Tuesday, January 2, 2018

1099-Misc Filing Requirements and Penalties for 2018

It’s a new year and that means 1099 season is here!  I hope you have been collecting those W-9 forms from people because the IRS is cracking down on 1099 reporting.   

If you don’t have W-9 forms signed and filled out, I suggest you start working on collecting those NOW...otherwise be prepared for possible penalties this year.


What’s New

Beginning last year, the IRS changed the deadline for filing government copies of 1099-Misc forms to January 31st.  In case you weren’t aware the OLD deadline for most was February 28th (March 31st if filing electronically).  That means 1099 preparers have one to two less months to get the information required to prepare these forms this year.

The IRS has always required the filing of 1099-Misc forms and there have always been penalties for not filing and filing late.  What’s new is that beginning last year the IRS started enforcing those penalties.  A few of our clients who self-prepare their 1099’s received large penalties for late filing last year; most were not able to get those waived.

Here are the penalty tables pulled from the IRS website:

Large Businesses with Gross Receipts of More Than $5 Million:

Time returns filed/furnished
Returns due 01-01-17 through 12-31-2017
Returns due 01-01-18 through 12-31-2018
Not more than 30 days late (by March 30 if the due date is February 28)

$50 per return/
$532,000 maximum
$50 per return/
$536,000 maximum
31 days late – August 1
$100 per return/
$1,596,500 maximum

$100 per return/
$1,609,500 maximum
After August 1 or Not at All
$260 per return/
$3,193,000 maximum
$260 per return/
$3,218,500 maximum

Intentional Disregard
$530 per return/
No limitation
$530 per return/
No limitation


Small Business with Gross Receipts of $5 Million or Less:

Time returns filed/furnished
Returns due 01-01-17
through 12-31-2017
Returns due 01-01-18
 through 12-31-2018
Not more than 30 days late (by March 30 if the due date is February 28)

$50 per return/
$186,000 maximum
$50 per return/
$187,500 maximum
31 days late – August 1
$100 per return/
$532,000 maximum

$100 per return/
$536,000 maximum
After August 1 or Not at All
$260 per return/
$1,064,000 maximum
$260 per return/
$1,072,500 maximum

Intentional Disregard
$530 per return/
No limitation
$530 per return/
No limitation


As you can see the penalties increase the later the filing.

I also want to point out that the “per return” refers to each individual 1099 form.  It does not refer to all 1099 and 1096 forms as a bundle. 

So, this means if you have 5 people you should send 1099’s to and you don’t then your penalty will be at least $530 (per return) times 5 = $2,650.  Not to mention your 1096 form would be filed incorrectly and the list goes on.  And those are the kind of penalties we are seeing assessed.    

Watch Out for These Errors

The IRS says that penalties may apply if you:
  • Don’t file a correct information return by the due date and a reasonable cause is not shown
  • File on paper when you were required to file electronically
  • Don’t report a Taxpayer Identification Number (TIN)
  • Report an incorrect TIN; or
  • Don’t file paper forms that are machine readable

Who should I issue a 1099-MISC form to?

You should issue a 1099 to any person or unincorporated business (including an LLC not being taxed as a corporation) that you paid $600 or more cumulative during the year for services (including parts and materials and rents).

Payments for purchases of items you consume during the course of your business such as office expenses, utilities, inventory, equipment purchases, etc. are not subject to the 1099 reporting.  Just focus on services provided (i.e. contract labor, commissions paid, etc.).

You do not need to include payments made by credit card since these amounts are picked up on Forms 1099-K.

This information is readily available if you have your accounting caught up through December 2017.  If not you have some work to do. 

Do I need to get a W-9 from the vendor?

I get this question a lot.  The short answer is no you don’t but you want to because this is your get out of jail free card if the IRS sends you a notice that the TIN or other information on the return is incorrect.  As long as you have the W9 to support the information you filed on the 1099 you can respond to the IRS and avoid penalties.

Where can I get help?

We are here to help if you need us.   Call our office 417-882-9000 and ask for Kayla Kendrick.   We will need your W9's and a signed engagement letter.    

