Category Archives: Accounting

Small Business in North Carolina

by Russell Barker18th

Did you know there are approximately 833k small businesses in North Carolina?  That’s a pretty big number.  Why we are talking about this now? It is tax season and companies and individuals are gathering their information in order to either prepare or have their accountants their tax returns. You may or may not understand the process to get your tax returns accurately prepared and timely filed. I wanted to give you some guidelines to help.

Some people might think that gathering all their personal information and getting some of the business information is all you have to do.  The reality is that your first objective is to have your business’ books completed accurately.  You should ensure that all the bank accounts (including credit cards and loans) are updated and reconciled.  Be certain to capture any supplies or equipment  purchased near year-end in your books.  This will ensure that you obtain the proper expense and depreciation deductions you are entitled to.

The reason to get your company books in order first is because most small business (sole proprietor, Sub-S, Partnership, LLP, LLC) income will flow into your personal return.  It is important that you or  your tax preparer has all the proper information to complete both. Delays in the business returns will cause delays in having your personal returns processed.

This is just a quick reminder for you to think about so you can prepare all supporting documentation and have it ready for your tax preparer.

Remember 2015 taxes are due April 18th! Contact Langdon & Company LLP for help in getting 2015 tax return prepared or extended.

Russell ([email protected]) is part of Langdon & Company’s Accounting Services department. He works primarily with doctor’s practices.

Why Sole Proprietors Should Incorporate

by Eric Murphy

proconFor many entrepreneurs, the biggest question they should ask themselves after deciding what kind of business they want to have is what kind of entity should the business be established as?  This is very important since the choice they make can have a long-term impact on their profitability and security.  This article will address some of the benefits of Incorporating a Sole Proprietorship into a subchapter S-Corporation.  While there are many rules and conditions that have to be considered, this general overview should explain why it is a beneficial choice for the solo entrepreneur.

When a person first begins a business without incorporating, they would report their income and expenses on Schedule C of their Individual tax return (Form 1040).  This form is used for Sole Proprietorships and reflects the business as an entity, inseparable from the individual.  Because of this lack of separation, any liability or risk to the business becomes a direct risk to the individual.  This means if the business incurs debt and defaults or is the defendant in a lawsuit, the individual’s personal assets can be pursued for settlement and there is no limit to the potential liability.

If the individual chose to incorporate instead, their income and expenses would be reported on a separate tax return known as Form 1120S.  This return reflects the business as an entity separate from the individual with the net profit or loss flowing to the individual who is a shareholder in the entity on Form K-1.  As a separate entity, the individual has the benefit of limited liability in the event of a lawsuit or in case of default on debt.  This liability is limited to the extent of their initial investment in the business and any appreciation on that investment.

Another big benefit of having an S-Corporation instead of a Sole Proprietorship is savings on taxes paid.  A sole proprietor must pay ordinary income tax as well as self-employment tax on all net income generated by the business.  The self-employment tax is assessed as a means of collecting what the individual would have had withheld for Social Security and Medicare taxes if they were working for someone else.  While of a portion of this tax is deductible, it can be a costly burden to the entrepreneur when the time comes to file their personal tax return.

With an S-Corporation, the individual still pays ordinary income tax on all the net income of the business, but they only pay it once at the shareholder level when they file their Form 1040.  There is no tax liability for the business itself.  Individuals are also exempt from self-employment tax when they operate under an S-Corporation.  The reason is, the entrepreneur should get paid a salary and be issued a W-2 from the business and that way they are paying Social Security and Medicare taxes from wages earned and those wages are deducted from the business’s net income.  The salary paid doesn’t need to be excessive, and the entrepreneur and can also take money out of the business as non-taxable distributions – provided the distributions don’t reduce their basis in the business below zero.  Otherwise, those excess distributions are subject to capital gains tax on the individual’s 1040.

If you’re a self-starter who plans to start their own business or has an existing business and wants to know all the details to determine if incorporation is the right path for you, contact Langdon & Company, LLP.  Our tax professionals can provide you all the help you need to incorporate your business, file your required tax returns, and setup payroll for your business and file required payroll reports.

Eric ([email protected]) is a Tax Senior at Langdon & Company, LLP.  He works on various types of returns ranging from non-profit corporations, to individuals, and partnerships.

