- What you need to know about the Equifax Data Breach
- Tax-Saving Strategies that Reduce your Tax Liability
- Tax Planning for Small Business Owners
- Now is the Time to Review Withholding Allowances
- Deducting Business-Related Car Expenses
- Special Tax Relief: Hurricanes Harvey, Irma & Maria
- Reporting Gambling Income and Losses
- Tax Tips for Hobbies that Earn Income
- Small Business Tax Tips: Health Care Tax Credit
- Understanding CP2000 Notices
What you need to know about the Equifax Data Breach
Background: What is Equifax?
Equifax is one of three major U.S. credit reporting bureaus. The other two are TransUnion and Experian. There is also a smaller, less well-known credit-reporting agency called Innovis (aka CBCInnovis) that operates slightly different in that its main purpose is to provide mortgage credit reporting services to the financial services industry.
Equifax, like TransUnion and Experian, track the financial histories of consumers and use this information to analyze whether a person is “credit-worthy” by issuing them a credit score. The credit score is based on the credit history contained in the credit report, a record of consumers’ financial histories. Credit reports are comprised of information about your bill payment history, loans, current debt, and other financial information. Credit reports also contain information about where you work and live and whether you’ve been sued, arrested, or filed for bankruptcy.
Credit reports, which are also called credit records, credit files, and credit histories, help lenders decide whether or not to extend you credit or approve a loan, and determine what interest rate they will charge you. Prospective employers, insurers, and rental property owners may also look at your credit report. Typically, the information collected on consumers is sold by the credit bureau (e.g., Equifax, Experian, or TransUnion) to credit card companies and other financial institutions.
The hackers had access to data from May 2017 to July 2017, including names, birth dates, Social Security numbers, driver’s license numbers and credit card numbers.
Who is Affected?
As many as 145.5 million people in the United States were affected, as well as 400,000 in the United Kingdom and 8,000 consumers in Canada. Credit card numbers for approximately 209,000 U.S. consumers and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers were accessed, according to Equifax.
What to do if it is likely that you were impacted by the Equifax data breach
The first thing you should do (if you haven’t already) is to obtain and review your credit report(s) and determine whether there’s been any unusual activity. Next, check whether your data has been hacked using the special website Equifax set up for data breach victims (www.equifaxsecurity2017.com). You will need to provide your last name and the last six numbers of your Social Security number. From there you can sign up for their free credit monitoring service. You won’t be able to enroll immediately; however, but will be given a date when you can return to the site to enroll. Keep in mind that Equifax will not send you a reminder to enroll so you should mark the date on your calendar so that you can start monitoring your credit as soon as possible.
Note: Equifax removed the arbitration clause from the website that was set up for data breach victims. The arbitration clause stated that by signing up for the free I.D. theft protection and monitoring from its TrustedID service a consumer could not take legal action against the company–including participating in any class-action lawsuits that might arise from the breach.
Freeze your credit report accounts at each of the credit bureaus. Freezing your credit reports (make sure to freeze your account at each of the credit bureaus) prevents anyone (including new creditors) from accessing your account. Equifax has waived the fee until November 21, 2017) and has agreed to refund fees to those who have paid since September 7, which is the date that the data breach was announced.
If you do not want to freeze your credit account, you can place a fraud alert on the account. A fraud alert warns creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you.
Note: Unfortunately, a freeze on your credit report does not necessarily mean that your bank accounts and other identity-related information is safe. Furthermore, if you do need access to your credit report, you will need to pay a fee to “unfreeze” it.
Get in the habit of periodically check your bank, credit card, retirement, and other financial accounts that could potentially be impacted now or down the road and make sure your Internet security (antivirus, firewall, malware detector, etc.) is working properly.
Finally, filing your taxes earlier, rather than later (i.e., at the last minute) helps prevent a hacker from filing a tax return using your stolen identifying information.