Thursday, December 21, 2017

8 Scenarios on How the Tax Bill Will Affect You

We have just seen the biggest tax overhaul in 30 years.  

The final version rewrites the tax code in dozens of ways, eliminating deductions, changing rates, and creating brand new benefits for certain taxpayers, such as business owners. 

With 479 pages of brand new tax law how can you know how the tax bill will affect you and your family?

How exactly would these changes affect me?

It depends on where you live, what you do and how big your family is. You're more likely to get a tax increase if you live in a high-tax state or lean heavily on deductions—such as unreimbursed employee expenses—that will be eliminated under the bill. 

To see how Americans fare across different incomes and circumstances, Bloomberg turned to Tim Steffen, director of advanced planning at Baird Private Wealth Management.

His eight scenarios examine only 2018 wage and pass through income from an S corp or partnership that you own and how taxes owed on those earnings would change when tax time comes around in 2019. 

The Multimillionaires in New York
These Manhattan residents have a jumbo mortgage (at an assumed 4 percent interest rate) and take a $40,000 deduction on mortgage interest; pay property taxes of $96,250 and state income tax of $135,360; and make annual charitable contributions totaling $100,000.



They will pay a bit more next year because they would lose key deductions, especially the ability to put down more than $10,000 in state and local taxes. That offsets a drop in the top marginal tax rate, from 39.6 percent to 37 percent. (The “marginal rate,” the rate paid on any extra dollar earned, is different from the “effective tax rate,” which is the overall, blended rate you pay as different tax rates are levied on your income at different thresholds.)

City taxes for these Manhattan dwellers would work out to almost 4 percent. Combine that with the top federal rate and top state rate, and you get a marginal rate approaching 50 percent.

The Second-Home Scenario in California
A married couple has a primary residence in Malibu, California, and a second home in Lake Tahoe. The property tax on the Malibu home is $15,860, and they pay $4,896 on their second home; they deduct a total of $40,000 in mortgage interest for the two homes; and they give $50,000 to charity.



This couple would lose almost $86,000 in deductions under the tax bill. Nonetheless, other changes—especially the drop in the top tax rate—means their effective tax rate creeps up by only 0.5 percentage points.

The Small Business Owners in Pittsburgh
This married couple with a small manufacturing business in Pittsburgh has $300,000 in pass-through business income. Their deductible mortgage interest adds up to $6,000; their property tax is $8,600; and they give 5 percent of their income to charity.



These taxpayers get a big benefit from the new 20 percent deduction aimed at pass-through business owners, who pay their business income taxes through their individual tax returns.

The Suburban Family in Westchester
A married couple in a New York suburb has estimated state income tax of $17,290; their annual mortgage interest deduction is $14,000; and they pay property tax of $13,750—about the same amount they donate to charity.



While the bill takes a bite out of this family's deductions and exemptions, they would benefit from enhanced child tax credits and avoiding the alternative minimum tax, or AMT.

Single in Manhattan
This New York renter pays estimated state income tax of $8,148 and gives about $6,500 to charity.



The final tax legislation is more generous to this taxpayer than the bills that originally passed the House and Senate. That's because it permits the deduction of state and local income taxes up to $10,000. The original proposals scrapped the income tax deduction entirely and allowed only a $10,000 deduction for property taxes, which this renter doesn't pay.

Married in Austin
This young couple rents and has income of $100,000. They give $5,000 a year to charity.



The bill eliminates the personal exemption, an automatic $4,050 deduction for each family member. But for this couple, that loss is offset by rate cuts and a near-doubling of the standard deduction, from $12,700 to $24,000 for married couples.

Median Income in Oregon
This Portland, Oregon, couple earns close to the median household income for the U.S. Their property tax bill is $1,688; their deductible mortgage interest is $3,000; and their estimated state income tax is $4,744.



Because this couple has few deductions, they benefit from the higher standard deduction, netting a 2018 tax cut of $949.

Renting in Milwaukee
This married couple rents and has an estimated 2017 state income tax bill of $2,104.




This family ends up with negative income tax rate, because they benefit from the enhanced child tax credits, which are refundable. That means that, subject to limits, low-income taxpayers are able to get larger refunds than they pay in income taxes.

