What to do if you haven't filed a Tax Return
Tuesday, April 18, 2017, was the tax deadline for most taxpayers to file their tax returns. If you haven't filed a 2016 tax return yet, don't delay. There's still time--and it's not as difficult as you think.
Here's What to Do When Your Return Is Late
First, gather any and all information related to income and deductions for the tax years for which a return is required to be filed, then call the office.
If you're owed money, then the sooner you file, the sooner you'll get your refund. If you owe taxes, you should file and pay as soon as you can, which will stop the interest and penalties that you will owe.
If you owe money but can't pay the IRS in full, you should pay as much as you can when you file your tax return to minimize penalties and interest.
Don't Ignore a Tax Bill
The IRS will work with taxpayers suffering financial hardship. If you continue to ignore your tax bill, the IRS may take collection action.
Payment Options - Ways to Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier's check, or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee.
Payment Options - For Those Who Can't Pay in Full
Taxpayers unable to pay all taxes due on a tax bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less than if you do not pay anything at all. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise. Please call if you have questions about any of these options.
When it comes to paying your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.
For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.
- A short-term extension gives a taxpayer an additional 60 to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply. Generally, taxpayers will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
- A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan.
Taxpayers who owe $50,000 or less in combined tax, penalties and interest can apply for and receive immediate notification of approval through an online, IRS web-based application. Balances over $50,000 require taxpayers to complete a financial statement to determine the monthly payment amount for an installment plan.
A user fee will also be charged if the installment agreement is approved. The fee (effective January 1, 2017) is normally $225 but is reduced to $107 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
- Individual taxpayers who do not have a bank account or credit card and need to pay their tax bill using cash, are now able to make a payment at one or more than 7,000 7-Eleven stores nationwide. Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the other ways you can pay section and follow the instructions.
What Happens If You Don't File a Past Due Return or Contact the IRS?
It's important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions--including substantial penalties and fees (see article below for additional information on this topic).
Don't Ignore your Tax Return!
If you haven't filed a tax return yet, call the office today to schedule an appointment as soon as possible.
Renting Out a Vacation Home
Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.
There is, however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.
Known as the "Master's exemption," it is used by homeowners near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master's Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.
Tip:If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation--as long as it's two weeks or less. And, although you can't take depreciation or deduct for maintenance, you can deduct mortgage interest, property taxes, and casualty losses on Schedule A (1040), Itemized Deductions.
In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to the net investment income tax. You should also keep in mind that the definition of a "vacation home" is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.
Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10 percent of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.
Example:Let's say you own a beach house and rent it out during the summer, typically between mid-June and mid-September. You and your family also vacation at the house for one week in October and two weeks in December. The rest of the time the house is unused.
The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario, 85 percent of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15 percent of expenses, only the owner's mortgage interest and property taxes are deductible on Schedule A.
Questions about vacation home rental income? Please call and speak to a tax and accounting professional today.
Tax Implications of Retiring Overseas
Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it's important to look at the tax implications because not all retirement country destinations are created equal. Here's what you need to know.
Taxes on Worldwide Income
Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned.
Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizen (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing.
The filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate U.S. tax liability.
Note: These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.
Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.
In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.
Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is generally April 15 (April 18 in 2017 and April 17 in 2018) or June 15 depending on sources of income.
Income from Social Security or Pensions
If Social Security is your only income, then your benefits may not be taxable and you may not need to file a federal income tax return. If you receive Social Security you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits. Likewise, if you have pension or annuity income, you should receive a Form 1099-R for each distribution plan.
Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you're spending your retirement years.
However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits. You may also be required to report and pay taxes on any income earned in the country where you retired.
Each country is different, so consult a local tax professional or one who specializes in expat tax services.
Foreign Earned Income Exclusion
If you've retired overseas, but take on a full-or part-time job or earn income from self-employment, the IRS allows qualifying individuals to exclude all, or part, of their incomes from U.S. income tax by using the Foreign Earned Income Exclusion (FEIE). In 2017, this amount is $102,100. This means that if you qualify, you won't pay tax on up to $102,100 of your wages and other foreign earned income in 2017.
Note: Income earned overseas is exempt from taxation only if certain criteria are met such as residing outside of the country for at least 330 days over a 12-month period, or an entire calendar year.
The United States has income tax treaties with a number of foreign countries, but these treaties generally don't exempt residents from their obligation to file a tax return.
Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.
Treaty provisions are generally reciprocal; that is they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries.
Affordable Care Act
Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential coverage (MEC) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.