Precautions to take if it appears that you were notimpacted by the Equifax data breach
Even if the Equifax data breach website states that you were not affected, it’s a good idea to keep an eye on your credit reports, bank accounts, credit card accounts and other financial information. You can freeze your credit accounts as well (see above) and sign up for fraud protection.
Watch out for Equifax-related Scams
If you receive a phone call and the person on the other end says, “This is Equifax calling to verify your account information.” Hang up immediately. It’s a scam because Equifax will not call you out of the blue.
Every year, thousands of people lose money to telephone scams from a few dollars to their life savings. Scammers will say anything to cheat people out of money. Some seem very friendly– calling you by your first name, making small talk, and asking about your family. They may claim to work for a company you trust, or they may send email or place ads to convince you to call them.
If you get a call from someone you don’t know who is trying to sell you something you hadn’t planned to buy, say “No thanks.” And, if they pressure you about giving up personal information–like your credit card or Social Security number–don’t give in. Simply hang up.
Tips for recognizing and preventing phone scams and imposter scams:
- Don’t give out personal information. Don’t provide any personal or financial information unless you’ve initiated the call and it’s to a phone number that you know is correct.
- Don’t trust caller ID either. Scammers can spoof their numbers, so it looks like they are calling from a particular company, even when they’re not.
- If you get a robocall, hang up. Don’t press 1 to speak to a live operator or any other key to take your number off the list. If you respond by pressing any number, it will probably just lead to more robocalls.
If you’ve already received a call that you think is fake, report it to the FTC. If you gave your personal information to an imposter, change any compromised passwords, account numbers or security questions immediately. If you’re concerned about identity theft, visit IdentityTheft.gov to learn how you can protect yourself.
Stay safe and take steps to protect your data. If you have any questions or concerns about the Equifax data breach and your taxes help is just a phone call away.
Tax-Saving Strategies that Reduce your Tax Liability
If you’re looking to save money on your taxes this year, consider using one or more of these tax-saving strategies to reduce your income, lower your tax bracket, and minimize your tax bill.
Max Out Your 401(k) or Contribute to an IRA
You’ve heard it before, but it’s worth repeating because it’s one of the easiest and most cost-effective ways of saving money for your retirement.
Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies, these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available. Check with your employer about the availability of such a plan and contribute as much as possible to defer income and accumulate retirement assets.
Tip: Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.
If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional (pre-tax contributions) or a Roth IRA (after-tax contributions). You may also be able to contribute to a spousal IRA even when your spouse has little or no earned income.
Tip: To get the most from IRA contributions, fund the IRA as early as possible in the year. Also, pay the IRA trustee out of separate funds, not out of the amount in the IRA. Following these two rules will ensure that you get the most tax-deferred earnings possible from your money.
Take Advantage of Employer Benefit Plans Such as Flexible Spending Accounts (FSAs) or Health Spending Accounts (HSAs)
Medical and dental expenses are generally only deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). For most individuals, particularly those with high income, this eliminates the possibility for a deduction.
However, you can effectively get a deduction for these items if your employer offers a Flexible Spending Account (sometimes called a cafeteria plan). These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account. Ask your employer if they provide either of these plans.
Bunch Your Itemized Deductions
Certain itemized deductions, such as medical or employment-related expenses, are only deductible if they exceed a certain amount. It may be advantageous to delay payments in one year and prepay them in the next year to bunch the expenses in one year. This way you stand a better chance of getting a deduction.
Use the Gift-Tax Exclusion to Shift Income
In 2017, you can give away $14,000 ($28,000 if joined by a spouse) per donee, per year without paying federal gift tax. And, you can give $14,000 to as many donees as you like. The income on these transfers will then be taxed at the donee’s tax rate, which is in many cases lower.
Note: Special rules apply to children under age 18. Also, if you directly pay the medical or educational expenses of the donee, such gifts will not be subject to gift tax.
For gift tax purposes, contributions to Qualified Tuition Programs (Section 529) are treated as completed gifts even though the account owner has the right to withdraw them. As such, they qualify for the up-to-$14,000 annual gift tax exclusion in 2017. One contributing more than $14,000 may elect to treat the gift as made in equal installments over the year of gift and the following four years so that up to $56,000 can be given tax-free in the first year.
