besides paying yourself rent, the IRS has recommended an additional method for home office deductions (this is for those shareholders-employees who use their home as the principal place of business): The employee is to submit an expense report as part of what is called an “accountable plan”. The plan describes how the business is to reimburse employees for expenses, including the use of their home for work purposes. This method allows for a legitimate business deduction and preempts the reimbursement from being included in the employee’s income. Please refer to IRS Publication 587 (Business Use of Home) for more information.

Expense Reimbursement

Any expense reimbursements to an employee (including owners) not requiring a substantiation of the expenses is required to be included as wages to the employee. This also applies to per diem payments to employees and business use of autos. To avoid wage treatment, have your employees submit expense reimbursement forms for reimbursement of the expenses. (See requirements for business meals, travel and entertainment deductions below.)

Meals and Entertainment

  • Under the new tax law, most entertainment is no longer deductible even if a substantial and bona fide business discussion is associated with the activity.  These include golf outings, sporting events, theater tickets, fees paid to sporting arenas, golf club dues, etc.

  • The only entertainment expenses that are still 100% deductible are expenses for recreational, social, or other similar activities primarily for the benefit of employees, such as a Christmas party, annual picnic, summer outing, or related facility costs.

  • De minimis meals provided to employees for the convenience of the employer are now subject to the 50% limitation instead of the previously 100% deduction. 

  • 50% of business meals (such as for meetings and travel) are still generally deductible if the taxpayer is present and the food or beverages are not considered lavish or extravagant.

  • Maximize tax deductions and save time accumulating information for the tax return by setting up separate general ledger accounts for the above-mentioned categories:  Entertainment (non-deductible); Qualified recreational/social employee expenses (100% deductible); De minimis meals provided to employees for the convenience of the employer (50% deductible) and Business meals (50% deductible)

Business Travel

  • Travel expenses while away from home for a business purpose can include airfare, other transportation, lodging, etc. The documentation requirements apply to these types of expense.

  • The cost of meals deducted for a self-employed person is limited to the per diem allowance. These per diem rates are dependent on the city of travel and can be found on the internet at www.gsa.gov. Documentation consists of the time, place and business purpose for the day or period of days the payment represents

  • Auto expense deductions. If you want assurance your auto expenses will be allowed in an audit, we strongly encourage the use of a log to document business versus personal miles. The IRS does allow a sampling method. This means you can diligently keep a log of your miles during a representative period during the year and use the results for the entire year. We recommend using a spreadsheet to track your mileage or consider downloading a mileage tracker app on your mobile device so you can capture and categorize your mileage in real-time.

1099-MISC Reporting Requirements

The due date for employers to send the Form 1099-MISC to the IRS and the recipients is January 31, 2020. A Form 1099-MISC is required for vendors (unless a corporation) to whom you have paid at least $600 during the year in the following: 

  • Rents

  • Services performed by a non-employee

  • Prizes and awards

  • Other income payments

  • Medical and health payments

  • Payments to an attorney (no exception for corporations).

Credit card payments to vendors are excluded from Form 1099 reporting. You may want to consider having each vendor complete a Form W-9 to ensure you have the proper identification number and addresses in order to process the 1099s in a timely fashion. If you need assistance in preparing these forms, please contact our office.

Physical Inventory

The IRS continues to place an increased emphasis on actual physical inventory on hand at December 31. Please make sure to physically count your inventory, retain the records, and provide us with the accurate total cost (not market value) of inventory on hand at December 31, 2019. Do not include consignments you are holding from other people in this number. In the event of an audit you must be able to provide copies of physical count sheets, so we are this year placing an increased emphasis upon obtaining correct year end physical inventory amounts.

401(K) Deferrals

Contribution limits for 2019 have increased to $19,000 for those under 50 or $25,000 for those over 50. Most plans only allow you to make changes to your deferrals three times per year (January 1, July 1, and December 1), so plan to adjust as necessary with the last paycheck.

Please let us know if you have questions regarding items to consider before the year ends. 

925-600-8500

talk2us@depretis-cpa.com

Tax Cuts and Jobs Act (TCJA)

The TCJA was signed into law at the end of 2017, and the IRS has been working throughout 2018 on this major piece of tax legislation, issuing proposed regulations, notices, memos, FAQs and more.   

We want to help you navigate all these changes, and when possible, take advantage of them. Our focus is to help you pay the least amount of tax possible while staying out of trouble with the government. 
 