All U.S. citizens are subject to the individual shared responsibility provision. If you are not yet eligible for Medicare, U.S. citizens living abroad are generally subject to the same individual shared responsibility provision as U.S. citizens living in the United States.
However, U.S. citizens or residents living abroad for at least 330 days within a 12 month period are treated as having MEC during those 12 months and thus will not owe a shared responsibility payment for any of those 12 months. Also, U.S. citizens who qualify as a bona fide resident of a foreign country for an entire taxable year are treated as having MEC for that year.
Many states tax resident income as well, so even if you retire abroad, you may still owe state taxes--unless you established residency in a no-tax state before you moved overseas.
Some states honor the provisions of U.S. tax treaties; however, some states do not, therefore it is prudent to consult a tax professional.
Relinquishing U.S. Citizenship
Taxpayers who relinquish their U.S. citizenship or cease to be lawful permanent residents of the United States during any tax year must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service (Philadelphia, PA 19255-0049), by the due date of the tax return (including extensions).
Note: Giving up your U.S. citizenship doesn't mean giving up your right to receive social security, pensions, annuities or other retirement income. However, the U.S. Internal Revenue Code (IRC) requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits. If you are a nonresident alien receiving social security retirement income, then SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit. This results in a withholding of 25.5 percent of your monthly benefit amount.
Consult a Tax Professional Before You Retire
Don't wait until you're ready to retire to consult a tax professional. Call the office today and find out what your options are.
Retirement Plan Options for Small Businesses
Employer-sponsored retirement plans have become a key component for retirement savings. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today's competitive environment.
Besides helping employees save for the future, however, instituting a retirement plan can provide you, as the employer, with benefits that enable you to make the most of your business's assets. Such benefits include:
- Tax-deferred growth on earnings within the plan
- Current tax savings on individual contributions to the plan
- Immediate tax deductions for employer contributions
- Easy to establish and maintain
- Low-cost benefit with a highly perceived value by your employees
Here's an overview of four retirement plans options that can help you and your employees save:
SIMPLE: Savings Incentive Match Plan
A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE IRA plans, employees can set aside up to $12,500 in 2017 by payroll deduction. If the employee is 50 or older then they may contribute an additional $3,000. Employers can either match employee contributions dollar for dollar - up to 3 percent of an employee's wage - or make a fixed contribution of 2 percent of pay for all eligible employees instead of a matching contribution.
SIMPLE IRA plans are easy to set up by filling out a short form. Administrative costs are low and much of the paperwork is done by the financial institution that handles the SIMPLE IRA plan accounts. Employers may choose either to permit employees to select the IRA to which their contributions will be sent or to send contributions for all employees to one financial institution. Employees are 100 percent vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs.
SEP: Simplified Employee Pension Plan
A SEP plan allows employers to set up a type of individual retirement account--known as a SEP IRA--for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to whichever is less: 25 percent of an employee's annual salary or $54,000 in 2017. SEP plans can be started by most employers, including those that are self-employed.
SEP plans have low start-up and operating costs and can be established using a single quarter-page form. Businesses are not locked into making contributions every year. You can decide how much to put into a SEP each year - offering you some flexibility when business conditions vary.
401(k) plans have become a widely accepted savings vehicle for small businesses and allow employees to contribute a portion of their own incomes toward their retirement. The employee contributions, not to exceed $18,000 in 2017, reduce a participant's pay before income taxes, so that pre-tax dollars are invested. If the employee is 50 or older then they may contribute another $6,000 in 2017. Employers may offer to match a certain percentage of the employee's contribution, increasing participation in the plan.
While more complex, 401(k)plans offer higher contribution limits than SIMPLE IRA plans and IRAs, allowing employees to accumulate greater savings.
Employers also may make profit-sharing contributions to plans that are unrelated to any amounts an employee chooses to contribute. Profit-sharing Plans are well suited for businesses with uncertain or fluctuating profits. In addition to the flexibility in deciding the amounts of the contributions, a Profit-Sharing Plan can include options such as service requirements, vesting schedules and plan loans that are not available under SEP plans.
Contributions may range from 0 to 25 percent of eligible employees' compensation, to a maximum of $54,000 in 2017 per employee. The contribution in any one year cannot exceed 25 percent of the total compensation of the employees participating in the plan. Contributions need not be the same percentage for all employees. Key employees may actually get as much as 25 percent, while others may get as little as 3 percent. A plan may combine these profit-sharing contributions with 401(k) contributions (and matching contributions).
Pension rules are complex, and the tax aspects of retirement plans can also be confusing. If you need help finding the right plan for you and your employees, please call.