Consider Tax-Exempt Municipal Bonds
Interest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipal bonds will often be greater than from higher paying commercial bonds after reduction for taxes. Gain on sale of municipal bonds is taxable, and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is non-deductible.
Give Appreciated Assets to Charity
If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash prevents your having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale. Additionally, you can obtain a tax deduction for the fair market value of the property.
Tip: Many taxpayers also give depreciated assets to charity. Deduction is for fair market value; no loss deduction is allowed for depreciation in value of a personal asset. Depending on the item donated, there may be strict valuation rules and deduction limits.
Tip: Taxpayers age 70 1/2 and older can take advantage of tax benefits associated with Qualified Charitable Distributions (QCDs)–IRA withdrawals that are transferred directly to a qualified charitable organization.
Keep Track of Mileage Driven for Medical or Charitable Purposes
If you drive your car for medical or charitable purposes, you may be entitled to a deduction for miles driven. For 2017, it’s 17 cents for medical and moving purposes and 14 cents for service for charitable organizations. You need to keep detailed daily records of the mileage driven for these purposes to substantiate the deduction.
If you are Self-Employed…
As a self-employed business owner you can also take advantage of additional tax saving strategies such as:
Special Deductions and Tax Credits
You may be able to expense up to $510,000 ($500,000 adjusted for inflation) in 2017 for qualified equipment purchases for use in your business immediately instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums as business expenses. If you provide health insurance to your employees, you may be able to benefit from the small business health care tax credit (see below). Finally, if you use your car for business, you may be able to deduct 53.5 cents per business mile driven in 2017 (more about this below).
Setting Up and Contributing to a Retirement Plan
If you have your own business, consider setting up and contributing as much as possible to a retirement plan such as Keogh plan, Simplified Employee Pension (SEP) plan or SIMPLE IRA plan. These are allowed even for a sideline or moonlighting businesses. Several types of plans are available which minimize the paperwork involved in establishing and administering such a plan.
Hiring Your Child in the Business
If your child is under age 18, he or she is not subject to employment taxes such as FICA and federal unemployment taxes from your unincorporated business (income taxes still apply). In addition, your child may be able to contribute to an IRA using earned income. This will reduce your income for both income and employment tax purposes and shift assets to the child at the same time; however, you cannot hire your child if he or she is under the age of 8 years old.
A word about proper documentation…
Unfortunately, many taxpayers forgo worthwhile tax credits and deductions because they have neglected to keep proper receipts or records. Keeping adequate records is required by the IRS for employee business expenses, deductible travel and entertainment expenses, and charitable gifts and travel, and more.
But don’t do it just because the IRS says so. Neglecting to track these deductions can lead to overlooking them as well. You also need to maintain records regarding your income. If you receive a large tax-free amount, such as a gift or inheritance, make certain to document the item so that the IRS does not later claim that you had unreported income.
If you’re ready to save money on your taxes this year but aren’t sure which tax-saving strategies apply to your financial situation, don’t hesitate to call.
Tax Planning for Small Business Owners
What is Tax Planning?
Tax planning is the process of looking at various tax options to determine when, whether, and how to conduct business transactions to reduce or eliminate tax liability.
Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their CPAs, EAs, or tax advisors but tax planning is an ongoing process, and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA, EA, or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits, and deductions that are legally available to you.
Tax Planning Strategies
Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:
- Reducing the amount of taxable income
- Lowering your tax rate
- Controlling the time when the tax must be paid
- Claiming any available tax credits
- Controlling the effects of the Alternative Minimum Tax
- Avoiding the most common tax planning mistakes
In order to plan effectively, you’ll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.
The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.
Here are three examples where tax planning pays for most small business owners:
Maximizing Business Entertainment Expenses
Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines.
In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.
The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records, and the business meal must be arranged with the purpose of conducting specific business. Bon appetite!
