Summer Camp

Summer Camps & Tax Credits!! No Really :)

Parents are stressed in so many ways now-a-days, work, school and summer – what to do with the kids while I work!  However there may be at the least, some tax relief available.   And if you haven’t yet filed your 2016 taxes… don’t forget last summers camps!

Here’s the  IRS Special Edition Tax Tip 2014-16, June 11, 2014

Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:

  1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
  2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
  3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
  4. As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.
  5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
  6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.
  7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
  8. Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
  9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.
  10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.
Coffee Couple

Claiming your Boyfriend or Girlfriend on your return? Yes, You can!! (Maybe)

Did you know that you can claim your Boyfriend or Girlfriend (Partner) on your Personal Tax return!!   However there are a few criteria you must meet in order to take advantage of this little known rule.

In order to take advantage of this, your partner must meet the following tests…

  1. The Partner must be a U.S. Citizen, Resident Alien or a Resident of Canada or Mexico
  2. Can not be the Qualifying Child of the taxpayer
  3. You must have lived together the entire year as a member of your family and cohabitation must not be against the law in your state (FYI in Wisconsin, it’s not, I just looked)
  4. She/He can’t have earned over $4,050
  5. You must have paid more than ½ her/his living expenses during 2016
  6. And, he/she must not be able to be claimed by anyone else (ie his/her parents, grandparent, etc)

 

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Worst year EVER collecting TIN information?

Well.. Once again, we made it through the 1099 filing season without too many issues.   But it does seem that EVERY year there is one or two vendors that outright REFUSE to provide the Tax Payer Information so that you, as a business, can get your 1099s out by the January 31st filing deadline.   Having completed these information returns for over 20 years, it always surprises me when I get that one vendor that becomes belligerent about providing the information.  The first thing that pops in my head is that they don’t want the IRS or the State Revenue Department knowing that they are getting income from someone.   Now, if it’s on a personal level, the IRS doesn’t require INDIVIDUALS to issue 1099s to the Plumber, the Carpenter or the Landlord that you pay in your personal life.  But if you are a BUSINESS, in order to deduct those same expenses on your business tax return, you AS A BUSINESS, are required to issue those pesky 1099-MISCs indicating that you paid someone $600 or more during the calendar year.

 

So, what do you do when you encounter one of these vendors.

First and foremost – CHANGE YOUR INTERNAL POLICY!!   Make it a policy in your business that if you issue payment to ANYONE for services, that you do not issue a check until you collect the W-9 Form from them!   It’s so much easier to just tell them that your system doesn’t allow for payments to be issued UNLESS this information has been entered into the software.  And you can of coarse use the “My accountant won’t let me issue checks without this” excuse.   Let us take the heat if that’s easier.  But get the W9 form upfront!  It will also make the payee much less uncomfortable providing the info when it’s a payment they seek.  If/when you ask for that information a year later, they may not even remember doing business with you in the first place.
But ok, you’ve already paid them so now what? I typically use a 3 step process….

First attempt, I start with calling, emailing or faxing to collect the information from them.  99% of the time, this is all I need to do.  Most businesses understand that they are required to provide you with this information and don’t make a fuss about it.   Sometimes it may take 2-3 attempts, but normally they will send the information.   THAT BEING SAID… If you are the RECIPIENT… Don’t just send the W9 out because you get asked!  Be sure that you actually did do business with the Person/Business that is requesting the information.  Remember that ID thieves will try any number of methods to obtain your information so just take a bit of caution before you just send this out!!  And if, you don’t feel comfortable giving us, the accounting firm, the information, just indicate to the requester (if it’s not the business owner asking) that you gave it to your customer.  We, the accounting firm, will understand and can the get the information from our client.
Second attempt, I send another email or call indicating that if they don’t provide the information that the IRS REQUIRES the payee to withhold 28% of all payments because they failed to provide the information.  This is right on page 2 of the W9 form, and usually, this is more than enough of a deterrent for the provider to give in and provide the information – again, to the recipient… if you don’t feel comfortable giving it to someone just because they say they are an accounting firm… give it to your customer and tell the accounting firm you did so!
Third and final attempt, make my last communication much more stern.  I indicate to the recipient that this is something that they are required to do, that the IRS requires that they provide this information and if they don’t provide it, I am required to send a 1099 anyway to the IRS with the words “Refused to Provide” where the tax ID is supposed to go on the form.  Have I had to do this?  Yes unfortunately.  It amazes me to no end that someone would think that I’d waste my valuable time trying to collect something that I really truly didn’t need.   Now, back to my first step, do I get that they are being cautious when I, an outsourced accounting firm calls…. YES, but they could just give the info to their customer and let their client give it to me.   I’m good with that, just don’t outright refuse to do this!
Finally, when every attempt has failed and the supplier/vendor/service provider just outright refuses, I send the 1099 just as I indicated I would with the words “Refused to Provide” in the box labeled Recipient’s Identification number.  I then send this 1099 and a letter to the IRS explaining that this business refused to provide the tax identification number.   You may be wondering, why do I bother to do this?  I do this because the fines to my clients could be SO huge that I want to be sure that we have done everything that I am required to do to ensure that my client does not end up with the fines.  After all it wasn’t their fault that their vendor refused causing them to not have the information they needed.

