Quick Guide – Itemized Deductions

Quick Guide – Itemized Deductions

by | Oct 31, 2018 | Business Tax, Individual Tax

Itemized deducti-what? For many ears unfamiliar to taxes, it may sound like word spaghetti. In reality, the concept is simpler than assumed. Basically, itemized deductions are certain expenses that the IRS have allowed to be “deductible” from an individual or small business’s “adjusted gross income” (AGI). AGI is a number calculated from “adjustments” made to your gross income (the income you have prior to any calculations).  AGI is used to calculate how much you owe in taxes, so using itemized deductions to lower that AGI can potentially lower your taxes as an individual or small business owner.

Standard versus Itemized

The IRS allows individuals to claim either the standard OR itemized deduction. The standard deduction is something EVERYONE gets across the board as part of their tax formula. In order to claim itemized deductions, the total amount of itemized deductions must be more than the standard deduction. So gathering lots of itemized deductions can mean you’ll potentially get MORE than what you would’ve gotten with the standard deduction.

Different kinds of Itemized Deductions

Schedule A breaks down which expenses can be itemized deductions but there are a few notable ones worth highlighting:

With each itemized deduction category, certain calculations must be undertaken to be able to properly claim the expenses as itemized deductions.  Self-employed and small business owners can especially utilize itemized deductions to their advantage for taxes.

Small businesses (and their owners) usually require some planning to effectively utilize itemized deductions for their taxes. It requires proper records and filings to claim. As a firm adept at assisting small to mid-sized firms, MiklosCPA can certainly help your business claim those itemized deductions. Schedule a call if you want to learn more about our services.  Also, follow our social media pages for more “good to know” tax articles like this one, and for future articles.

2018 TCJA update – Business Meals & Entertainment Expenses

2018 TCJA update – Business Meals & Entertainment Expenses

by | Oct 11, 2018 | Business Tax

The much-publicized Tax Cuts and Jobs Act (TCJA) realigned commonly-held tax notions. Meal and entertainment expenses that were once deductible are no longer allowed as deductible under the new rules. Tax code overhauls require a refresher for businesses to meet compliance with new TCJA regulations.

Prior to 2018, meal and entertainment expenses were simply subject to the “ordinary and necessary tests” for business expense deductions.  In a nutshell, these tests determined if a reported meal or entertainment expense is part of the ordinary course of your industry and necessary for the course of your business. TCJA did away with much of what can be deducted for businesses. For example:

In 2017, Chon Wayne Services, an Alhambra marketing agency, treated clients annually to lower-stands seats at Dodger Stadium. They were able to deduct the costs as an entertainment expense at up to 50% of the value of each ticket. Under the new rules of TCJA in 2018, these entertainment expenses are no longer deductible.

 

Some Exceptions to Meal & Entertainment Deductions

Meals, under certain categories, still remain 50% deductible:

  • Employee meals while traveling.
  • Meals for employees or stockholders during business meetings.
  • Meals provided for business league meetings
  • Meals for the convenience of employer. Examples such as meals served to employees on the premises or an in-office cafeteria. However, this will become 0% deductible in 2025.

Good news is that there are still specific exceptions to the limits in claimable entertainment deductions. These still remain 100% deductible:

  • Expenses treated as employee compensation.
  • Reimbursed Expenses.
  • Employee recreational expense, other than highly compensated employees (such as a company picnic).
  • Business meetings and conventions.
  • Meetings of certain tax-exempt organizations like business leagues.
  • Entertainment available to the public (E.g. complimentary hotel rooms provided by casinos).
  • Entertainment sold to customers (E.g. operating a pleasure cruise ship as a business).
  • Expenses treated as non-employee compensation or a prize.

In order to properly claim these deductions, the IRS requires businesses substantiate these expenses. Therefore, to claim these deductions under the new rules, get in the good habit of maintaining accurate records and retaining receipts.

The TCJA has a lot of businesses seeking guidance on how to amend their bookkeeping in preparation for upcoming tax filings. Count on our knowledgeable services here at MiklosCPA to help your business meet those needs. We are a California-based accounting firm that helps small businesses with their tax and accounting needs. Reach out to us if you are interested in learning more, and follow our social media for more “good to know” articles like this.

1099-MISC – Don’t Miss Out On Your Misc.

1099-MISC – Don’t Miss Out On Your Misc.

by | Sep 27, 2018 | Business Tax, Individual Tax

As the year winds down, business owners may be asking themselves, “do I have to issue any 1099-MISC forms?”  Ok, so maybe not those words exactly, but mindfulness of specific tax filings is always a good thing. The IRS requires that businesses file informational returns for certain types of payment.  For today, we are looking at those that require the 1099-MISC form.

Put simply, the 1099-MISC form is used for payers (e.g. businesses) that pay certain types of income to certain people, such as independent contractors, attorneys, or prize recipients. The 1099-MISC is used for:

– A payer that pays at least $600 in a year for:

  • Nonemployee compensation, rents, etc. (e.g. volunteer’s meals and hotel costs).
  • Services performed by someone who is not your employee (such as an independent contractor for IT work for your office).
  • Cash payments for fish (or other aquatic life) purchased from anyone in the business of catching fish.
  • Prizes and awards (such as prize payouts) to nonemployees.
  • Medical and health care payments (e.g. proceeds from medical insurance to nonemployees).
  • Crop insurance proceeds.
  • Payments from a notional principal contract (NPC) to an individual, partnership, or estate.
  • Payments to an attorney.
  • Fishing boat proceeds.
  • Other income payments (such as taxable fringe benefits for non-employees)

– Direct sales of $5000 of consumer products to buyers (e.g. someone selling Amway products to consumers).

