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2019 IRS Payments & 2020 estimates DELAYED - Filing dates not changed

March 18, 2020

The Treasury Department and the Internal Revenue Service are providing special payment relief to individuals and businesses in response to the COVID-19 Outbreak. The filing deadline for tax returns remains April 15, 2020. The IRS urges taxpayers who are owed a refund to file as quickly as possible. For those who can't file by the April 15, 2020 deadline, the IRS reminds individual taxpayers that everyone is eligible to request a six-month extension to file their return.

This payment relief includes:

Individuals: Income tax payment deadlines for individual returns, with a due date of April 15, 2020, are being automatically extended until July 15, 2020, for up to $1 million of their 2019 tax due. This payment relief applies to all individual returns, including self-employed individuals, and all entities other than C-Corporations, such as trusts or estates. IRS will automatically provide this relief to taxpayers. Taxpayers do not need to file any additional forms or call the IRS to qualify for this relief.

Corporations: For C Corporations, income tax payment deadlines are being automatically extended until July 15, 2020, for up to $10 million of their 2019 tax due.

This relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.

Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. If you file your tax return or request an extension of time to file by April 15, 2020, you will automatically avoid interest and penalties on the taxes paid by July 15.

The IRS reminds individual taxpayers the easiest and fastest way to request a filing extension is to electronically file Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses must file Form 7004.

This relief only applies to federal income tax (including tax on self-employment income) payments otherwise due April 15, 2020, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.

Accounting, Tax & Financial Services

How Often Does Tax Law Change....
There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. Yup, its complicated but we can help.
 
Notice** IRS Headquarters Washington, D.C. - Names 10 New Members to IRPAC
The Internal Revenue Service announced the selection of 10 new members for the Information Reporting Program Advisory Committee (IRPAC).

“Members of IRPAC provide industry perspective and recommendations that assist the IRS in making decisions about third-party information reporting, which is important to sound tax administration,” said IRS Commissioner Doug Shulman.

The new appointees will join 14 returning members who are in the second or third year of their three-year terms.

Lonnie Young of Young & Company, LLC is one of the 10 selected in the United States! Click here for the complete article

If the IRS trusts his opinion, perhaps you can too!

Long Term Care Premiums in S Corps

Can you deduct Long Term Care Preimums the same as Health Insurance for the greater than 2% Shareholder.

Answer is .... sort of....

 

The way the math works…….

Let’s say LTC is $6,000

Age based LTC for age 61 to 70 is $3,900

Step 1:  The S Corp deducts the entire $6k (even if the Shareholder pays it personally).

Step 2: Box 1 on the W2 is increased by $6k.

Step 3: Box 14 on the W2 includes the aged based allowable amount $3.9k.

Result

So, steps 1 and 2 cancel each other.

Step 3 allows 100% of the allowable deduction ($3.9k) to be deducted on the front of the individual tax return, same as regular health insurance.

Donations for 2020 - new deduction

Nonitemizers can claim an above-the-line deduction max of $300
for charitable 2020 cash contributions. 


Individuals not itemizing Schedule A can take both the standard deduction
and a max deduction of up to $300 in cash contributions. This is per return, meaning couples who file jointly can deduct only $300, not $600.

The 60%-of-AGI limit on charitable gifts of cash by individuals is suspended

2018 Unreimbursed Mileage - Unreimbursed expenses for W2 Employee

Assuming you are a W2 employee (not an independent contractor)…..

There no longer is any deduction for unreimbursed employee expenses… GONE!

That means, unfortunately, you have legitimate expenses you cannot deduct.

In an ‘UNACCOUNTABLE’ plan (your allowance), it is suppose to be added to your W2 and taxed for both FICA and Federal Withholding.

It is an unfortunate part of the new tax law.

You know the fees the brokers charge?  Also no longer deductible!

Anything that went on a Schedule A Itemized Deductions that were subject to the 2% of AGI limitation are ALL GONE.

Assuming the employer is doing it correctly (adding it to your W2), they also are paying FICA (employer matching).

A better cheaper plan for all concerned is to have.....

An ‘ACCOUNTABLE’ plan……

You give them an expense report showing documented business mileage.  They reimburse that amount.

It does not go on your W2, no employer matching, etc.  They still get the deduction for what you are paid but you are not taxed on it.

If you are an independent contractor, forget everything I’ve said.  I’ll have different answer.

2016 Form 1099 Due Dates & Penalties

Every person engaged in trade or business must file an information return for payments made to another person for services performed in the course of the payer’s trade or business if the aggregate remuneration paid to the person is $600 or more in any tax year.   The return is made on Form 1099-MISC accompanied by Form 1096.

Form 1099-MISC, Box 7, reports non-employee compensation of $600 or more.  These amounts may include fees, commissions, prizes, awards, compensation for services performed, and certain other payments.   If the following four conditions are met, the payer generally must report payments in box 7 of Form 1099-MISC:

  1. The payment is made to someone who is not an employee of the payer
  2. The payment was made for services in the course of the payer’s trade or business
  3. The payment was made to an individual, partnership, estate and in the case of attorney’s fees, even corporations must receive a 1099.   Please note that LLC’s that have not file form 8832 and made an election to be taxed as a corporation are not exempt from information reporting requirements.   Attorney fees are always reportable, even if they are incorporated.
  4. The payer made payments to the payee of at least $600 during the year.

Other 1099s for Dividends (1099-DIV), Interest (1099-INT), for mortgage interest received (1098) may also need to be filed by certain taxpayers.