Thursday, December 7, 2017

How Does the New Tax Plan Affect Me?

Many of you are asking where we stand on tax reform for next year and how will it affect your taxes.  
Here is what we know right now…
2017 Tax Reform: Key differences between the Senate and House tax bills
The Senate and the House have each passed their own version of the “Tax Cuts and Jobs Act.” The two versions of the bill have many similar provisions, but they also have a number of key differences that will have to be reconciled by the Conference Committee as the two bills are merged into a single piece of legislation.
It is unclear at this point how these differences will be resolved.  There is a general inclination that the Senate's provisions carry slightly more weight since the Senate is subject to budgetary restraints as part of the reconciliation process and there is less flexibility to make changes to their bill.
The House voted on December 4 to go to conference with the Senate to reconcile the two bills and the Senate is expected to name conferees later in the week. There has also been some speculation that the House might take up the Senate version and forego a conference but the chance of this happening is slight considering they have an issue with the corporate alternative minimum tax (AMT) provision in the Senate bill (see below).
The following are some of the more significant differences between the two versions of the bill.

Individual Provisions
Ø  Sunset provision. The Senate bill provided an expiration date of Jan. 1, 2026 for many of the tax breaks in its bill, especially those for individuals. The House, on the other hand, largely made the changes in its bill permanent.
Ø  Individual rates and brackets. The Senate bill has seven tax brackets for individuals with rates ranging from 10% to 38.5%. The House bill has four tax brackets ranging from 12% to 39.6%, retaining the top rate under current law.
Ø  Individual alternative minimum tax (AMT). The House bill would repeal AMT for individuals. The Senate bill would retain the individual AMT, with increases to the exemption amounts.
Ø  Estate tax. Both bills would significantly increase the estate and gift tax exemption, but the House would also repeal the estate tax after Dec. 31, 2024.
Ø  Individual mandate. The Senate bill would effectively repeal the individual mandate (i.e., by reducing the penalty amount to zero). The House version has no such provision.
Ø  Mortgage interest deduction. The Senate bill would leave the deduction for interest on acquisition indebtedness intact but would suspend the deduction for interest on home equity indebtedness. The House bill would allow the deduction for interest on acquisition indebtedness, but would, for newly purchased homes, reduce the current $1 million limitation to $500,000 ($250,000 for married individuals filing separately), and would allow the deduction only for interest on a taxpayer's principal residence. Interest on home equity indebtedness incurred after the effective date of the House bill would not be deductible.
Ø  Medical expense deduction. The House bill would repeal deductions for medical expenses outright, but the Senate bill would take a step in the opposite direction and temporarily (and retroactively) reduce the floor from 10% under current law to 7.5% for all taxpayers for tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, after which time the 10% floor would be scheduled to return.
Ø  Child tax credit. The Senate bill would increase the child tax credit from $1,000 under current law to $2,000, increase the age limit for a qualifying child by one year (for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2025), increase the income level at which the credit phases out ($75,000 for single filers and $110,000 for joint filers under current law) to $500,000, and reduce the earned income threshold for the refundable portion of the credit from $3,000 to $2,500. The House bill would increase the amount of the credit to $1,600 and increase the income levels at which the credit phases out to $115,000 for single filers and $230,000 for joint filers.
Ø  Both bills would also provide a non-child dependent credit, which would be $500 under the Senate bill and $300 under the House bill. The House bill would also provide a “family flexibility credit”; the Senate bill has no equivalent.