– Substitute payments in place of dividends or interest of at least $10.

– Other specialized payments such as excess “golden parachute payments”, combined federal/state filing programs, and federal backup withholdings.

 

Forgetting the 1099-MISC Can Cost You

Payees need the 1099-MISC to accurately report their income taxes, therefore payers such as businesses have an urgency to file those forms. For payers, the penalty for not filing 1099-MISC forms for 2018 is $50 for each return within 30 days. The penalty increases to $100 per return and even increases further after the 1st of August to $260 per return.

 

The numerous items involved in properly filing 1099-MISC requires accurate and thorough accounting. Having a team like us at MiklosCPA can assist in those needs. Feel free to reach out to us if you would like to learn more about us and our services. We are a California CPA firm that helps many small to mid-sized businesses with their tax and accounting needs. Check us out on our social media pages for future articles and other “good to know” information.

S Corporations – Another Route of Business Ownership

S Corporations – Another Route of Business Ownership

by | Sep 4, 2018 | Business Tax

Most owners are aware of sole ownerships, partnerships, and corporations as a form of a business. Each have their pros and cons. What if you could utilize some of the advantages of corporations AND the advantages of partnerships? Take a look at S Corporations! They are an increasingly popular business structure that utilizes the taxation treatment of partnerships meshed with the legal protections of a corporation.

Qualifying for S Corporation Status

In order to qualify to elect S Corporation status, the IRS has set strict rules. For a corporation to be able to elect the status:

  • Must be a domestic corporation.
  • Must have no more than 100 shareholders.
  • Shareholders can only be individuals, estates, and certain exempt organizations.
  • No nonresident alien shareholders.
  • Corporation only has one class of stock (no preferred stock).
  • Cannot be certain types of ineligible corporations (such as a bank using the reserve method of accounting for bad debts).
  • Must have or will adopt a standardized tax year (calendar, a 52-53 week tax year, etc.).
  • AND ALL shareholders must consent to the S corporation election.

 

Electing S Corporation Status

Corporations looking to elect S corporation status must complete and file Form 2553 no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. Otherwise, they can file any time during the tax year preceding the tax year it is to take effect.

 

S Corporation Taxation

Just like a partnership, taxation rules treat S Corporations as “pass through” entities. This means that the taxes of the S corporation pass through the company and onto the shareholders of the S corporation, thus avoiding the “double taxation” that corporations get with the taxes applied to the corporation itself and its shareholders. S Corporations use Form 1120S for their annual tax filing. It bears some similarities to Form 1065 for partnerships with its use of Schedule K-1 forms.

 

Growing corporations are seeing the value of S Corporation status, however some may need backup in keeping their books straight to meet the many rules behind maintaining that status. Consider talking to us here at MiklosCPA! We have helped many small and mid-sized businesses with their accounting and taxation needs. Freeing up the accounting allows a business to focus and charge ahead with their growing goals and ambitions. Follow our social media pages for more quick tax tip articles like this in the future.

Frequent Filer – Keeping up with Corporate Taxes

Frequent Filer – Keeping up with Corporate Taxes

by | Aug 24, 2018 | Business Tax

Running a business can get hectic, but it is important that corporations keep up with filing deadlines and paying their taxes. Corporations must make periodic estimated tax payments to the IRS in order to comply with tax rules. Also, due to their ability to select a fiscal year, corporations may have different filing deadlines than other firms who are on a calendar year.

Estimated Tax Payments

Corporations must account for, and make quarterly payments, if their corporate tax for the year is expected to be $500 or more. These installment payment deadlines are due on the 15th day of the 4th, 6th, 9th, and 12th months of a corporation’s tax year. For more info on calendar vs fiscal year and the option to change it, check out our article.

EFTPS

Thankfully, the IRS has made things convenient in meeting estimated tax payment requirements by making the Electronic Federal Tax Payment System (EFTPS) available to corporations paying their estimated tax payments. Check out our previous article for more info on how to sign up for it.

Submitting the paperwork

Most corporations use Form 1120 to file their taxes with the IRS. Form 1120 can also be e-filed, and certain corporations with assets of at least $10M and file 250 returns (as in, returns for employees) must use E-File.

Penalties

Failing to make timely tax payments can incur penalties in addition to what a corporation will owe. For example, late filings get penalized 5% of the unpaid tax for each month the return is late up to a maximum of 25% of the unpaid tax. A late payment of tax may be penalized half of 1% of the unpaid tax for each month the tax is not paid also to a maximum of 25% of the unpaid tax. However, if a corporation can substantially prove a reasonable cause for not making timely payments, the penalties may be waived.

 

Keeping up with corporate taxes is important for a business, but having a team manage the finer details of the accounting going into the corporate taxes can free up a business to focus on growth. MiklosCPA has helped many small to mid-sized businesses with their tax and accounting needs using our “virtual office” services. Feel free to reach out to us to learn more of our services.  Also follow us on our social media pages for more future “good to know” articles.

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