Important Business Automobile Deductions
If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses (more about this below). In 2017, the mileage reimbursement rate is 53.5 cents per business mile (down from 54 cents per mile in 2016).
If you own two cars, another way to increase deductions is to include both cars in your deductions. This works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.
Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, don’t hesitate to contact the office.
Increase Your Bottom Line When You Work At Home
The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.
Try prominently displaying your home business phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.
Section 179 expensing for tax year 2017 allows you to immediately deduct, rather than depreciate over time, up to $510,000, with a cap of $2,030,000 worth of qualified business property that you purchase during the year. The key word is “purchase.” Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification. Some deductions can be taken whether or not you qualify for the home office deduction itself.
Tax Avoidance is Legal, Tax Evasion is not
Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRS’s finding that there was fraudulent intent on the part of the business owner. The following are four of the areas the IRS examiners commonly focus on as pointing to possible fraud:
- Failure to report substantial amounts of income such as a shareholder’s failure to report dividends or a store owner’s failure to report a portion of the daily business receipts.
- Claims for fictitious or improper deductions on a return such as a sales representative’s substantial overstatement of travel expenses or a taxpayer’s claim of a large deduction for charitable contributions when no verification exists.
- Accounting irregularities such as a business’s failure to keep adequate records or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements.
- Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder’s children.
If you’re ready to meet with a tax professional to discuss tax planning strategies for your business, call the office today.
Now is the Time to Review Withholding Allowances
With less than three months remaining in the calendar year, now is a good time to double check your federal withholding to make sure enough taxes are being taken out of your pay.
Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. But each year millions of American workers have far more taxes withheld from their pay than is required. In fact, according to the IRS, the average individual income tax refund for Fiscal Year 2016 was about $3,050. As such, taxpayers might want to consider adjusting their tax withholding to bring the taxes they must pay closer to what they actually owe–and put more money in their pocket right now.
On the flip side, is that some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks to avoid penalties they might have to pay. Certain folks should pay particular attention to their withholding. These include:
- Married couples with two incomes
- Individuals with multiple jobs
- Some Social Security recipients who work
- Workers who do not have valid Social Security numbers
- Retirees who receive pension payments
Whether you’re starting a new job, retiring, or self-employed here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.
- New Job. When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
- Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.
You typically can submit a new Form W–4 at any time you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.
- Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security, and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.
Questions about withholding? Help is just a phone call away.
Deducting Business-Related Car Expenses
Whether you’re self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.
There are two choices for claiming deductions:
- Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
- Use the standard mileage deduction in 2017 and simply multiply 53.5 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.
Which Method Is Better?
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.
The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler– but it’s often less advantageous in dollar terms.
Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
Keep careful records of your travel expenses and record your mileage. you can use a log book or if you’re tech savvy, an app on your phone or tablet. Keeping track of the number of miles driven and the total amount you spent on the car is essential because if you don’t, your tax advisor won’t be able to determine which of the two options is more advantageous for you at tax time.
Furthermore, the tax law requires that you keep travel expense records and that you show business versus personal use on your tax return. If you use the actual cost method for your auto deductions, you must keep receipts.
Tip: Consider using a separate credit card for business, to simplify your recordkeeping.
Tip: You can also deduct the interest you pay to finance a business-use car if you’re self-employed.
Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed two percent of adjusted gross income.
Apps for Tracking Business Mileage
There are a number of phone applications (apps) that could help you track those pesky business miles. Most of these apps are useful for tracking and reporting expenses, mileage and billable time. They use GPS to track mileage, allow you to track receipts, choose the mileage type (Business, Charitable, Medical, Moving, Personal), and produce formatted reports (IRS compliant HTML and CSV tax return reports) that are easy to generate and share with your CPA, EA, or tax advisor.
