Payroll for Apartment Managers

published October, 2013

In California, if you have an apartment building with more than 15 units, you are required to have a “responsible person” residing on the premises. If you have an apartment manager who is receiving reduced rent as “compensation” for keeping track of your building, can they file for unemployment or disability?

As we say in our payroll classes, anyone can FILE for unemployment or disability, but not everyone is eligible.

The IRS and California’s EDD say if “lodging” is furnished on the employer’s premises, for the employer’s convenience, and as a condition of employment, it is not subject to income tax nor income tax withholding, not Medicare nor Social Security (IRS Publication 15A, page 15)—which is ALMOST all the taxes. The three that are missing are CA Unemployment Insurance, CA Employment Training Tax and CA State Disability Insurance (DE-44, page 32, and DE-231TP). The value of lodging is not “income wages” but it is “subject wages.”—a fine distinction.The 2013 rate for SDI in California is 1%, but the SDI is normally withheld from the paycheck—and the employer is making this payment in addition to the value of the lodging— SO, to figure out the “wage base” to calculate the SDI tax, we have to add the tax paid to the value of the lodging. Mathematically, we take the lodging value/0.99 to get the wage base for SDI, UI and ETT (calculation found at DE-231Q). UI and ETT are taxes with rates that change per employer, and these two are limited to the first $7,000 of wages for each employee in 2013. SDI tax is limited to the first $100,880 paid to each employee for 2013.

How do you figure out the value of the rent reduction? Ideally the cash value of the rent reduction would be stated in an employment contract. You may have an idea based on the other 15 units in the building. The CA EDD also provides a minimum of $39.90 per week, or a maximum of $1,224 per month as an alternate method of determining value, or 2/3 of ordinary rental value (DE-44, page 11).

There are also minimum wage laws in California, but I’m just not going to get into that here! You might want to have them keep track of their hours and submit a timecard, and you should keep a copy.

The upshot of this complicated system is that it would appear apartment mangers ARE potentially eligible for Unemployment or State Disability, and as the apartment owner, you are responsible to report your employees and pay California employment tax for them, even though they have no “wages.”

Who is Required to Have Health Insurance in 2014?

published August, 2013

Employer with fewer than 50 employees? No.

A Person? Yes.

Try this link: https://www.healthcare.gov/what-do-small-businesses-need-to-know/

Small businesses may get health coverage in the Small Business Health Options Program (SHOP) Marketplace. No employers are required to offer health coverage.

Starting in 2014, businesses with 50 or fewer full-time equivalent (FTE) employees can use SHOP to offer coverage to their employees. This applies to non-profit organizations as well. You control the coverage you offer and how much you pay toward premium costs.

Individuals ARE required to have health insurance, with some exceptions, or face a penalty of $95 per adult in 2014, $325 in 2015 and $695 in 2016 and beyond, with some adjustments and exceptions and general hand waving. Here is a link to a chart: http://kff.org/infographic/the-requirement-to-buy-coverage-under-the-affordable-care-act/

Health coverage through SHOP starts as soon as January 1, 2014. Open enrollment begins October 1, 2013. You can sign up and begin offering coverage any time during the year. If you already have insurance or your employer provides health insurance, you may continue with this.

Thanks to Peggy Hall, EA for her help with this section.

Foreign Bank Account? You May Need to Report It

published June, 2013

If you’ve got a “financial interest” or signature authority over one or more financial accounts outside the US, AND if the value of these accounts totals over $10,000 at ANY TIME during the year, you need to report them by 6/30/13.

The penalty for failing to file can be up to $10,000.

No extensions.

The Form is Form TD F 90-22.1 Report of Foreign Bank and Financial Account (FBAR). The IRS has a help phone line and email: 866-270-0733 or FBARquestions@irs.gov

S Corp Medical Insurance

published May, 2013

The most common issue I’ve run into this season was the S Corporation medical insurance issue for a greater than 2% shareholder.