Have you received all of the tax forms you expected?

by Cody Taylor

As we’re into February you should have received most if not all of the tax documents related to preparing your 2015 tax returns.  This article in Forbes explains when various tax forms are due to you.  What if you are missing some forms you were expecting?

It’s important to note that some forms may not be received in time to prepare your tax returns on time and you may require an extension as a result.  The most common scenario is if you receive a Schedule K-1 from a pass-through entity.  These entities have to file their tax returns before issuing you a Schedule K-1 which may not happen right away.  As the article also says- your best course of action is to contact the K-1 issuer and find out when they expect the tax returns to be completed so you can plan your own tax filings accordingly.tax forms

If you haven’t received expected W-2s, 1099s or other forms that should have been received by now you have a few options available.  The first and most obvious is to look back through any mail you have sitting around and to check your emails to see if you missed anything.  We’ve all missed something the first time through only to have to document be sitting right there the whole time.  However if the forms really are missing here are a few steps you can take as outlined here and summarized below.

  1. Contact the issuer – They may have simply mailed it to the wrong address, maybe you moved or your form got lost in the mail. Most issuers will be happy to send you a new copy, but keep in mind if they tell you it was sent and you did not receive it make sure to check that they have the correct address on file for you.
  2. Employer or Issuer has moved or closed – Still try to contact them. The income they paid you still should be reported on your tax returns and if they issued W-2s or 1099s in your Social Security number that are not reported on your tax returns the IRS will almost assuredly contact you about it.
  3. Still no forms by February 14th – If you are unable to resolve the missing information through the previous steps you can contact the IRS starting February 15th regarding missing forms. Try to have your address, phone number, Social Security Number, dates of employment, earnings estimate and federal withholdings amount on hand when you call the IRS.  Your most recent pay stub is a good place to get this information.  The IRS phone number is 1-800-829-1040 and I recommend trying to call first thing in the morning when the wait times are often shorter.
  4. Patience – The IRS will then contact the issuer to send you replacement forms but this is done through the mail and is usually not a fast process.

The good news is most of the time the issue of missing forms can be resolved rather painlessly, but if you find yourself missing important tax documents as it gets closer to filing time follow the above steps and contact the IRS, if necessary.

Cody ([email protected]) is a member of our tax staff at Langdon & Company LLP.  He works with various types of clients on tax matters year-round.  Please contact us to get more information on how we can help make your 2015 tax season, a smooth one.

 

Thanking Donors – What’s required by the IRS?

by Meagan Bulloch

As year-end fundraising drives have now ended, the development departments of many non-profits are busy preparing contribution acknowledgements or “thank you” letters.  So, how can these non-profits ensure they give the donors what they expect and what the IRS requires?

If a monetary contribution was made for which the organization did not provide any good or service in return, the donor is required to have a bank record or written acknowledgement of the gift before they can claim a charitable contribution deduction on their federal tax return.  It is acceptable if the acknowledgement is provided electronically to the donor but many organizations still find value in mailing personalized thank you letters.

If the donation received is greater than $250, a basic thank you note not will not suffice as adequate support for the IRS.  To aid your donors the organization should provide the following information in the acknowledgement/thank you letter:

  • Name of your organization
  • Statement that the non-profit is a recognized tax-exempt entity under IRS under Section 501(c)(3)
  • Amount of cash contribution or description of non-cash donation (but NOT the value)
  • Date the donation was received
  • A statement that no goods or services were provided by the organization in return for the contribution

Separate acknowledgements can be provided for each contribution exceeding $250, or an annual acknowledgement can be provided if more practical. Best practice is that acknowledgement(s) should be provided to donors no later than January 31 of the year following the donation.

If your organization received a quid pro quo contribution, when a donor makes a payment exceeding $75 that is comprised of both a contribution and a good or service provided by the organization, the organization is required to provide a written disclosure.

Example – The organization holds a dinner valued at $40 and charges a ticket price of $100, the donor’s tax deduction is limited to $60.  However, because the total amount paid was greater than $75, the organization must provide a disclosure statement to the donor even though the value of the contribution is less than $75.  The disclosure statement provided to donors should include:

  • A statement informing the donor of the amount of the contribution that is tax deductible – limited to the excess of the contribution less than fair market value of the goods or services received
  • A good faith estimate of the fair market value of the goods and services

A penalty is imposed on charities that do not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may avoid the penalty if it can show that failure to meet the requirements was due to reasonable cause.

