Employers can start preparing for year-end.

Before you know it, the year will be over.  If you are a business owner with employees, your to-do list is quickly growing.  

If you issue any of your employees a holiday or year-end bonus, be sure that you are still withholding the appropriate income and FICA (social security and medicare) taxes.  Any bonus monies given must be included in the total wages on your year-end payroll forms and the employee’s W-2.

The IRS will be looking for your W-2s and 1099s a little earlier this year, whether you file them electronically or on paper.  The filing deadline has been moved up to January 31, 2017 for both forms.  If you are using a software program for your payroll, the IRS will now accept most computer generated laser copies.  But you should check with your software manufacturer to be sure. You may also file your company W-2s directly through the ssa.gov website using the Business Online Services.  There is a registration process for the service, but the filing process is fairly simple.  In years past, employers had until the end of February to paper file these, and even longer if you were filing them electronically.  The deadline to issue the forms to employees and subcontractors will remain January 31st, as it has been in previous years.  It is always good practice to have your employees verify their personal information on their W-2s for any errors before submitting them, so you can make any necessary changes. The SSA/IRS receive thousands of forms with incorrect information each year, which prompt notices to be sent and refunds to be held back. The IRS is hoping to curb fraud and pick up errors by receiving these forms earlier.  This will hopefully allow the IRS to verify information quicker and issue refunds sooner.  Although, the law states any refunds that include the Earned Income Tax Credit or the Additional Child Tax Credit cannot be issued until February 15th.  

It is recommended that you have your employees review their current W-4 on file or fill out a new one for 2017.  As their personal or financial situations change, they may need to reevaluate how little or how much they are having withheld from their paychecks.  W-4s can be printed directly from irs.gov.

Review your records to see who should be issued 1099s.  The most common recipients of 1099s are individuals and unincorporated businesses who performed services and were paid $600 or more during the year.  Amounts should be listed as nonemployee compensation in box 7.   Rents of $600 or more paid must be reported in box 1.  You are not required to issue 1099s to incorporated businesses.  You should already have any subcontractor’s tax information in your files before issuing any payments, but if not, now is a good time to have them complete a W-9, also available at irs.gov.  It is good practice to obtain this information from your subcontractors before sending any payments to them, which will increase your odds of obtaining the information and avoiding any unnecessary scrutiny from the IRS.

Cheryl is an Enrolled Agent at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356.  Cheryl welcomes any article feedback or questions for future article consideration.  

The Fourth of July has come and gone and for many business owners the mid-summer season is an excellent time to start to look ahead and begin making decisions in preparation of the end of the tax year.  Part of this process should include a review of how any recent legislation may impact the business.  Many such tax code changes are passed and signed into law during this time and can be overlooked when included in seemingly unrelated legislation.

One of these such changes, The Surface Transportation and Veteran’s Health Care Choice Improvement Act of 2015, passed last summer and contained many changes to the filing due dates of many business tax return filings. The estate and fiduciary returns, Employee benefit plan returns, and report of foreign account returns are also impacted by the changes. These changes go into effect for 2016 tax returns and will impact the due dates for the upcoming 2017 filing season. The changes are as follows:

Late arrival of Schedules K-1 from partnership returns has created the need for many individuals to file a personal tax return extension. The change in the Form 1065 filing date is expected to help alleviate this need by pushing the due date back by one full month. Both flow through entities, Partnerships and S Corporations, are now due on March 15th. The extended due date remains unchanged for both Forms 1065 and 1120S. C Corporations filing Form 1120 now have until April 15th to file as they do not impact the filing of individual tax returns. These changes should help to relieve some filing season stress for both taxpayers and tax professionals alike.

The bill also included changes to a few other return filings as listed above. Fiduciary returns, Form 1041, now have an additional 2 weeks of extension time and Form 5500 now has an additional month of extension period. The foreign account reporting returns formally due in June are now due with the filing of the individual return and can now be extended for 6 months along with the Form 1040.

The Trade Preferences Extension Act of 2015, also passed last summer, included updates to penalties related to filing Forms 1099.  The act increased the penalty for filing a late or incorrect form from $30 per form to $50 per form if the error or omission is corrected within 30 days of the due date and doubled the maximum penalty to $500 for intentional disregard.  The penalty for 1099 forms more than 30 days late increased to $100 per form and for those corrected after August 1st to $250.  For late and incorrect filings of form W-2 the penalties range from $50 to $260 per W-2 and can even mount to $530 per W-2 for intentional disregard.  Timely filing of these forms is essential to avoid these penalties.  It should be noted that 2016 forms W-2 as well as form 1099’s reporting  non-employee compensation (box 7) need to be filed by January 31, 2017 even if they are electronically filed. This is an earlier filing deadline than in previous years.  The IRS has also ramped up its efforts to encourage businesses to comply with their form 1099 filing requirements in order to lessen the occurrence of under-reporting and help close the “tax-gap” which is the difference between what is owed in taxes and what is actually reported by taxpayers.