Moral of the story…. Get the W-9 form before you even give them the check!  It’s so much eaiser.

16592718 - dollars with tighten belt - financial crisis 3d concept

Concerned about the Future?

So not to scare you.. ok, maybe to scare you a little bit, every time the Republican’s have had a Super Majority in American Government (House, Senate & Presidency) they have crashed the Economy.  So far in history that’s 3 for 3 or 100% of the time!  In 1907/1908 during the Banking Panics; 1928 when the GOP gained power, the Stock Market Crashed in October 1930 and created the Great Depression from 1929-1937; and finally the 2007/2008 credit crisis crash that lead to thousands losing their jobs and homes.   Honestly, there a lot of CPA’s out there keeping it neutral, but I’m thinking I’d rather go out on limb, be proactive to help people rather than reactive giving advice after the fact.  We could be headed for a fourth time in the next 2 years, some of the signs are already there (discussions about eliminating Dodd-Frank, reducing Banking Regulations, Trade rhetoric and fair pay/minimum wage) are just a few of the issues that cause alarms to go off for me.

Now I hope I’m reading the signs wrong, but I was correct about the housing crash and the indicators I saw then.  So, here’s my suggestions and you can take them for what they are worth, or not, it’s up to you.

1st, resist buying things you don’t need and pay off as much of your Credit Card debt as you can NOW! Currently your rates are protected by the Frank-Dodd Act which the GOP has whole-heartedly set out to dismantle which means we could be going back to the days of 29.99% credit card interest (that was just 8 short years ago btw).

2nd, Refinance you home if you don’t already have a low FIXED interest rate. Once you are locked in, unless you’ll need to refi for medical or other emergency reasons, you should be ok with your Mortgage with what could be another housing fiasco (again due to the Wall Street Lobbyists on the new Administration). If you have an ARM (Adjustable Rate Mortgage) refinance out of it into a Fixed Rate as soon as possible.  This will stabilize your cash flow and hold your payments steady in the event interest rates climb.  And if you are planning or buying a new home, shop for that best rate – and don’t take out more than 80% of the value of your home on the Mortgage and always find a FIXED RATE so that you can count on a steady repayment amount.  Otherwise, sit tight and enjoy your current home.

3rd, Don’t SPLURGE on spending, but don’t stop spending altogether either. Remember the economy is only sustainable if/when there is demand from consumers for products. Without demand, supplies increases, prices drop and layoffs happen which leads to less disposable income in the economy which will begin to spiral the economy into a downward spin.  This is one of the things that happened in the early 2000’s – Sunbeam comes to mind.

4th, BUY LOCAL WHENEVER POSSIBLE! One of the things that will help support our communities is to keep as much in the local economy as possible… Use SMALL LOCAL Credit Unions or Community Banks vs Large Corporate Banks (remember these guys are the ones who got drunk on Wall Street and taxpayers ended up needing to bail out). Buy American if you can’t buy local. Obviously we don’t have Car Manufacturers in all our neighborhoods but we can support other local communities by sticking to American Made goods.  This not only helps American Manufacturing plants but also helps the downstream suppliers and local businesses that depend on that plants employees.

5th, be cautious of Phantom Profits in the Stock Market.  Phantom Profits are essentially Speculative gains on the value of the Stocks and are not based on REAL earnings of an entity.  This was one of the things that happened during the Banking/Credit Crisis of 2007 where approximately 30% of some stock’s value was phantom earnings.  When the Market corrected, thousands lost their life savings.  Stick with a LONG-TERM strategy – there is no getting rich quick, but you can certainly gamble it all away overnight on something that’s not consistent and not a sound, tested long standing company.

Finally… if you have a good job with good benefits… consider whether or not now is a good time to change. Granted sometimes you can’t help it, but by keeping your life constant through the next couple years, you will have a better chance of getting through possible crises unscathed.

12-7-2016a

Don’t Skip These Business Year-Enders

“In The Loop” Magazine

Nov – Dec, 2016 Issue

Don’t Skip These Business Year-Enders

 It’s a fact, there’s only a few weeks left of the year, and they will likely be hectic for you and your business. Before you dive into the holiday season and relax, it’s important to get your business in good shape for tax season—or you’ll be feeling the pain come January. Here’s a list of business “year–enders” that you should tackle now so you can enter 2017 feeling in control and stress-free.