Below is a summary of important developments you should be aware of:

  • The standard deduction increased in 2018 for all filers. Due to the increase in the standard deduction and reduced usage of itemized deductions, you may want to consider filing a new Form W-4 so that your withholding is reflective of your actual tax liability under these new rules.

  • There’s a new deduction available for individuals and trusts that have qualified business income from a partnership, S corporation or sole proprietorship. This is effective for tax years 2018 through 2025.

  • The new tax law increases the child tax credit to $2,000 per qualifying child. The phase-out threshold begins at $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers. The maximum additional child tax credit increased to $1,400.

  • For mortgages that originated in 2018, the interest deduction is limited to interest on debt up to $750,000 ($375,000 for married taxpayers filing separately). Also, interest on home equity loans is only deductible if the funds are used for home improvements or traced to business, investment or passive activity expenditures.

  • 529 plans now allow for up to $10,000 in annual distributions for tuition at public, private, or religious elementary and secondary schools.

  • There is now an overall limit of $10,000 for property taxes and state and local income taxes (or sales tax in lieu of income taxes). This provision applies from Jan. 1, 2018, to Dec. 31, 2025.

We’re here to help you navigate the changes and ensure you receive the most favorable tax treatment.

The Alternative Minimum Tax (AMT) remains a concern.

The new law repealed the AMT for corporate taxpayers, but it still applies to individuals. Many taxpayers are required to add back certain non-taxable income and deductions they’ve taken. You’re now allowed a larger exemption that somewhat reduces the AMT’s effects. That exemption rose in 2018 to $70,300 for single and head of household taxpayers and to $109,400 for married couples filing jointly. Talk to us about other ways to minimize your exposure to the AMT using techniques such as income acceleration or deferral.

Tax identity theft is a significant threat.

Our firm takes security very seriously, so we want to begin with a reminder that tax identity theft is a growing problem. With fraudsters becoming more sophisticated and large breaches happening so frequently — such as the 2017 Equifax incident which affected 143 million American consumers — tax identity theft remains a concern. Unfortunately, it can take many forms, so If you receive any suspicious communications from the IRS, you can report the contact by filling out this IRS Impersonation Scam Reporting Form or calling (800) 366-4484. We also urge you to contact our office for advice whenever you receive a communication from the IRS or believe you might be an identity theft victim.

The Affordable Care Act (ACA) and your taxes.

The TCJA repealed the shared responsibility payment (the penalty that the ACA imposes on individuals do not have health insurance) beginning in 2019. However, other aspects of the Affordable Care Act are still in place.

Be sure your retirement planning is up to date.

We recommend you review your retirement situation at least annually and make revisions and adjustments as needed. That includes making the most of tax-advantaged retirement saving options. For example, if you’re eligible, there’s still time to contribute to a traditional or Roth IRA; you may even be able to deduct your contribution to a traditional IRA. If your employer has a 401(k) plan, there’s still time to maximize your contributions and achieve significant tax savings. Participants age 50 or older can make catch-up contributions, thereby further increasing potential tax savings.

Please contact our office if you have any questions regarding the new tax law changes.


925-600-8500

talk2us@depretis-cpa.com

Year-End Reminders for Business Owners

The Tax Cuts and Jobs Act affects almost every business taxpayer with respect to guidelines and the deductibility of certain expenses. We recognize that this tax law has added significant complexity to many business owners.    Our focus, a…

The Tax Cuts and Jobs Act affects almost every business taxpayer with respect to guidelines and the deductibility of certain expenses. We recognize that this tax law has added significant complexity to many business owners. 
 
Our focus, at DePretis CPAs, is on easing that burden for you. The following are a few important reminders before the year comes to an end.

Fringe Benefits 

Businesses are subject to special rules regarding employee fringe benefits. Under these rules, any S corporation shareholder-employee with a 2% or greater ownership is taxed on any fringe benefits received. These types of benefits include:

  • Health insurance paid by the corporation

  • Life insurance premiums on a policy paid by the corporation for the shareholder

  • The fair market value of any personal auto use of a business auto owned by corporation

  • Benefits provided under a cafeteria plan

These amounts need to be added to the shareholder-employee’s W-2 wages in 2018. If you have an outside service preparing your W-2's, remember to provide these amounts to them before the last payroll of the year.

Wages to Shareholders-Employees

Year-end is the best time to review the reasonableness of the wages paid to shareholder-employee. If your wages are less than the fair value of your services to the corporation, the IRS may re-characterize distributions as wages and assess FICA and Medicare taxes, along with penalties and interest. Please call us if you need guidance on determining a fair wage for your services.