Here are three popular apps that help you track your business mileage:
1. TripLog – Mileage Log Tracker
Works with: Android and iPhone
What it does: Tracks vehicle mileage and locations using GPS
- Automatic start when plugged into power or connected to a Bluetooth device and driving more than five mph
- Reads your vehicle’s odometer from OBD-II scan tools
- Syncs data between the web service and multiple mobile devices
- Supports commercial trucks including per diem allowance, state-by-state mileage for IFTA fuel tax reports, and DEF fuel purchases and gas mileage
2. Track My Mileage
Works with: Android and iPhone
What it does: Keeps track of mileage for business or personal use
- Provides mileage rates used to calculate the deductible costs of operating your automobile
- Allows you to group your trips by client
- Tracks multiple drivers and vehicles tracking
- Localized and translated into more than 20 languages
Works with: iPhone and iPad
What it does: Tracks mileage, as well as expenses and billable time
- Allows you to choose which way you want to track your mileage
- Remembers Frequent trips
- Creates reports in PDF format or CSV for importing into Excel
- Ability to email your reports and photo receipts
Call today and find out which deduction method is best for your business-use car.
Special Tax Relief: Hurricanes Harvey, Irma & Maria
Key tax relief provisions are now available for victims of Hurricanes Harvey, Irma and Maria. This tax relief applies to individuals and businesses anywhere in Florida, Georgia, Puerto Rico and the Virgin Islands, as well as parts of Texas. A key component of this tax relief is that it postpones various tax deadlines. For example, individuals and businesses will have until January 31, 2018, to file any returns and pay any taxes due.
Those eligible for the extra time include:
- Individual filers whose tax-filing extension runs out on October 16, 2017. Because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
- Business filers, such as calendar-year partnerships, whose extensions ran out on September 15, 2017.
- Quarterly estimated tax payments due on September 15, 2017 and January 16, 2018.
- Quarterly payroll and excise tax returns due on October 31, 2017.
- Calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017.
A variety of other returns, payments and tax-related actions also qualify for additional time. Please call the office if you have any questions about this and other tax relief offered by the IRS since these hurricanes began affecting the US mainland and its territories, the US Virgin Islands and Puerto Rico.
In addition to extra time to file and pay, the IRS offers other special assistance to disaster-area taxpayers such as:
- Special relief helps employer-sponsored leave-based donation programs aid hurricane victims. Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charities providing relief. Donated leave is not included in the employee’s income, and employers may deduct these cash payments to charity as a business expense.
- 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to hurricane victims and members of their families. Under this broad-based relief, a retirement plan can allow a hurricane victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or dependent who lived or worked in the disaster area. Hardship withdrawals must be made by Jan. 31, 2018.
- The IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.
- Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year) or the return for the prior year (2016). If you need assistance or have any questions about disaster-related losses, please contact the office.
- The IRS is waiving the usual fees and expediting requests for copies of previously filed tax returns for disaster area taxpayers. This relief can be especially helpful to anyone whose copies of these documents were lost or destroyed by the hurricane.
- If disaster-area taxpayers are contacted by the IRS on a collection or examination matter, they should be sure to explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.
Help is just a phone call away.
Don’t hesitate to call if you would like more information, additional details, or have any questions about tax relief provisions for victims of Hurricanes Harvey, Irma, and Maria.
Reporting Gambling Income and Losses
If you gamble, these tax tips can help you at tax time next year: Here’s what you need to know about figuring gambling income and loss.
1. Gambling income. Income from gambling includes winnings from lotteries, raffles, horse races, and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips and you must report them on your tax return
2. Payer tax form. If you win, the payer may send you a Form W-2G, Certain Gambling Winnings. This form reports the amount of your winnings to both you and the IRS. The payer issues the form depending on the type of game you played, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
3. How to report winnings. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.
4. How to deduct losses. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.
5. Keep gambling receipts. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or statements. You should also keep a diary or log of your gambling activity. Your records should show your winnings separately from your losses.
If you have questions about gambling income and losses, don’t hesitate to call.
