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Tag Archives: IRS

Small Business in North Carolina

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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

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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.

New Registration Requirements for 990-N postcard Filers

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by Kendall TysonIRS_logo-233x300

Effective February 29, 2016, the IRS will launch a new website for submitting Form 990-N filings.  Most organizations exempt from income tax under section 501(a) must file an annual information return or submit an annual electronic notice (990-N).  An organization that normally has gross receipts of $50,000 or less must file the 990-N if it chooses not to file Form 990 or Form 990-EZ.

Previously all 990-N filings were completed and filed through the Urban Institute Form 990-N submission website.  However, their website will permanently close on February 28, 2016.  Per the Urban Institute website, “any Form 990-N filings in the Urban Institute system  that have not been completed and submitted by 11:59 pm (eastern) on February 28, 2016, will be lost and will not be submitted to the IRS.  Those Form 990-N filings will need to be entered into the new IRS system beginning February 29, 2106.”

Beginning on February 29, 2016, all 990-N users will need to complete a one-time registration with the IRS before they can complete the 990-N filing.  Form 990-N is due every year by the 15th day of the 5th month after the close of an organization tax year.  There is no paper form for the filing, and all 990-N filings must be completed and filed electronically.

All 990-N filers should plan their filings according to the new website and registration requirements in order to avoid any unexpected delays in completing their annual filing.  Langdon & Company LLP will be happy to help deal with this regulatory change.  Please contact our office for additional information.

Kendall ([email protected]) is a Manager in our Tax practice.  She focuses on various corporate clients and their industry-specific issues.

Have you received all of the tax forms you expected?

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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?

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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.

Update on Increase of Deduction for Purchase of Tangible Property

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by Eric Murphy

For several years, the IRS has deemed that tangible assets used in business such as equipment and computers with a purchase price of more than $500 must be capitalized and depreciated based on the Assets’ useful life.  Any money spent below $500 on an asset that would have traditionally be capitalized, could be expensed in the year of purchase instead.  The IRS made this rule under the Tangible Property Regulations, specifically Reg. 1.263(a)-1(f)(1)(ii)(D).  This deduction was allowed for businesses that didn’t have annual financial statements subjected to annual audits.

Under IRS Notice 2015-82,  the lower tier safe harbor amount was increased from $500 to $2,500 of costs per tangible item and can now be expensed instead of being capitalized for small businesses that don’t have audited annual financial statements.  This ruling will take effect for the tax year beginning January 1, 2016 all future years unless a modification is made at a future date.  The IRS will also not challenge amounts between $500 and $2500 that were expensed in prior years between December 31, 2011 and December 31, 2015 that should have been capitalized.book stack

If you’re a business owner who wants to make sure their purchases are properly recorded and reported in their financial statements and tax returns, contact Langdon & Company LLP.  Our team of highly skilled tax and bookkeeping professionals will assist you in making sure your company’s financial activity is reported properly and in conformity with all legally mandated requirements.  We will also analyze your statements and make suggestions on ways you can become more profitable and efficient to the best of our ability.

Eric ([email protected]) is a Senior in the Langdon & Company LLP tax practice. He works with a variety of clients in preparation of tax returns and other projects.

 

Have you been scammed?

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by Susan DeanGranny on phone

Have you received a phone call that you thought was from the Internal Revenue Service (IRS)? If so, you are not alone. Many people have been a victim of these recent phone scams. Criminals pose to be an IRS representative in order to gain personal information, receive money or even steal your identity. Below are several examples of phone scams and helpful tips the IRS released in the recent article, IRS Urges Public to Stay Alert for Scam Phone Calls.

  • Scammers make unsolicited calls. Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
  • Callers try to scare their victims. Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
  • Scams use caller ID spoofing. Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
  • Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
  • Scams cost victims over $23 million. The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

The IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for your credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes, or have no reason to think that you do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

  • Call the IRS at 800-829-1040. IRS workers can help you.

Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.  If you have questions about your rights, or any other tax issue, give Langdon & Company LLP a call.  We’d be happy to help!

Susan Dean ([email protected]) is an Enrolled Agent with Langdon & Company LLP’s tax practice.  She focuses on corporate tax and closely-held family businesses.

Due Dates for Federal Payroll Taxes

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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.

Are You Withholding Enough?

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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

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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.