1. Determine employee bonus payments and withhold the required tax amounts.
If you’re rewarding your employees with bonuses, don’t forget about tax. Bonuses are subject to income tax withholding, FICA and FUTA taxes—just like regular pay.

2. Pay your vendors and contractors in full by year end.
For contractors, you may have to submit a W-9 form, and you’ll also need to give each contractor a 1099-MISC form by January 31.

3. Prepare your records for local, state and federal payroll.
Make sure you have everything up-to-date and comply with all payroll regulations, including any recent changes.

4. Review your balance sheet and profit and loss statement.
Taking a look at your assets, liabilities and equities will give you an idea of how well your business performed this year and help you identify any areas that you need to improve. In addition, your income statement will list each revenue-generating item, along with your tax-deductible expenses. This is a useful way to look at your profit and loss for the year.

5. Analyze your cash Flow.
Use cash reports to understand how much cash you have on hand. Cash flow is crucial, so if you’re having trouble controlling it, please reach out to our firm for help.

6. Tally up your estimated tax payments for the year.
If your business is like most small businesses, you’ve paid quarterly estimated tax payments throughout the year. Keep track of what you’ve paid, so that you have those numbers ready for your taxes and so you know how much you’ll owe after year end.

7. Review all of your payroll information.
Now’s the time to make sure that you have all of your employee information current and securely stored. In addition, make sure that you have the people who work for you correctly classified to avoid a payroll audit and penalties.

8. Take stock of how well you met your goals for the year.
Take some time to consider if you achieved everything you intended to last year. If so, great. If not, try to find out why. Making goals for the coming year can help keep you motivated as your business grows. Review them regularly to stay on track.

These “year-enders” are important steps to help you prepare to close out 2016 and look ahead to the coming year. Once you’ve checked off the list, enjoy some well deserved downtime.

Source: Xero.com

11-28-2016

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11-17-2016a

Important changes coming in 2017 to deadlines for business tax filings

Important changes coming in 2017 to deadlines for business tax filings including:

  1. W-2 and 1099 filings are due on January 31, 2017 – This is 30 to 60 days EARLIER than past years. These forms are still due to your employees and contractors by January 31, so it is still a good idea to prepare and file these early.
  2. Partnerships, LLPs and Multi-Member LLCs (filing Partnership Form 1065)  – Shorting filing period – Need to be filed by March 15 or the 15th day of the third month following the end of the organization’s fiscal year end. The previous deadline for this return was April 15. Extensions are available for up to six months, filed no later than September 15, 2017.
  3. S-Corporations Form 1120S – No change to filing deadline or extensions.  Returns for these entities are still due in March 15th or the 15th of the Third month following the organizations Fiscal year end.
  4. C-Corps filing Form 1120 Previously filed on March 15th now get an extra 30 days with the new Due Date of April 15th or the 15th day of the fourth month following the end of the organization’s fiscal year. Extensions can be filed no later than September 15. After 2026, C-Corporation extensions will be available for up to six months after the initial due date.
  5. Trust and Estate filing Form 1041 the extension due date has changed from September 15 to September 30.
  6. Exempt Organizations filing Form 990 now have only one extension until November 15.

If you have any questions about the above changes please do not hesitate to contact our office.

Overtime Pay Jpeg

New Overtime Rules for Employees – What you need to Know

11/30/2016 – DELAYED!
As of right now, the new overtime rules do NOT go into effect tomorrow.   On November 22nd, a US District Court Judge in Eastern Texas granted an Emergency Motion for a Preliminary Injunction which stayed the implementation of the updated Overtime rule.

In my opinion (take it for what it’s worth) this is a double edged sword.   Would the new rule have hurt business?  Yes some, but mostly those businesses who were abusing the employee’s stated position (ie Manager, Director) to get around paying overtime to individuals who were earning a mere $10/hour while those same employees did not meet the Criteria to be considered Exempt from Overtime.   This new rule attempted to rectify that classification so that workers could not be exploited.

On the other edge of the sword are the workers themselves.   The new rule was an attempt to ensure that employees who did not meet certain managerial job duties were not miss-classified as managers denying these employees overtime pay for work over 40hrs.   This new rule didn’t say you needed to necessarily give your employees a raise if they were Exempt salaried, it merely helped to define a living wage for those who were working over 40 hrs and not compensated for that work.   An employer has 2 choices under the new rule – Either Pay overtime to employees that clearly are not Management (either by pay scale or duties) or Hire additional Labor to fill in the hours that were not being compensated under the old rule.   Assume this person was working 50 hrs a week and only compensated for 40 at $10/hr – 2 things happen under this scenario (1) the person’s hourly wage is effectively reduced to $8 when not compensated for the other 10 hrs (2) their time away from their family is effected and (3) something most probably don’t think about, resentment and employee dissatisfaction become an issue.   The later may be something that actually costs an employer more than if the employee were happy and enjoyed their job.