Tax Tips for Hobbies that Earn Income
Millions of people enjoy hobbies such as stamp or coin collecting, craft making, and horse breeding, but the IRS may also consider them a source of income. As such, if you engage in a hobby that provides a source of income, you must report that income on your tax return; however, taxpayers (especially business owners) should be aware that the way income from hobbies is reported is different from how you report income from a business. For example, there are special rules and limits for deductions you can claim for a hobby.
Here are five basic tax tips you should know if you get income from your hobby:
Business versus Hobby. There are nine factors to consider to determine if you are conducting business or participating in a hobby. Make sure to base your decision on all the facts and circumstances of your situation. To learn more about these nine factors, please call.
Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. Don’t hesitate to call if you need more information about these rules.
Limits on Expenses. As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. Use Schedule A, Itemized Deductions to report these types of expenses.
Use a tax professional. Hobby rules can be complex, but using a tax professional makes filing your tax return easier. If you need have any questions about reporting income from a hobby, please call.
Small Business Tax Tips: Health Care Tax Credit
As a small employer, you may be eligible for a tax credit that lets you keep more of your hard-earned money. It’s called the small business health care tax credit, and it benefits employers that:
- offer coverage through the small business health options program, also known as the SHOP Marketplace
- have fewer than 25 full-time equivalent employees
- pay an average wage of less than $50,000 a year ($52,400 in 2017 as adjusted for inflation)
- pay at least half of employee health insurance premiums
Here are five facts about this credit:
- The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
- To be eligible for the credit, you must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace, or qualify for an exception to this requirement.
- The credit is available to eligible employers for two consecutive taxable years beginning in 2014 or later. You may be able to amend prior year tax returns to claim the credit for tax years 2010 through 2013 in addition to claiming this credit for those two consecutive years.
- You can carry the credit back or forward to other tax years if you do not owe tax during the year.
- You may get both a credit and a deduction for employee premium payments. Since the amount of your health insurance premium payments will be more than the total credit, if you are eligible, you can still claim a business expense deduction for the premiums in excess of the credit.
Contact the office today if you’d like more information about the small business health care tax credit.
Understanding CP2000 Notices
The CP2000 is a notice commonly mailed to taxpayers through the United States Postal Service. It is generated by the IRS Automated Underreporter Program when income reported from third-party sources such as an employer does not match the income reported on the tax return.
What to do if you Receive a CP2000 Notice:
The CP2000 is not a tax bill, it merely informs you about the information the IRS has received and how it affects your tax; however, it is important to pay attention to what your CP2000 Notice states because interest accrues on your unpaid balance until you pay it in full. If you cannot pay the full amount that you owe, then you can set up a payment plan with the IRS.
If you receive a CP2000 Notice in the mail complete the response form. If your notice doesn’t have a response form, then follow the notice instructions. If the new information is wrong, then check the notice response form for instructions on what to do next. You also may want to contact whoever reported the information and ask them to correct it.
Note: If the information is wrong because someone else is using your name and social security number please call the IRS and let them know. You also can the link on the IRS Identity theft information webpage to find out more about what you can do.
Do I need to amend my return?
If the information displayed in the CP2000 notice is correct, you don’t need to amend your return unless you have additional income, credits or expenses to report. If you agree with our notice, follow the instructions to sign the response page and return it to the IRS in the envelope provided.
If you have additional income, credits or expenses to report, you may want to complete and submit a Form 1040-X, Amended U.S. Individual Income Tax Return. If you need assistance with this, please call the office.
How to Avoid Receiving a CP2000 Notice:
- keep accurate and detailed records
- wait until you receive all of your income statements before filing your tax return
- check the records you receive from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they are correct
- include all your income on your tax return including that from a second job or fees derived from the sharing economy (e.g. renting a spare room out on Airbnb)
- follow the instructions on how to report income, expenses and deductions
- file an amended tax return for any information you receive after you’ve filed your return
- Use a professional tax preparer who will help you avoid mistakes and find credits and deductions you may qualify for.