NEW FOR 2016

The 2015 PATH Act has accelerated the due dates for Form 1099-MISC, as well as W2’s effective for 2016 forms that are due in 2017.  ALL Forms 1099-MISC and Forms W2 must be filed by Jan. 31, 2017, without regard to how they are filed with IRS (1099’s) or SSA (W2’s).   There is no automatic extension of this due date. 

However, a 30 day extension may be obtained by requesting that on Form 8809.

https://www.irs.gov/pub/irs-pdf/f8809.pdf

PENALTY

The penalty amount for the non-filing or incorrect filing of Forms W2/W3 or 1099-MISC will be based on when the initial/correct form is filed.

  1. The initial penalty amount will be $50 per form for any form filed after the due date but within 30 days of the initial due date.  If the form is not correct and not corrected by Aug. 1, it will be considered not filed and subject to the late filing penalties.  The maximum late filing penalty is $532,000 per year.
  2. Any Form W2 or Form 1099-MISC filed after the 30th day from the initial due date but on or before August 1st will be subject to a $100 per form penalty.  The maximum penalty is $1,596,500 per year.
  3. If Form W2 or 1099-MISC is filed after August 1st, the penalty is $260 per form.  The maximum penalty is $3,193,000 per year.
  4. An intentional disregard for the rules is subject to a $530 per form penalty with no maximum.

Before paying any outside or service person it is advisable to have them complete and sign a Form W-9 so that you will have the info available in the event a 1099 is required. 

https://www.irs.gov/pub/irs-pdf/fw9.pdf

LLC ROADMAP (Operating Business with Rental Activity)

 ACCOUNTING (You have TWO businesses)

• The bookstore or contracting business (example) is an operating business. Keep revenue and expenses separate from the rental business. This does not mean a separate checking account but it may be easier to maintain records. That is up to you.
 
o The bottom line profit is taxable for income and self-employment tax.
 
• The rental part is called a passive activity. Keep revenue and expenses separate from the bookstore.

o The bottom line profit is taxable for income tax but NOT self-employment.
 

PAYMENTS TO MEMBERS

1. Just take it. That is called a DRAW. Partners are NOT required (unlike a corporation) to DRAW according to ownership percentage. The DRAW itself is not a taxable event. The members (that’s what partners are called in an LLC – members) are taxed on the bottom line profit whether they take it (DRAW) or not.
 
2. There are NO W2 wages in partnership accounting.
 
3. If partners/members are being paid the equivalent of wages, that is called a GUARANTEED PAYMENT. That amount is deducted by the LLC as an expense. It is income taxed and self-employment taxed to the partner/member receiving the GUARANTEED PAYMENT.
 

SUMMARY

• Payment for services would be a GUARANTEED PAYMENT. Deductible by the LLC and taxable to the recipient.

• Just taking money (DRAW) is not in itself a taxable event, it is just money being transferred. The LLC does not receive a tax deduction.
 
 

2018 Can Unreimbursed Employee Expenses be Deducted?

Can unreimbursed employee expenses be deducted?

            No, not for a W2 employee. Any of the 2017 expenses and years prior that were subject to a 2% of AGI limitation are no longer deductible.

            Yes, for independent contractors.

            Yes, for Statutory employees.

The best example of a Statutory Employee is an outside insurance agent.

Statutory Employees | Internal Revenue Service

https://www.irs.gov/.../statutory-employees

Apr 23, 2018 · Statutory Employees. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors,...

I have never seen a mortgage agent classified as a statutory employee.

Now, what if you are both a W2 employee AND an independent contractor?

            No for employee expenses.

            Yes for independent contractor expenses.

BUT we are talking about the same business field. It would be fair if unreimbursed expenses should are pro-rated……

i.e. W2 $80k       Form 1099 Independent $5k

Expenses $4k

$80 + $5 = $85k

$4k/85k = 4.7%

4.7% x $4k expenses = $188 Sch C expenses to reduce the $5k F1099.

 

SUB S OWNERSHIP CHANGE

If a shareholder terminates his or her interest in an S corporation during the tax year, the S corporation, with the consent of all affected shareholders (including those whose interest is terminated), may elect to allocate income and expenses, etc., as if the corporation’s tax year consisted of 2 separate tax years, the first of which ends on the date of the shareholders termination.

To make the election, the corporation MUST attach a statement to a timely filed original or amended Form 1120S for the tax year for which the election is made. In the statement the corporation must state that it is electing under section 1377(a)(2) and Regulations section 1.1377-1(b) to treat the tax year as if it consisted of 2 separate tax years. The statement must also explain how the shareholder’s entire interest was terminated (e.g., sale or gift), and state that the corporation and each affected shareholder consent to the corporation making the election. A single statement may be filed for all terminating elections made for the tax year. If the election is made, write “Section 1377(a)(2) Election Made” at the top of each affected shareholders Schedule K-1.  If not filed on the original due date, an extension must be filed or else the actual filing will not be considerd timely.

Exchange - not Sale to defer tax

SUMMARY OF IRS LINK       https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031

You cannot sell ANYTHING and defer taxes…

You can EXCHANGE (qualified intermediary is hired.. you don’t get your hands on the money)… subsequent property is identified within 45 days… and have a total of six months from sale date to purchase like kind property.

When the exchange is done, if you received boot (money, cars, debt forgiveness in excess of debt assumed), then you are taxed on a part of the boot.

The old rules of selling a primary and reinvesting the proceeds in a home of equal or greater value are gone.

AND, it did not apply to a vacation home anyway, only a primary.