Business provisions
Ø  Effective date of corporate tax reduction. Both bills would reduce the corporate tax rate to 20%, but the House's version would go into effect for tax years beginning after Dec. 31, 2017, whereas the Senate's version would go into effect for tax years beginning after Dec. 31, 2018.
Ø  Corporate AMT. The House bill would repeal the corporate AMT. The Senate bill, however, would retain the corporate AMT at its current 20% rate. 
o   FYI- The 20% corporate AMT rate is equal to the 20% corporate rate that would go into effect under the Senate bill in tax years beginning after Dec. 31, 2018—which would effectively negate the value of corporate tax breaks for many businesses.
Ø  Section 179 expensing. Both bills would increase the expensing cap and phase-out under Sec 179 rules, but the Senate would increase the cap to $1 million and begin the phase-out at $2.5 million (up from $520,000 and $2,070,000 for 2018 under current law), whereas the House would increase the cap to $5 million and start the phase-out at $20 million.
Ø  Pass-through provision. The Senate bill would generally allow a non-corporate taxpayer who has qualified business income (QBI) from a partnership, S corporation, or sole proprietorship to claim a deduction equal to 23% of pass-through income. The House bill would provide a new maximum rate of 25% on the “business income” of individuals, with a series of complex anti-abuse rules to prevent the recharacterization of wages as business income.

Stay tuned with more to come!

Follow me on TwitterFacebook and LinkedIn for updates, visit our website at kinzeyarndt.com or give us a call at (417) 882-9000.

Sunday, July 10, 2016

Second Chance to Claim Often Overlooked Tax Credit...But Expiring Soon

One tax break often overlooked is the Work Opportunity Tax Credit (WOTC).  The WOTC has been around for years but many businesses are not aware of it. 

It is a program that allows employers who hire individuals from certain targeted groups (see list below) to receive a federal income tax credit. 

Industries such as construction, restaurants, transportation, health care, c-stores, manufacturing, distributors, call centers, and staffing agencies tend to see the most qualifying employees for this credit.

How much is the credit worth?
It ranges from $2,400 to $9,600 per new hire and there is no limit on the number of new hires or total amount of credits you can claim.

That's like free money from the government!  Sadly, millions of dollars in tax credits go unclaimed each year even though employers are hiring workers every day from the WOTC targeted groups.  
   
Why you have to act fast?
One reason the credit is overlooked is because you have to be proactive to take it.  Even though it’s a federal credit paperwork must be filed with the state workforce agency within 28 days of the employees start date.  Businesses have to be aware of this deadline in order to qualify their targeted group employees for the credit.

The good news is that on June 17, 2016 the IRS provided relief that allows employers to claim the credit on employees hired January 1, 2015 through August 31, 2016...but you must file the paperwork no later than September 28, 2016.  

You get a second chance to look back at hiring records and take advantage of this underutilized tax credit...but keep in mind the 28 day filing deadline is back in place for new hires after August 31, 2016. 

What should you be doing immediately?
  • If you ARE NOT currently participating in the WOTC you need to review your 2015 hiring records and check them against the targeted list below.  Have the qualifying employees complete Form 8850.  Then submit the application online. 
  • If you ARE currently taking advantage of WOTC you should review your 2015 new hire files to be sure that you did not overlook any qualifying employees.  If so have the employee complete Form 8850.  Then submit the application online.    
Here are 3 steps to follow to claim the credit:  

Step 1:  Know Your Targeted Groups
To determine whether you qualify for this tax break first determine if a new hire belongs to one of these targeted groups: 
  • Food stamp (SNAP) recipients
  • Qualified recipients of Temporary Assistance for Needy Families (TANF)
  • Veterans
  • Ex-felons
  • Designated community residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational rehabilitation referrals
  • Summer youth employees (living in Empowerment Zones)
  • Supplemental Nutrition Assistance Program benefits recipients
  • Supplemental Security Income recipients 
Effective January 1, 2016 the following target group was added:
  • Long term unemployment recipient


Step 2: Check whether a new hire meets the other requirements of the credit. 
You won't be eligible for any credit if a new employee:
  • Worked for you fewer than 120 hours during the year
  • Previously worked for you or
  • Is your dependent or relative 

Step 3: Complete Form 8850 and submit online 
Missouri is now offering an online application system for submitting certification paperwork.  The application entry process includes entering employee and employer information from the completed and signed IRS Form 8850

How we can help?

We can do the work and let you take the credit. 

We can help you determine if your new hires qualify, calculate the credit and complete and file the necessary forms.  If you have already filed your 2015 income tax return we can prepare the amended returns to request the refund.

Follow me on TwitterFacebook and LinkedIn for updates, visit our website at kinzeyarndt.com or give us a call at (417) 882-9000.