Beware of Fake IRS Tax Bill Notices
Taxpayers and tax professionals should be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act. Generally, the scam involves an email notice that is sent electronically–even though the IRS does not initiate contact with taxpayers by email or through social media platform. The fake CP2000 notice is sent as an attachment.
Don’t hesitate to contact the office if you have any questions about IRS notices or letters you have received in the mail or otherwise.
Using QuickBooks’ Income Tracker
You can get an enormous amount of useful information from QuickBooks’ reports, especially if you customize them to isolate the precise data you want. Reports included with the software range from the very simple, like Open Invoices, to output that’s exceptionally complex, like Trial Balance and Profit & Loss.
Warning: Standard financial reports like Trial Balance are easy to run in QuickBooks, but very difficult to understand and analyze. You should, though, be aware of what they’re telling you at least once a quarter – even once a month in some cases. Please call if you need help with this.
Sometimes, especially first thing in the morning as you’re planning your day, you just want to cut to the chase and get a quick overview of your company’s finances. That’s where QuickBooks’ Income Tracker comes in. It not only provides that overview, but it also contains links to related screens where you can do the work that’s needed there.
A Simple Layout
Click the Income Tracker link in the toolbar to open the tool’s main screen. If you’ve been using QuickBooks for a while, you’ll see a framework like this with your own company’s data already filled in.
Figure 1: QuickBooks Income Tracker displays both summaries of income types and the specific transactions that contribute to those totals.
Look first at the top of the screen. You’ll see six horizontal bars, each of which represents groups of transactions that either require immediate attention or will at some point in the future. Besides identifying the type of transaction, each block displays the number of transactions involved and their total dollar amount. They are:
- Estimates – estimates that have been created and shared with customers, but haven’t yet turned into sales
- Sales Orders – orders that have been entered but have been neither fulfilled nor converted to invoices
- Time & Expenses – hours that have been recorded for customers but not yet invoiced
- Open Invoices – invoices that have been created and sent to customers, but no payments have been received
- Overdue – open invoices that have passed their due dates
- Paid Last 30 Days – payments that have been received within the last 30 days
Modifying the View
Click on any of the colored bars, and the list of transactions below will change to include only those that meet that particular criteria. To get back to the default display of all transactions, click the Clear/Show All link in the upper right of the screen.
QuickBooks also lets you display a user-defined subset of the transactions. Click on one of the four drop-down lists above the transaction grid itself to change the view of:
- Customer: Job – choose just one from the complete list
- Type – Sales Orders, Invoices, Received Payments, etc.
- Status – All, Open, Overdue, or Paid
- Date – multiple ranges available
You can also modify the toolbar if your company doesn’t use all the sales forms/transaction types supported. To do so, click the gear icon in the far upper right of the screen and click in the boxes in front of Estimates, Sales Orders and/or Time & Expenses to remove them.
QuickBooks’ Income Tracker provides a great way to get a quick look at your finances. But it also serves as a launching pad for related activities.
Figure 2: Click the down arrow in the Action column to take care of tasks related to that transaction.
Highlight a transaction by clicking in the row, then click the down arrow at the end of the row in the Action column. The options that appear there depend on the type of transaction you selected. Choose a Sales Order, for example, and you can Convert to Invoice, Print Row, or Email Row. Options for an invoice are Receive Payment, Print Row, or Email Row.
As mentioned previously, QuickBooks offers numerous reports that can give you more insight about your accounts receivable. If you understand the software’s robust customization tools, you can create reports about your income that will answer questions you may have. If you’re unsure of what to do, please contact the office for assistance.
Tax Due Dates for October 2017
Employees who work for tips – If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.
Individuals – If you have an automatic 6-month extension to file your income tax return for 2016, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.
Electing Large Partnerships – File a 2016 calendar year return (Form 1065-B). This due date applies only if you timely requested a 6-month extension of time to file the return.
Employers Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in September.
Employers Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in September.
Employers – Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 13 to file the return.
Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2017 but less than $2,500 for the third quarter.
Employers – Federal Unemployment Tax. Deposit the tax owed through September if more than $500.
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