irs

Be Sure Your Employee Travel Expense Reimbursements Will Pass Muster with the IRS

Does your business reimburse employees’ work-related travel expenses? If you do, you know that it can help you attract and retain employees. If you don’t, you might want to start, because changes under the Tax Cuts and Jobs Act (TCJA) make such reimbursements even more attractive to employees. Travel reimbursements also come with tax benefits, but only if you follow a method that passes muster with the IRS.

The TCJA’s impact

Before the TCJA, unreimbursed work-related travel expenses generally were deductible on an employee’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction. However, many employees weren’t able to benefit from the deduction because either they didn’t itemize deductions or they didn’t have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income (AGI) floor that applied.

For 2018 through 2025, the TCJA suspends miscellaneous itemized deductions subject to the 2% of AGI floor. That means even employees who itemize deductions and have enough expenses that they would exceed the floor won’t be able to enjoy a tax deduction for business travel. Therefore, business travel expense reimbursements are now more important to employees.

The potential tax benefits

Your business […]

By |October 2nd, 2018|employer, expensing, irs, New Tax Laws|0 Comments

An FLP Can Save Tax in a Family Business Succession

One of the biggest concerns for family business owners is succession planning — transferring ownership and control of the company to the next generation. Often, the best time tax-wise to start transferring ownership is long before the owner is ready to give up control of the business.

A family limited partnership (FLP) can help owners enjoy the tax benefits of gradually transferring ownership yet allow them to retain control of the business.

How it works

To establish an FLP, you transfer your ownership interests to a partnership in exchange for both general and limited partnership interests. You then transfer limited partnership interests to your children.

You retain the general partnership interest, which may be as little as 1% of the assets. But as general partner, you can still run day-to-day operations and make business decisions.

Tax benefits

As you transfer the FLP […]

Business Deductions for Meal, Vehicle and Travel Expenses: Document, Document, Document

Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS.

A critical requirement

Subject to various rules and limits, business meal (generally 50%), vehicle and travel expenses may be deductible, whether you pay for the expenses directly or reimburse employees for them. Deductibility depends on a variety of factors, but generally the expenses must be “ordinary and necessary” and directly related to the business.

Proper documentation, however, is one of the most critical requirements. And all too often, when the IRS scrutinizes these deductions, taxpayers don’t have the necessary documentation.

What you need to do

Following some simple steps can help ensure you have documentation that will pass muster with the IRS:

Keep receipts or similar documentation. You generally […]

By |July 23rd, 2018|business, deduction, deductions, New Tax Laws, vehicles|0 Comments

What You Can Deduct When Volunteering

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Because donations to charity of cash or property generally are tax deductible (if you itemize), it only seems logical that the donation of something even more valuable to you — your time — would also be deductible. Unfortunately, that’s not the case.

Donations of time or services aren’t deductible. It doesn’t matter if it’s simple administrative work, such as checking in attendees at a fundraising event, or if it’s work requiring significant experience and expertise that would be much more costly to the charity if it had to pay for it, such as skilled carpentry or legal counsel.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The basic rules

As with any charitable donation, for you to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can use the IRS’s “Tax Exempt Organization Search” tool (formerly “Select Check”) at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search to find out.

Assuming the charity is qualified, you may be able to deduct out-of-pocket costs that are:

  • Unreimbursed,
  • Directly connected with the services you’re providing,
  • Incurred only because of your charitable work, and
  • Not “personal, living or family” expenses.

Supplies, uniforms […]

By |July 10th, 2018|charity, deduction|0 Comments

How to Avoid Getting Hit with Payroll Tax Penalties

For small businesses, managing payroll can be one of the most arduous tasks. Adding to the burden earlier this year was adjusting income tax withholding based on the new tables issued by the IRS. (Those tables account for changes under the Tax Cuts and Jobs Act.) But it’s crucial not only to withhold the appropriate taxes — including both income tax and employment taxes — but also to remit them on time to the federal government.

If you don’t, you, personally, could face harsh penalties. This is true even if your business is an entity that normally shields owners from personal liability, such as a corporation or limited liability company.

The 100% penalty

Employers must withhold federal income and employment taxes (such as Social Security) as well as applicable state and local taxes on wages paid to their employees. The federal taxes must then be remitted to the federal government according to a deposit schedule.

If a business makes payments late, there are escalating penalties. And if it fails to make them, the Trust Fund Recovery Penalty could apply. Under this penalty, also known as the 100% penalty, the IRS can assess the entire unpaid amount against a […]

By |July 9th, 2018|employer, income tax, tax|0 Comments

What Businesses Need to Know About the Tax Treatment of Bitcoin and Other Virtual Currencies

Over the last several years, virtual currency has become increasingly popular. Bitcoin is the most widely recognized form of virtual currency, also commonly referred to as digital, electronic or crypto currency.