But what if…

Gifts in-kind with a market value in excess of $5,000 may require an appraisal (that the donor can be required to pay for)

The above guidelines are detailed in the IRS Publication 1771, these rules do not apply to a donated motor vehicle, boat or airplane if the claimed value exceeds $500.  (See IRS Publication 4302, A Charity’s Guide to Vehicle Donations and IRS Publication 4303, A Donor’s Guide to Vehicle Donations).

Meagan ([email protected]) is an Audit Manager at Langdon & Company LLP.  She works primarily with non-profits in various industries.

Due Dates for Federal Payroll Taxes

by Eric Murphy

If you’re a Sole Proprietor, a Partner in a partnership, a member of an LLC, or an officer in a corporation, it’s likely you have employees and yourself on payroll.  Due to this fact, it’s necessary for you to pay payroll taxes for Federal Withholding, Social Security, Medicare, as well as North Carolina Withholding taxes.

The frequency in which you pay the taxes is determined by the payroll tax liability incurred in any given Quarter in the Calendar year as follows:

  • Liability under $2,500: If you are required to file Form 941 and your employment tax liability for the preceding quarter or current quarter is less than $2,500, you may pay the taxes for the current quarter with your timely filed return instead of making deposits. These would be filed the final days of the months following the end of the quarters on January 31st, April 30th, July 31st, and October 31st.  The NC withholding taxes paid in with Form NC-5 should be filed at the same time.
  • Liability of $2,500 or more: Unless you are eligible to make payments with your return, you must deposit your taxes. If you are a Form 941 filer and you are not sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won’t be subject to failure-to-deposit penalties.

Per IRS Tax Topic 757, if you reported taxes of $50,000 or less during the previous quarter, you are a monthly schedule depositor, and you generally must deposit your employment taxes on payments made during a given month on or before the 15th day of the following month. For example, you must deposit taxes on payments made in January by February 15. If the 15th of any calendar month falls on a Saturday, Sunday or legal holiday, the deposit is due by the next banking day.  This same schedule applies to paying NC withholding taxes with Form NC-5.

Per IRS Publication 15 (Circular E), Employer’s Tax Guide for use in 2015, the following payment schedule must be used for semi-weekly filers (Entities with over $50,000 of tax liability in the previous quarter):

  • Deposit Federal Withholding and FICA employment taxes for payroll payments made on us flagWednesday, Thursday, and/or Friday by the following Wednesday.
  • Deposit taxes for payroll payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.
  • Per IRS Tax Topic 757, if any of the 3 days following the date of the payroll payments is a holiday, you have an additional day for each day that’s a holiday to make the payment. For example:  If payroll was paid on Friday, September 4th the payroll tax deposits won’t be due until the following Thursday, given that Monday, September 7th, was a holiday.

You will make your deposits online through www.EFTPS.gov and report your deposits quarterly by filing Form 941 or annually by filing Form 944, it all depends on what the IRS instructs you to file based on the payroll thresholds you report in your initial 941 report.

It’s also essential that NC unemployment taxes are paid in for the quarter in the month following the end of the quarter to the NC Division of Employment Security.  These are paid in with Form NCUI-101 and must be prepared with the proper SUI rate assigned to your entity from the NC Division of Employment Security at the beginning of the year.  If you need the rate, an operator at the Division can provide it for you as long you provide either your Employer Identification Number or Account ID number assigned by the Division.  This should be filed at the same time as Form 941 is filed with the IRS.

If you have questions about your payroll taxes and withholdings, contact our office and speak to our payroll specialists.  Langdon & Company LLP has experienced professionals that would be glad to assist you in these matters.

Eric ([email protected]) is a senior in our tax practice.  He prepares and reviews a combination of both corporate and individual tax returns.

Why Hire a CPA?

by Brittany Spragins

When looking to hire an accountant to prepare your taxes or perform an audit, you want to ensure that you select a CPA for several reasons.  When you see the CPA designation, you are assured a level of quality that surpasses the average accountant. CPA seal

Every state maintains its own standards and criteria for becoming a CPA.  According to the NC State Board of Accountancy, the use of the CPA designation is granted only to individuals “who meet the statutory requirements” of NCGS 93-12.  These requirements include passing all four sections of the CPA exam, receiving a minimum level of college education with an emphasis in accounting, an accounting law course that covers ethics, professionalism, and professional responsibility, and appropriate work experience.  When the CPA submits his or her application, it must be accompanied by 3 letters of recommendation to indicate “good moral character.”