Employee Relocation: What Happens to your Home?
Business owners, as well as employees, often have questions about what to do with an employee's home--and what the tax consequences might be--when he or she is moved to a new job location. Here are some answers.
Most employers want to protect the employee to be relocated against financial loss on a "forced" sale of their home. Here are the most common ways to do that, and the tax consequences to the employee:
The employer reimburses the employee's financial loss. Here the employer has the home appraised and agrees to pay the employee the difference between the appraised fair market value and any lesser amount the employee gets on the sale. Such reimbursement would cover the employee's costs of the sale.
Note: Financial loss as described here is not the same as a tax loss. The financial loss is the home's value less what the employee collects under "forced sale" conditions. In the current real estate market, the value is not always clearly determined. The relocating employee might think the home is worth more, based on earlier appraisals or comparative sales. A tax loss is the property's tax basis (cost plus capital investments) less what's collected on the sale.
If the employee has a gain on the sale (the amount collected on the sale exceeds the basis), the gain can be tax-exempt up to $250,000 ($500,000 on certain husband-wife sales). Tax loss on the sale of one's residence, however, is not deductible.
The employer's reimbursement of the employee's financial loss is taxable pay to the employee. Employers who want to shelter the employee from any tax burden on what is usually an employer-instigated relocation may "gross-up" the reimbursement to cover the tax. But gross-up can be costly. For example, a grossed-up income tax reimbursement for a $10,000 loss would be $15,385 for an employee in the 35% bracket - more where Social Security taxes or state taxes are also grossed-up.
Employer buys the home. Few employers directly buy and sell employees' homes. But many do this indirectly, effectively becoming the homes' owners, through the use of relocation firms acting as the employers' agents. Known as a Guaranteed Home Sale (formerly known as a Guaranteed Buy-Out or GBO), there is no tax on the employee when using either of these two options:
Option 1. The relocation firm as employer's agent buys the home for its appraised fair market value, and later resells it. The firm collects a fee from the employer, which will cover sales costs and any financial loss to the firm on resale. The IRS now says that this fee is not taxable to the employee. Also, the employee's gain on the sale to the relocation firm qualifies for the tax exemption under the limits described above ($250,000 or $500,000).
Option 2. The relocation firm offers to buy the home for its appraised value, but the employee can choose to pursue a higher price through a broker he or she chooses from a list provided by the relocation firm. If a higher offer is made, the relocation firm pays that price to the employee (whether or not the home is then sold to that bidder). Here again, the employee is not taxed on the firm's fee and the gain is tax exempt under the above limits.
Tip: Either option works for the employee, letting him or her realize full value on the sale of the home (with possibly greater value through Option 2), without an element of taxable pay.
Caution: If the deal is structured so that the relocation firm facilitates a sale from the employee to a third-party buyer (rather than to the relocation firm), the employer's payment of the relocation firm's fee is taxable to the employee.
The Employer's Side
Reimbursing the employee's loss. This is fully deductible as a business expense, as would be any additional amount paid as a gross-up.
Note: It's fully deductible, but it may be more costly, before and after taxes, than buying the home for resale through the relocation firm.
Note: Paying the relocation fee only, without buying the home, as in the "Caution" above, is also fully deductible, as would be any gross-up amount on that fee.
Buying the home. The change in the IRS rule was good news for employees, but it gave nothing to employers, whose tax treatment wasn't covered. The official IRS position is that employer costs (other than carrying costs such as mortgage interest, maintenance, and fees to a relocation management company) are deductible only as capital losses, which, for corporate employers, are deductible only against capital gains. Taxpayer advocates tend to argue that employer costs here are fully deductible ordinary costs of doing business.
Questions about Relocating?
If you've been offered a job that requires relocating to another state and wondering how it might affect your tax situation, don't hesitate to call.
Late Filing and Late Payment Penalties
April 18 was the deadline for most people to file their federal income tax return and pay any taxes they owe. The bad news is that if you missed the deadline (for whatever reason) you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. The good news is that there is no penalty if you filed a late tax return but are due a refund.
Here are ten important facts every taxpayer should know about penalties for filing or paying late:
1. A failure-to-file penalty may apply. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late.
2. Penalty for filing late. The penalty for filing a late return is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late and starts accruing the day after the tax filing due date. Late filing penalties will not exceed 25 percent of your unpaid taxes.
3. Failure to pay penalty. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
4. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you're not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact the office today if you need help figuring out how to pay what you owe.