While most smaller businesses aren’t yet accepting bitcoin or other virtual currency payments from their customers, more and more larger businesses are. And the trend may trickle down to smaller businesses. Businesses also can pay employees or independent contractors with virtual currency. But what are the tax consequences of these transactions?

Bitcoin 101

Bitcoin has an equivalent value in real currency and can be digitally traded between users. It also can be purchased with real currencies or exchanged for real currencies. Bitcoin is most commonly obtained through virtual currency ATMs or online exchanges.

Goods or services can be paid for using “bitcoin wallet” software. When a purchase is made, the software digitally posts the transaction to a global public ledger. This prevents the same unit of virtual currency from being used multiple times.

Tax impact

Questions about the tax impact of virtual currency abound. And the IRS has yet to offer much guidance.

The IRS did establish in a 2014 ruling that bitcoin and other convertible virtual currency should be […]

By |June 5th, 2018|credit, irs, payments, tax, tax implications|0 Comments

Law Change Affects Moving, Mileage and Travel Expenses

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The Internal Revenue Service recently provided information to taxpayers and employers about changes from the Tax Cuts and Jobs Act that affect:

  • Move related vehicle expenses
  • Un-reimbursed employee expenses
  • Vehicle expensing

Changes to the deduction for move-related vehicle expenses

The Tax Cuts and Jobs Act suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017, and goes through Jan. 1, 2026. Thus, during the suspension no deduction is allowed for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.

Changes to the deduction for un-reimbursed employee expenses

The Tax Cuts and Jobs Act also suspends all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects un-reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Thus, the business standard mileage rate listed in Notice 2018-03, which was issued before the Tax Cuts and […]

By |May 31st, 2018|irs, moving expenses|0 Comments

IRS Audit Techniques Guides Provide Clues to What May Come Up If Your Business is Audited

IRS examiners use Audit Techniques Guides (ATGs) to prepare for audits — and so can small business owners. Many ATGs target specific industries, such as construction. Others address issues that frequently arise in audits, such as executive compensation and fringe benefits. These publications can provide valuable insights into issues that might surface if your business is audited.

What do ATGs cover?

The IRS compiles information obtained from past examinations of taxpayers and publishes its findings in ATGs. Typically, these publications explain:

  • The nature of the industry or issue,
  • Accounting methods commonly used in an industry,
  • Relevant audit examination techniques,
  • Common and industry-specific compliance issues,
  • Business practices,
  • Industry terminology, and
  • Sample interview questions.

By using a specific ATG, an examiner may, for example, be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the taxpayer resides.

What do ATGs advise?

ATGs cover the types of documentation IRS examiners should request from taxpayers and what relevant information might be uncovered during a tour of the business premises. These guides are intended in part to help examiners identify potential sources of income that could otherwise slip through the cracks.

Other issues […]

By |May 9th, 2018|audit, irs|0 Comments

IRS Reminds Retirees of April 1 Deadline to Take Required Retirement Plan Distributions

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The Internal Revenue Service today reminded taxpayers who turned age 70½ during 2017 that, in most cases, they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Sunday, April 1, 2018.

The April 1 deadline applies to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs, however, they do not apply to ROTH IRAs.

The April 1 RMD deadline only applies to the required distribution for the first year. For all subsequent years, including the year in which recipients were paid the first RMD by April 1, the RMD must be made by Dec. 31. A taxpayer who turned 70½ in 2017 and receives the first required distribution (for 2017) on April 1, 2018, for example, must still receive the second RMD by Dec. 31, 2018.

Affected taxpayers who turned 70½ during 2017 must figure the RMD for the first year using the life expectancy as of their birthday in 2017 and their account balance on Dec. […]

By |March 15th, 2018|irs, retirement|0 Comments

IRS Releases Updated Withholdings Calculator and 2018 W-4 Form

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The IRS has completed updating its online withholding calculator that individual taxpayers can use to determine how many withholding allowances they should claim for 2018. The IRS also issued a new 2018 Form W-4Employee’s Withholding Allowance Certificate. The IRS had previously announced that taxpayers could use the old 2017 Form W-4, as modified in Notice 2018-14, until 30 days after the new form was issued.

The calculator and new Form W-4 are designed to implement changes made by the Tax Cuts and Jobs Act (passed earlier this year), which increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets, among many other changes.

To use the calculator, taxpayers should have certain information available, including an estimate of their 2018 income and other items that affect their taxes, including the number of children claimed for the child tax credit and the earned income tax credit. The IRS emphasized that the calculator is used to compute the amount of tax to be withheld in 2018, not for 2017. […]

By |March 2nd, 2018|irs, New Tax Laws, withhold|0 Comments