When selecting a CPA, you are assured that,

“a CPA should at all times maintain independence of thought and action, hold the affairs of clients in strict confidence, strive continuously to improve professional skills, observe generally accepted principles and standards, promote sound and informative financial reporting, uphold the dignity and honor of the accounting profession, and maintain high standards of personal conduct.” -www.NCCPABoard.gov

In North Carolina, it is against the law to use the CPA title without the state’s approval that you meet its qualifications.  Part of the benefits to the client is that the NC CPA Board establishes consumer confidence since it instills peer reviews of the CPA’s work.  It also provides enforcement of professional ethics and code of conduct to ensure client confidence.

Whether you hire Langdon and Company LLP to assist you on a personal or corporate level, you can have the confidence that you are hiring a CPA firm that upholds the highest levels of professional and ethical standards, maintains excellent working knowledge of the tax and assurance current events, and is a focused on a personal relationship with the client.

For more information on CPA’s, you can visit the American Institute of Certified Public Accountants (AICPA) website www.aicpa.org or the NC State Board of Accountancy website www.nccpaboard.gov

Brittany ([email protected]) is a staff member of Langdon & Company LLP’s tax practice.  She focuses primarily on high net-wealth individual returns and their closely-held companies.

Adult Care Home News

by Rachel Owensdhhs

We now have some clarity when it comes to DHHS compliance for Adult Care Homes (ACH).  Last year, the North Carolina General Assembly passed General Statute 131 D-4.1-4.3. It was under this statute, that the Adult Care Cost Report requirement returned.  These cost reports are mandatory for facilities receiving State/County Special Assistance Program funds. Types of facilities subject to this requirement include nursing home combination facilities with adult care beds, mental health supervised living facilities, and all other  adult care homes (Licensed under general Statute Chapters 131E, 122C, and 131D, respectively).

In addition to these cost reports, any of these facilities that are licensed for 7 or more beds, are to be audited.  This audit is of the cost report information in the form of Agreed-Upon-Procedures (AUPs), that must be done by a certified public accountant (CPA)/independent accountant.

The requirements for the combination facilities are slightly different since they are based on the Medicare’s requirements of Skilled Nursing facilities.  Combined nursing facilities should submit a cost report and related AUPs based on their last completed Medicare cost report, which in most cases covers October 2013 through September 2014.

Important Dates:  For the mental health facilities, the reporting period is July 1, 2014 through June 30, 2015.  The reporting period for adult care home facilities is October 1, 2014 through September 30, 2015.

The due date is December 31, 2015 for all facilities.

All facilities that do not receive any funds through the State/County Special Assistance Program are considered exempt and an exemption form must be completed.  This form can be found on the DHHS Office of the Controller’s website at www.ncdhhs.gov/control.

Nursing-homeThe ACH cost report software is also available online, here.  All questions related to the AUPs can be addressed to [email protected].  If you have questions about cost report and AUP preparation, please contact our office.

Are You Withholding Enough?

by Cody Taylor

Have you ever gotten to the end of the year, filed your taxes and then been surprised by what you owe?  One of the factors that can contribute to your surprise is not withholding enough taxes from your paycheck.  If you are a W-2 wage earner (your employer takes taxes out of your paycheck) and your income profile isn’t very complicated you may be able to use the IRS Withholding Calculator to figure out the correct withholding level for you.

The IRS gives some tips for using the program:wallet - not used

  • Have your most recent pay stubs handy
  • Have your most recent income tax return handy
  • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.

To Change Your Withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate
  • Submit the completed Form to your employer

Even if you’ve always gotten a refund there may be reason to look into your withholding amount or whether you may need to make an end of year estimated payment to cover any tax liability if your situation has recently changed.  Some scenarios include an increase in nonwage income (Interest, dividends, capital gains (ex. stocks), alimony or self-employment income), a change in marital status, you moved to a new state, gained or lost a dependent or maybe you simply had a change of income level recently.  Nonwage income does not usually have taxes withheld so an increase from one year to the next can surprise people at tax time if they aren’t prepared for it.