5. Extension of time to file. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.
6. Two penalties may apply. One penalty is for filing late and one is for paying late--and they can add up fast, especially since interest accrues on top of the penalties but if both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you'll pay for both is 5 percent.
7. Minimum penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
8. Reasonable cause. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Please call if you have any questions about what constitutes reasonable cause.
9. Penalty relief. The IRS generally provides penalty relief, including postponing filing and payment deadlines, to any area covered by a disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA). For example, taxpayers in parts of Georgia and Mississippi have until May 31, 2017, to file and pay, while those in parts of Louisiana have until June 30, 2017, to file and pay.
10. File even if you can't pay. Filing on time and paying as much as you can, keeps your interest and penalties to a minimum. If you can't pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill the less you will owe.
If you need assistance, help is just a phone call away!
Top Ten Facts about Adoption Tax Benefits
If you adopt a child in 2017, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are ten things you should know about adoption tax benefits.
1. Credit or Exclusion. The credit is non-refundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can't get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2017 is $13,570 per child.
3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2017, you can use it to reduce your taxes for 2018. You can do this for up to five years, or until you fully use the credit, whichever comes first.
4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees, and travel.
6. Domestic Adoptions. For domestic adoptions (adoption of a U.S. child), qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized).
7. Foreign Adoptions. For foreign adoptions (adoption of an eligible child who is not yet a citizen or resident of the U.S.), qualified adoption expenses paid before and during the year are allowable as a credit for the year when it becomes final.
8. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn't pay any qualified adoption expenses.
9. No Double Benefit. Depending on the adoption's cost, you may be able to claim both the tax credit and the exclusion. However, you can't claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
10. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.
Questions? Please don't hesitate to call.
Business Expenses - Tips for Employees
If you pay for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income. Here are five other facts you should know:
1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.
2. Expense Examples. Some costs that you may be able to deduct include:
- Required work clothes or uniforms not appropriate for everyday use.
- Supplies and tools you use on the job.
- Business use of your car.
- Business meals and entertainment.
- Business travel away from home.
- Business use of your home.
- Work-related education.
This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more call the office or check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463,Travel, Entertainment, Gift and Car Expenses.
3. Forms to Use. In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.
4. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you pay in 2017. These may include books, supplies, equipment and other materials used in the classroom. Claim this deduction as an adjustment on your return, rather than an itemized deduction. For more on this topic, please call.
5. Keep Records. You must keep records to prove the expenses you deduct so that you can prepare a complete and accurate income tax return. The law doesn't require any special form of records; however, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim. If you file a claim for refund, you must be able to prove by your records that you have overpaid your tax. For what records to keep, see Publication 17, Your Federal Income Tax.
Please call the office if you have any questions about employee expenses or need help setting up a recordkeeping system to document your expenses.
Tax Tips for Farmers
Are you in the farming business or thinking about it? If so, you should be aware that there may be tax benefits available for you come tax time. Farms include plantations, ranches, ranges, and orchards. Farmers may raise livestock, poultry or fish, or grow fruits or vegetables.
Here are 10 things about farm income and expenses you should keep in mind this year.
1. Crop insurance proceeds. Insurance payments from crop damage count as income. Generally, you should report these payments in the year you get them.
2. Deductible farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is appropriate for that business.
3. Employees and hired help. You can deduct reasonable wages you paid to your farm's full and part-time workers. You must withhold Social Security, Medicare and income taxes from their wages.
4. Sale of items purchased for resale. If you sold livestock or items that you bought for resale, you must report the sale. Your profit or loss is the difference between your selling price and your basis in the item. Basis is usually the cost of the item. Your cost may also include other amounts you paid such as sales tax and freight.
5. Repayment of loans. You can only deduct the interest you paid on a loan if the loan is used for your farming business. You can't deduct interest you paid on a loan that you used for personal expenses.
6. Weather-related sales. Bad weather such as a drought or flood may force you to sell more livestock than you normally would in a year. If so, you may be able to delay reporting a gain from the sale of the extra animals.
7. Net operating losses. If your expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid in prior years. You may also be able to lower your tax in future years.
8. Farm income averaging. You may be able to average some or all of the current year's farm income by spreading it out over the past three years. This may lower your taxes if your farm income is high in the current year and low in one or more of the past three years.
9. Fuel and road use. You may be able to claim a tax credit or refund of excise taxes you paid on fuel used on your farm for farming purposes.
10. Farmers Tax Guide. Publication 225, Farmer's Tax Guide, is a useful resource that you can obtain from the IRS. However, if you have specific questions, don't hesitate to call.