Stay posted to this page.   I will update this information when more is available.  But as of now, no changes are in effect regarding overtime pay.

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Effective December 1st, 2016, new Exempt Overtime rules go into effect.   As an employer you will need to start paying Overtime to your SALARIED employees whose salaries are under $47,476 per year and even if they meet the other regulation criteria to be considered exempt.

What the new legislation does is merely lift the pay threshold from $23,660 ($455/week) to the new higher threshold for anyone earning under $913/week.    You won’t necessarily have to change your Salaried employees over to hourly, but you will need to find some method of tracking those hours so that overtime can be accurately calculated and paid.

A bit of History on who could be classified as Exempt

You could classify an employee as exempt from overtime if they met certain job/pay related tests.   The main tests are the employment classification:  Executive, Administrative, Professional, Computer or Outside Sales.   On top of these general classifications, the employee would need to have a position of responsibility – managing employees, exercising discretion/judgement, have advanced knowledge among other related qualification type tests.   However, under each of the tests, the minimum weekly pay for each of the classifications was $455/week.   This had the tendency to lead to employees being misclassified as exempt from overtime even though, the employee may not meet the other Employment Classifications.

Keep in mind, you can and could still pay employees based a Base Salary even if they didn’t meet the exempt standards, but you were and are required to pay overtime (time WORKED over 40 hours in a given work week) to salaried employees even if they did not qualify for exempt status. The term “Salary” was not and should not be confused with being exempted from earning overtime pay.

How to implement the New Rules

Effective on Dec 1st, employers will be required to pay overtime to every employee who does not meet the Exempt Work regulations – those rules have not and are not changing.  What has changed is the weekly earnings in ADDITION to the exempt criteria.    The weekly minimum pay is being increased from $455/week to $913/week.

Attached (via this link)  https://www.dol.gov/whd/overtime/fs17a_overview.pdf  is the U.S. Dept of Labor fact sheet on WHO is exempted from overtime.  For any employees that you are not paying overtime to, you should review that employees job responsibilities to see it they meet the exemption standards for overtime.   If they do not, you need to begin paying overtime to the employees covered under this new change.   You may want to review these rules now to see if you are in compliance as you could potentially owe your employees hundreds (potentially thousands) if you have had them misclassified incorrectly all alone.   For those employees who do meet the job duty classifications but are under the new pay threshold, you have a couple options – (1) Raise that employees salary to an amount that exceeds $913/week, (2) Leave their salary as is but convert their Salary to hourly so their overtime hours can be easily determined or (3) Leave the Salary as is and weekly recalculate their hourly rate and pay overtime according to you state’s overtime rules.

What hours Qualify for Overtime

Overtime hours are those hours an employee WORKS in excess of 40 hours per week.  If your employee works 40 hrs but has 8 hours of vacation, the 8 hours of vacation is not Worked time and therefore no overtime is payable.   However, if your employee is continually working 45 hours per week, they will be due 5.0 hrs of overtime each Week – do not confuse this with pay periods.  If you pay on a bi-weekly period or some other pay period, you will need to determine if the employee worked over 40 hours in a given WEEK.

Example:  You pay your employees every other week (your pay cycle is Bi-Weekly).  Your employee who makes $15/hr and does not meet any of the exempt criteria turns in their time sheet for 80 hrs.  However, that 80 hrs consists of them working 45 hrs on week 1 and 35 hours on Wk 2 – The employee is entitled to 5 hours of Overtime pay for week 1 even though their total hours equal what would normally be 2 weeks at 40 hrs per week.

Each state has it’s own laws on what the overtime rate is.  Wisconsin is 1.5x the regular hourly rate.  Under these laws, in the example above, this employee would be paid 5.0 hrs at $22.50/hr for the overtime hours.   Some states may have laws which may 2.0x the employees hourly rate when/if hours exceed a given amount of overtime or if overtime occurs on a holiday.  Be Sure you know what your states Overtime pay laws are.

It’s important to understand that the employees who are entitled to overtime pay is NOT changing!  It’s only the amount that the already exempted employees earn that is being adjusted.   In other words, your employee meets the work related criteria to be considered exempt from overtime but they don’t meet the new pay threshold beginning on Dec 1st – this employee would now no longer be exempt simply because the pay threshold has changed.

LKM Accounting is here to help!  Feel free to give a jingle or shoot us an email.  We are happy to help small businesses understand the tax and pay laws.