Withholding information is especially important when you or your spouse is self-employed.  The IRS Withholding Calculator is not recommended when your income profile contains alternative minimum tax, self-employment tax, or if you receive pass-through income in the form of a K-1(s).  These more complicated situations may require an end of year tax projection to ensure your tax liabilities are covered.

If the IRS Withholding Calculator is not right for your situation and you need some additional assistance with end of year tax planning please contact our office for additional information.

Cody ([email protected]) is a staff in our tax department.  He focuses on various closely-held family companies, and trusts.

Year-end filing of 1099-MISC

by Russell Barker

You might think 1099-MISC filing is a year-end job and does not need attention before that.  That couldn’t be farther from the truth.  You should always gather W-9 forms from applicable vendors whom you have paid year round.  A W-9 form is an IRS form in which the vendor provides name, address and tax identification number.  This number can either be a social security number or Taxpayor Identification Number (“TIN”). year-end-review-300x225

Generally, a 1099-MISC should be filed if the vendor is unincorporated AND amounts paid are:

  • at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
  • at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate
  • any fishing boat proceeds
  • gross proceeds of $600, or more paid to an attorney during the year, or
  • withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

The reason to start gathering this information is because at year end, you may not have contact with a vendor or cannot reach them.

What are the ramifications if you do not get this information and you should have?  The expense that you are trying to claim may not be valid and you might not have a credit on your books for the expense.  In some cases, this can cause an increase to your net income and more taxes you will have to pay at year end.

The old saying of an ounce of prevention is worth a pound of cure.  By obtaining and filing all W-9 forms, you will avoid a lot of unnecessary stress at year end. Langdon & Company LLP has a team of accounting service professional who are available to help with any of your Form 1099 questions.  Please contact our office for more information.

Russel Barker ([email protected]) is a Quickbooks ProAdvisor in our Accounting Services Department.  He works primarily with physician’s practices and other small businesses.

How to Amend a 1040

by Susan Dean

Have you discovered an error after filing your personal income tax return? Did you forget to report income or claim deductions? Have you received a “corrected” tax reporting document such as a Corrected Form 1099? What should you do if you fall into one of these categories? Depending on the circumstances, you may need to amend your tax return.

To amend your Form 1040, U.S. Individual Incofrom Susanme Tax Return, you should file a Form 1040X, Amended U.S. Individual Income Tax Return. Form 1040X will become your new tax return, changing your original return to include any new information.

Page one of Form 1040X is a summary of your 1040 information, both as previously filed and what you are currently reporting.  Column A reports the “Original amount” as reported on a prior Form 1040 (or prior 1040X). This is the amount(s) you are updating or “amending.” Column C reports the “Corrected amount” or the amount that should have been reported on the original return, the amount you are updating. That leaves Column B. Column B shows the “Net change” between Column A and Column C. Column B reports the difference in what was reported (Column A) and what should have been reported (Column C). Form 1040X gives a visual comparison of your 1040, both before and after the change(s). The form shows the increase or decrease to your taxable income and/or tax liability.

When filing an amended tax return, you must explain the reason for the amendment. This explanation is reported on Part III, Explanation of changes. In this section you should communicate to the Internal Revenue Service (IRS) why you are filing Form 1040X. The reason can vary from receiving a late or corrected Form 1099; forgetting to claim a deductible charitable contribution or business expense; reporting additional taxable income; or changing the originally filed filing status. No matter the reason, the IRS wants to know why you are amending and what form(s) and line numbers have changed as well as any supporting schedules that have been affected by the change(s).

Once you have completed Form 1040X by reporting the corrected information, explained the reason for the change(s) and attached any necessary forms and/or schedules, you are ready to sign and file your amended return. Depending on the change in your overall taxable income and/or tax liability, you may owe additional tax to the IRS or you could be due a tax refund. The state you live in and the outcome of your tax liability determines where you file your amended return. Before mailing your amended return, please confirm the correct address in the current year Form 1040X instructions.

Please note if you are amending your federal income tax return, you also may need to amend your state income tax return. Refer to your state income tax return form instructions on when and how to amend your state income tax return or contact your personal certified public accountant.

For more information on amending your Form 1040, please refer to the IRS website and their section on Amended Tax Return Frequently Asked Questions. If you think you may need to amend your personal income tax return and would like further advice on amending or would like to request assistance in amending your personal tax return, please contact our office.

Susan ([email protected]) is a Tax Manager working primarily with closely-held family businesses and corporations.