“Innocent spouses” may get relief from tax liability
When a married couple files a joint tax return, each spouse is liable for the full amount of tax on the couple’s combined income. Therefore, the IRS can come after either spouse to collect the entire tax, not just the part that’s attributed to that spouse. This includes any tax deficiency that the IRS assesses after an audit, as well as any penalties and interest. In some cases, spouses are eligible for “innocent spouse relief.” Generally, these spouses were unaware of a tax understatement that was attributable to the other spouse. If you’re interested in trying to obtain relief, paperwork must be filed and deadlines must be met. Contact us. We can assist you with the details.
What to do if your business receives a “no-match” letter
In recent months, many businesses and employers have received “no-match” letters from the Social Security Administration (SSA). These letters alert employers if employees’ names and Social Security numbers (SSNs) don’t match the data reported on W-2 forms, which are given to employees and filed with the IRS. If you receive a no-match letter, check to see if your information matches the name and SSN on the employee’s Social Security card. If the information matches, ask him or her to check with the local Social Security office to resolve the issue. If you have questions, contact us or check out these frequently asked questions from the SSA: https://bit.ly/2Yv87M6
Dashboard software helps you keep your eyes on the prize
Business owners are urged to identify the most important key performance indicators (KPIs) for their companies. Once you’ve done so, a natural question is: Now what? A “business dashboard” is a type of software that allows you to create a customized view of your chosen KPIs in the form of pie charts, bar graphs and other graphic elements. When shopping for such a solution, look for one that supports your KPIs; offers a visually pleasing, one-screen view of the data; and updates itself in real time. Be wary of vendors that over-promise “otherworldly” knowledge of your industry or try to upsell you on bells and whistles. We can help you set a budget and compare prices.
Should you elect S corporation status?
Operating a business as an S corporation may provide advantages, including limited liability and no double taxation (at least at the federal level). Self-employed people may also be able to lower their exposure to Social Security and Medicare taxes. But not all businesses are eligible and, with tax law changes, S corps may not be as appealing as they once were. Double taxation may be less of a concern due to the 21% flat income tax rate that now applies to C corporations, while the top individual rate is 37%. On the other hand, S corp owners may benefit from the new qualified business income (QBI) deduction, which can equal as much as 20% of QBI. Contact us for more information.
Is it time to hire a CFO or controller?
Many business owners reach a point where managing the financial side of the enterprise becomes overwhelming. In such instances, it may be time to add a CFO or controller. This executive looks beyond day-to-day financial management to do more holistic, big-picture planning. A CFO or controller also serves as the primary liaison between your company and its bank. The hire should be able to implement improved cash management practices to boost cash flow and improve budgeting, too. Making this hire, however, represents a major commitment in both time to the hiring process and dollars to your payroll. You may want to outsource the position. We can help you further assess the idea.
The tax implications of being a winner
If you’re lucky enough to be a winner at gambling or the lottery, congratulations! But be aware there are tax consequences. You must report 100% of your winnings as taxable income. If you itemize deductions, you can deduct losses but only up to the amount of winnings. You report lottery winnings as income in the year you actually receive them. In the case of noncash prizes (such as a car), this would be the year the prize is received. With cash, if you take the winnings in annual installments, you only report each year’s installment as income for that year. These are just the basic rules. Contact us with questions. We can help you minimize taxes and stay in compliance with all requirements.
The IRS is targeting business transactions in bitcoin and other virtual currencies
More businesses are accepting bitcoin and other virtual currency payments, and the IRS is taking notice. The agency just announced it is sending letters to taxpayers who potentially failed to report income and pay tax on virtual currency transactions or didn’t report them properly. The letters urge taxpayers to review their tax filings and, if appropriate, amend past returns to pay back taxes, interest and penalties. By the end of August, more than 10,000 taxpayers will receive these letters. The names of the taxpayers were obtained through IRS compliance efforts. Contact us if you have questions about virtual currency or if you receive a letter from the IRS about possible noncompliance.
Taking a long-term approach to certain insurance documentation
After insurance policies expire, many businesses throw away the documents related to them. But you may need evidence of certain kinds of insurance even after the coverage has expired. For this reason, it’s best to take a long-term approach to “occurrence-based” policies such as general liability, umbrella liability, commercial auto, and commercial crime and theft. Retain documents permanently (or as long as your business is operating). Also consider employment practices liability insurance (EPLI), which protects companies from employee claims of legal rights violations. Keep EPLI documentation permanently, too. Our firm can provide further info.
The “kiddie tax” hurts families more than ever
Congress created the “kiddie tax” to discourage parents from putting investments in their children’s names to save tax. Over the years, it has gradually affected more families because the age at which it generally applies was raised to children under age 19 and full-time students under age 24 (unless the children provide more than half of their own support). Now, under the Tax Cuts and Jobs Act, the kiddie tax hits even harder. For 2019, an affected child’s unearned income above $2,200 generally will be taxed at rates paid by trusts and estates, up to 37%. That means children’s unearned income could be taxed at higher rates than their parents’ income. Contact us for details.
Take a closer look at home office deductions
Working from home has its perks. You can skip the commute and you might be eligible to deduct home office expenses on your tax return. But you must meet the tax law qualifications. Under current law, employees can no longer claim home office deductions. But if you’re self-employed and run a business from your home, deductions may still be available. You might qualify if part of your home is used exclusively and regularly for administrative or management activities and you don’t have another fixed location where you conduct the activities. You also might qualify if you physically meet with clients/customers there or you use a storage area in your home for business. Contact us for details.