Tax Rules for Children With Investment Income
Children who receive investment income are subject to special tax rules that affect how parents must report a child's investment income. Some parents can include their child's investment income on their tax return, while other children may have to file their own tax return. If a child cannot file his or her own tax return for any reason, such as age, the child's parent or guardian is responsible for filing a return on the child's behalf.
Here's what you need to know about tax liability and your child's investment income.
1. Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.
2. Special rules apply if your child's total investment income is more than $2,100. The parent's tax rate may apply to part of that income instead of the child's tax rate.
3. If your child's total interest and dividend income is less than $10,500, then you may be able to include the income on your tax return. If you make this choice, the child does not file a return. Instead, you file Form 8814, Parents' Election to Report Child's Interest and Dividends, with your tax return.
4. If your child received investment income of $10,500 or more in 2017, then he or she will be required to file Form 8615, Tax for Certain Children Who Have Unearned Income, with the child's federal tax return for tax year 2017.
Please call the office if you have any questions about tax rules for your child's investment income in 2017.
Memorizing Transactions in QuickBooks
Your accounting work involves a lot of repetition. You send invoices. Pay bills. Create purchase orders. Generate payroll checks and submit payroll taxes.
Some of the time, you only fill out those transaction forms once. You might be doing a one-time purchase, like paying for some new office furniture. Other times, though, you're paying or charging the same companies or individuals on a regular basis.
QuickBooks contains a shortcut to those recurring tasks, called Memorized Transactions. You can save the details that remain the same every time, and use that template every time the bill or invoice is due, which can save a lot of time and improve accuracy. Here's how it works.
To memorize a transaction, you first need to create a model for it. Let's say you have a monthly bill for $450 that's paid to Bruce's Office Machines. You'd click Enter Bills on the home page or open the Vendors menu and select Enter Bills. Fill in the blanks and select from drop-down lists to create the bill. Then click Memorize in the horizontal toolbar at the top of the form. This window will open. Figure 1: Before you can Memorize a transaction, you first have to create a model (template) for it.
The vendor's name will already be filled in on the Memorize Transaction screen. Look directly below that. There are three ways that QuickBooks can handle these Memorized Transactions when one of their due dates is approaching:
- Add to my Reminders List. If you click the button in front of this option, the current transaction will appear on your Reminders List every time it's due. You might request this for transactions that will change some every time they're processed, like a utility bill that's always expected on the same day, but which has a different amount every month.
- Do Not Remind Me. Obviously, QuickBooks will not post a reminder if you click this button. This is best used for transactions that don't recur on a regular basis. Maybe you have a snow-shoveling service that you pay only when there's a storm. So the date is always different, but everything else is the same.
- Automate Transaction Entry. Be very careful with this one. It's reserved for transactions that are identical except for the issue date. They don't need your approval--they're just created and dispatched.
Click the down arrow in the field to the right of How Often and select the correct interval. Then click the calendar icon to pick a date for the next occurrence. If you have selected Automate Transaction Entry, the grayed-out lines below Next Date not shown here) contain fields for Number Remaining and Days in Advance to Enter.
How Does QuickBooks Know?
Obviously, you'll want advance warning of transactions that will require processing. QuickBooks lets you specify how many days' notice you want for each type. Open the Edit menu and select Preferences. Click Reminders in the left vertical pane, then the Company Preferences tab. You can tell QuickBooks whether you want to see a summary in each category or a list, or no Reminder. Then you can enter the number of days' warning you want. Figure 2: QuickBooks lets you specify the content and timing of your Reminders.
Working with Memorized Transactions
Once you've created some Memorized Transactions, you will undoubtedly need to review them at some point. QuickBooks makes this happen. Open the Lists menu and select Memorized Transaction List to see all the templates for recurring bills, invoices, etc., that you've defined. Right-click on one you want to work with and this menu appears: Figure 3: The Memorized Transaction List with the right-click window open.
You have several options here. If your list is so long that it fills multiple screens, you can Find the transaction you're looking for. If you've created multiple related transactions, you can save them as a New Group. You can also Edit, Delete, and Enter Memorized Transactions.
Anytime you're letting QuickBooks do something on its own, it's critical that you thoroughly understand the mechanics of setting the process up. Please call if you have any questions about the topic of Memorized Transactions. One of our specialists would be more than happy to assist you with this or any other aspect of QuickBooks operations.
Tax Due Dates for May 2017
Employers - Social Security, Medicare, and withheld income tax. File form 941 for the first quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return.
Employees who work for tips - If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.
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