Shareholder Distributions for S Corporations

As you close in on the end of the year, please assess the distributions paid throughout the year to ensure these are proportionate to shareholder ownership. If these are out of proportion, please call us to establish a plan to correct the distributions. Also, as a general guideline, distributions for the year should not exceed net income in order to avoid possible taxable long-term capital gain distributions.

Home Office Deduction

Tax reform has eliminated the employee (W-2) home office deduction by taking away the ability to claim miscellaneous itemized deductions. However, if you are self-employed, nothing has changed, as you can claim the deduction of your Schedule C as you used to. If you are an S corporation shareholder or LLC member, rent can be charged to the business and declared as rental income on Schedule E of your individual tax return. Besides paying yourself rent, the IRS has recommended an additional method for home office deductions (this is for those shareholders-employees who use their home as the principal place of business): The employee is to submit an expense report as part of what is called an “accountable plan”. The plan describes how the business is to reimburse employees for expenses, including the use of their home for work purposes. This method allows for a legitimate business deduction and preempts the reimbursement from being included in the employee’s income. Please refer to IRS Publication 587 (Business Use of Home) for more information.

Expense Reimbursement

Any expense reimbursements to an employee (including owners) not requiring a substantiation of the expenses is required to be included as wages to the employee. This also applies to per diem payments to employees and business use of autos. To avoid wage treatment, have your employees submit expense reimbursement forms for reimbursement of the expenses. (See requirements for business meals, travel and entertainment deductions below.)

Meals and Entertainment

  • Under the new tax law, most entertainment is no longer deductible even if a substantial and bona fide business discussion is associated with the activity.  These include golf outings, sporting events, theater tickets, fees paid to sporting arenas, golf club dues, etc.

  • The only entertainment expenses that are still 100% deductible are expenses for recreational, social, or other similar activities primarily for the benefit of employees, such as a Christmas party, annual picnic, summer outing, or related facility costs.

  • De minimis meals provided to employees for the convenience of the employer are now subject to the 50% limitation instead of the previously 100% deduction. 

  • 50% of business meals (such as for meetings and travel) are still generally deductible if the taxpayer is present and the food or beverages are not considered lavish or extravagant.

  • Maximize tax deductions and save time accumulating information for the tax return by setting up separate general ledger accounts for the above-mentioned categories:  Entertainment (non-deductible); Qualified recreational/social employee expenses (100% deductible); De minimis meals provided to employees for the convenience of the employer (50% deductible) and Business meals (50% deductible)

Business Travel

  • Travel expenses while away from home for a business purpose can include airfare, other transportation, lodging, etc. The documentation requirements apply to these types of expense.

  • The cost of meals deducted for a self-employed person is limited to the per diem allowance. These per diem rates are dependent on the city of travel and can be found on the internet at www.gsa.gov. Documentation consists of the time, place and business purpose for the day or period of days the payment represents

  • Auto expense deductions. If you want assurance your auto expenses will be allowed in an audit, we strongly encourage the use of a log to document business versus personal miles. The IRS does allow a sampling method. This means you can diligently keep a log of your miles during a representative period during the year and use the results for the entire year. Mileage log books are available at office supply stores. In addition, there are mobile apps available to log each trip you take. 

1099-MISC Reporting Requirements

The due date for employers to send the form 1099-MISC to the IRS and the recipients is January 31, 2019. A Form 1099-MISC is required for vendors (unless a corporation) to whom you have paid at least $600 during the year in the following: rents, services performed by a non-employee, prizes and awards, other income payments, medical and health payments, and payments to an attorney (no exception for corporations). Credit card payments to vendors are excluded from the Form 1099 reporting. You may want to consider having each vendor complete a Form W-9 to ensure you have the proper identification number and addresses in order to process the 1099s in a timely fashion. If you need assistance in preparing these forms, please contact our office.

Physical Inventory

The IRS continues to place an increased emphasis on actual physical inventory on hand at December 31. Please make sure to physically count your inventory, retain the records, and provide us with the accurate total cost (not market value) of inventory on hand at December 31, 2018. Do not include consignments you are holding from other people in this number. In the event of an audit you must be able to provide copies of physical count sheets, so we are this year placing an increased emphasis upon obtaining correct year end physical inventory amounts.

Please let us know if you have questions regarding items to consider before the year ends. 

925-600-8500

talk2us@depretis-cpa.com