If you have any questions regarding how these changes may impact you or your business it is recommended you contact your trusted financial and tax advisors about your individual  situation.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

Deciding which retirement plan is best for you and your business can be challenging. There are many different factors to weigh depending on your overall financial position. It is important to consider, how to start the plan, who the plan will cover, how much if any you plan to contribute, any tax advantages, and what additional recordkeeping or administrative cost is involved. Three of the most common plan types are, SEP IRA, SIMPLE IRA, and 401(k) plans.

The Simplified Employee Pension Plan, otherwise known as SEP plans , are available to sole proprietors, partnerships, S corporations, and C corporations alike. The plans are typically easy to set up and there are normally no maintenance fees or annual tax return filing for the plan. A maximum of 25% of annual compensation or $53,000 (whichever is less) is allowed for deferral in 2016. If the business has employees the same percentage of contribution must be made into any eligible employee accounts. Contributions can only be made by the employer and contributions are not required to be made every year. Contributions are 100% vested when made. The contributions are tax deductible by the employer and an additional tax credit up to $500 is available to small businesses to help offset any startup costs and is available for the first 3 years the plan is in place. The plan must be made available to all employees age 21 and older who have been employed by the organization for 3 out of the last 5 years and have had at least $600 in earnings. Withdrawals can be made at any time subject to early withdraw penalties and income taxes for individuals who have not yet reached 59 and ½ years of age.

The Savings Incentive Match Plan for Employees, Simple IRA, are available to all employers that do not offer any other type of retirement plan and with no more than 100 employees. The plan usually does have both participant and plan administration fees but these costs are minimal. Like the SEP, no annual tax return filing is required for this plan. Both the employer and employee can contribute to A Simple IRA. This type of plan must be offered to all employees with $5000 or more in earnings in any previous 2 year period and the current period. The employees decide how much to contribute through payroll deduction and can contribute a maximum of $12,500 to the plan for 2016 with a $3000 catch up amount for those who are 50 or older. Employers must make either a matching contribution of 100% of the first 3% of employee contributions or make a 2% contribution to all employees eligible for the plan even if they don’t participate. Employers cannot make any other discretionary contributions outside these two options. As with the SEP, contributions are 100% vested when made. Employer contributions are tax deductible and the startup and administrative costs are also eligible for the small employer tax credit mentioned above. Similar to the SEP, withdrawals can be made at any time subject to early withdraw penalties.

If an IRA based retirement plan is not for you, a 401(k) plan may better meet the needs of your business. There are three types of 401(k) plans and are available to all employers with at least one employee, including the business owner. The types are Safe Harbor 401(k), Automatic Enrollment 401(k), and Traditional 401(k) plans. The startup costs and administration fees are higher for 401(k) plans compared to IRA plans and an annual tax filing of form 5500 is required. It is recommended to seek advice from a financial advisor when setting up a 401(k) plan as they are much more complex than the SEP or SIMPLE plans. The contribution rules are slightly different for the 3 types. Not all require employer contributions, however all three types have a combined annual employee and employer contribution limit of $53,000. Employee contributions cannot exceed $18,000 for 2016 with an additional $6000 catch up amount allowed for those 50 or older. Employees 21 and older with at least 1000 hours of service in the prior year must be allowed to participate in these plans. Employee contributions are 100% vested but employer contributions typically vest over time. Withdrawals can only be made when certain events occur such as job or plan termination, certain hardship circumstances, and retirement. 401(k) plans allow employee loans against the plans that are paid back over a specified time with a pre-determined interest rate.

This is only a brief overview of the options available. If you are in need of a retirement plan for yourself or your employees, please contact your financial advisors for help in deciding which plan is best suited for your needs.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

Small Business gets  a Break on Start Up Expenses

When and how do I deduct expense incurred before I opened my business?

Most new business and rental property owners will pay or incur expenses for investigating the viability of a business and expenses before actually opening the business or renting the property.  These expenditures are known as startup costs and examples include analysis of potential markets and products, advertisements for the opening of the business, salaries and wages for training and education, and other expenditures that would normally be deductible if the business were open. These costs are covered in Internal Revenue Code 195 expenditures and have specific rules on when and how a tax deduction is elected.

The law requires these costs to be capitalized and not automatically deductible in the current year as a periodic cost.  However, an election may be made to expense up to $5,000 of these costs in the year in which the business opens.  This $5,000 deduction is reduced dollar for dollar once startup costs exceed $50,000. Thus if start up expenditures exceed $55,000 no deduction is allowed. The election is made on Part IV of Form 4562 and is due by the date of the return including extensions.  The remaining balance of startup expenses must be amortized over 15 years or 180 months. If the trade or business is disposed of before startup expenses are fully amortized the remaining g costs may be deductible in the year the business closes.

The organization costs of business entities are often confused with startup expenses. Although there are similarities in how they are treated by the IRS they should be segregated.  The IRS considers these expenses a separate cost and consequently a separate election is made for organizational costs.

Electing to deduct all or portion of startup expenses depends on the particular situation of the business, the owners of the business, and future operations. You should always speak with your trusted advisors about your particular situation.

Brian is a CPA at Gamwell Caputo Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Brian welcomes any article feedback or questions for future article consideration.