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.

Making the Partnership Work – Partnership Basis and Distributions

Making the Partnership Work – Partnership Basis and Distributions

by | Aug 3, 2018 | Business Tax

In our previous article, we looked at how partnerships are formed. Now, we are looking at the basis and distributions features of a partnership. Ownership in a partnership is determined by a partner’s basis, which can be similar to how shareholders have stock in a corporation.

Partner’s Basis

When establishing a partnership, partners contribute capital through cash or assets like an office. The combined value of the adjusted basis of assets and cash contributed is considered a partner’s basis in the partnership. The basis determines a partner’s percentage share in a partnership. For example:

Dan contributes to the “TruFriends” partnership $4000 in cash and a 1998 Honda Civic worth $2300. Jon contributes 3 desktop computers with desks and chairs, all worth $6000 plus $2000 in cash. Dan’s basis in the partnership is $6300. Jon’s basis is $8000. The total basis of “TruFriends” is $14,300, with Jon having a 56% basis and Dan having a 44% basis.

A partner’s basis can increase or decrease (but never below zero) through events such as additional contributions to the partnership or distributions paid out to a partner.

 

Partner Distributions

Partners are paid out in distributions that affect their adjusted basis in a partnership. This can include withdrawals, distributions based on partnership earnings from the year, or even guaranteed payments from a partnership agreement.

Distributions decrease a partner’s adjusted basis in a partnership. However, unless it is a liquidating distribution to disassociate a partner, the partner’s basis cannot go below zero. For example:

After a year of running “TruFriends”, the partners get a guaranteed payment of $1000 per their partnership agreement plus 50% of the year’s profits of $3000. Given the facts from the previous example, Dan’s adjusted basis in the firm changes from $6,300 to $3,800. Jon’s basis changes from $8,000 to $5,500.

 

Partnership Filings

Even as a pass-through entity, partnerships still must file with the IRS by using Form 1065. Form 1065 informs the IRS on a partnership’s distributions, assets, revenues, and other information.

 

While this is just a general snapshot of partnership operations, each partnership has its own circumstances and questions to handle. Contact us at MiklosCPA if you have a specific question! We are an accounting and tax firm that has helped many small and mid-sized businesses with partnership questions. If you enjoyed this article, please follow us on our social media pages for future updates.

Profit Sharing Plans for Small Business – Investing In Your Team

Profit Sharing Plans for Small Business – Investing In Your Team

by | Jul 23, 2018 | Business Tax

Employers offer various retirement savings plans as an incentive to retain solid talent. The types of plans can vary from  rare pension plans to more common 401k plans.

Profit sharing plans are an increasingly popular form of savings plans that give employers and employees flexibility with their contributions. They also offer some corporate tax benefits. Employers can set how and how much to contribute to a plan, such as a certain percentage of profits. Profit sharing plans are also available for employers of any size, unlike certain 401k plans or Savings Incentive Matching Plans for Employees (SIMPLE), which are restricted by the number of employees participating.

Setting up a Profit-Sharing Plan

Much like 401k plans, profit sharing plans require 4 initial steps:

  • Adopt a written plan document.
  • Arrange a trust for the plan’s assets.
  • Develop a record keeping system.
  • Provide plan information to employees eligible to participate.

Employers can set up their own plans, or can obtain pre-set plans from financial companies like Charles Schwab or TD Ameritrade.

Running a Profit-sharing plan

Again, just like with 401k plans, owners have certain responsibilities in operating a profit sharing plan:

  • Participation – Profit sharing plans offered must include rank & file employees and management/owners. Some exclusions may apply, such as those for staff under 21 years old or resident aliens.
  • Contributions – Participants can contribute to a plan through salary deductions. Businesses have flexibility to determine how much to contribute to participants’ plans each year. This can be useful for small businesses who go through boom and bust years but wish to have a retirement plan for employees. The contribution limits remain virtually the same to 401ks (100% of a participant’s compensation OR $54,000 for 2017).
  • Vesting – Vesting schedules can also be set by the business, and can have employees be fully vested immediately to encourage retention.
  • Nondiscrimination – The profit sharing plan must offer substantial benefits to both regular employees and management. Plans are subject to annual tests to ensure benefits are offered appropriately.
  • Investing Profit Sharing Money – Owners have the option of considering a variety of investment options on behalf of employees, or let the employees determine where to direct the investments.
  • Fiduciary Responsibilities – Responsibilities include a plethora of duties to uphold, such as acting solely in the interest of the plan participants and beneficiaries, following plan documents, and diversifying plan investments. Owners can hire a service provider to uphold the fiduciary responsibilities in place of the owner.

Terminating a Profit Sharing Plan

While it’s understood profit sharing plans should operate indefinitely, business conditions may change and employers may need to terminate their profit sharing plans. To do so, amend the plan document and file a final Form 5500. Also consult with your plan’s financial institution for any additional actions needed to seamlessly terminate the plan.

Profit sharing plans are useful benefits to offer employees that require appropriate accounting practices. Tax benefits are available for establishing and maintaining plans too. Contact us at MiklosCPA if you would like to learn more of the tax benefits, as well as learn more of the services we offer in tax and accounting for businesses. Also, follow us at our social media pages for future tax tip articles like this one!

Forming Partnerships – Two (or more) Heads are Better than One

Forming Partnerships – Two (or more) Heads are Better than One

by | Jul 10, 2018 | Business Tax

Ever thought of running your own business, but don’t want to be the sole owner or go through the red tape in forming a corporation or LLC? Consider starting a partnership! Partnerships are a common form of business organization due to the ease in starting them up and maintaining them. Their simplicity appeals to small businesses especially. Unlike corporations that are taxed twice (the corporation itself, and its shareholders), partnership taxes “pass through” the partnership entity and are shared by the partners.

Who can form a partnership?

Individuals who join a partnership become partners who proportionally share in the profits and losses the partnership will experience. Usually, a formal Partnership Agreement document is established to spell out any specific arrangements, be it written or oral. Certain kinds of organizations (formed after 1996) are NOT allowed to become partnerships. For example:

  • Insurance Companies
  • Joint-Stock Companies
  • Real Estate Trusts
  • Tax-exempt entities
  • Certain banks
  • Organizations wholly owned by state, local or foreign governments
  • Organizations specifically required to be taxed as a corporation

A partner’s “basis” in a partnership can be determined by how much capital a partner contributes, be it through cash or assets like a car or an office space.

Ending a partnership

Partnerships cease to exist when one of these two events occur:

  1. The organization discontinues all operations and partners no longer carry out any business.
  2. When 50% or more of a partnership’s total interest is sold or exchanged within a 12 month period. This includes any sales or transfers between partners, and even the death of a partner.

For example, Jon, Mark, Dan, and Dave are members of the “TruFriends” partnership and have a basis of 20%, 20%, 25%, and 35% respectively.  Jon and Dave decide to sell off their shares in the partnership to 4 different investors, but this totals 55% of “TruFriends” being sold within a year. Therefore “TruFriends” as a partnership ceases to exist and a new partnership will need to be established with the remaining and new partners.

Interested in learning more about partnerships? Follow our social media for future partnership articles. Or if you may happen to have a pressing tax or accounting question, contact us at MiklosCPA. We are a California accounting firm that helps small to medium businesses with their accounting and tax needs.

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