I did write about this in October 2012’s newsletter (see this here: http://taxbuddha.com/newsletter/newsletter_2012_10.html)

If you’re the owner of an S corp and you want to deduct your medical insurance in the “most beneficial” way, the medical insurance payments need to appear on your W-2.

For more detailed information, see IRS Notice 2008-1 or
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

QuickBooks does a good job of recording and reporting this, if you’re using QuickBooks for you payroll. The setup is a two-part process, first setting up the payroll item in the payroll item list, then adding the item to the payroll records of the owners who are receiving wages from the corp. Once set up, you’ll need to include the item in the paycheck (which will happen automatically). This will then show up on the year end W-2 form properly.

If I’m preparing your payroll, make sure I know how much medical insurance the corp is paying for each quarter.

1099s and Other Tax Deadlines

published January, 2013

1099s and W-2’s are due out to contractors and employees by January 31st. Then copies with transmittal forms are due to the IRS by February 28th. Personal estimated payments for the fourth quarter of income from 2012 are due January 15th. Corporate returns are due March 15th and personal returns are due…um…I forget exactly when. (April 15 as per usual)

Have you made payments to an individual or partnership from your business in amounts over $600? For non-employee compensation, you must issue 1099-MISC forms in January 2013.

Have you heard about the 1099-K? It is a new (as of last year) 1099 that credit card processors have to issue to their merchants—so Visa, Paypal, AmEx, etc will be sending statements to you, if you’ve accepted credit cards this year. A copy will also go to the IRS so they can match the income reported to your tax return.

Here’s the news: if you’ve paid vendors with a credit card or Paypal, you DON’T have to include those payments on a 1099-MISC (the 1099-K is filed instead of the 1099-MISC per IRS instructions). So, now you have to keep track not only of what you paid, but how payment was rendered. If you’re using QuickBooks and populate the check number field with the following:
Gone are the days of bringing a stack of 1099s in to the office and saying “here’s all my income.” Some of your income may be duplicated if you accept credit cards, and you wouldn’t want to pay too much tax.

Get Ready for 1099s (Please!) (And info on 1099-K’s)

published December, 2012

Have you made payments to an individual or partnership from your business in amounts over $600? For non-employee compensation, we’ll issue 1099-MISC forms in January, 2013.

Now is the time to start gathering info for any vendors who need to receive 1099s from you. You need the (REAL) business name, address, tax ID# and amount paid.

Have you heard about the 1099-K? It is a new (as of last year) 1099 that credit card processors have to issue to their merchants – so Visa, Paypal, AmEx, etc will be sending statements to you, if you’ve accepted credit cards this year. A copy will also go to the IRS so they can match the income reported to your tax return.

Here’s the news: if you’ve paid vendors with a credit card or Paypal, you DON’T have to include those payments on a 1099-MISC (the 1099-K is filed instead of the 1099-MISC per IRS instructions). So, now you have to keep track not only of what you paid, but how payment was rendered. If you’re using QuickBooks and populate the check number field with the following:

  • Debit
  • Debitcar
  • DBT
  • DBT card
  • DCard
  • Debit cd
  • Visa
  • Masterc
  • MC
  • MCard
  • Chase
  • Discover
  • Diners
  • PayPal

QuickBooks will exclude the payment (as it should) from the regular 1099-MISC. (I guess they really like Chase bank, and really don’t care for AmEx.) This MIGHT make for less work (at least doing 1099s) but don’t worry, you make up for it in data entry.

So, what if you fail to exclude the credit card payments, and issue a 1099-MISC for the payments, and the credit card processor ALSO issues a 1099-K for the same income? The vendor may have some explaining to do on their tax return—and if this happens in reverse, we’ll have to explain it on your tax return.

Gone are the days of bringing a stack of 1099s into the office and saying “here’s all my income.” Some of your income may be duplicated if you accept credit cards, and you wouldn’t want to pay too much tax.

S Corporation Health Insurance

published October, 2012

IRS Notice 2008-1 ruled that under certain situations, a 2% or more shareholder is allowed an above-the-line deduction (that’s the good kind) even if the health insurance policy is purchased in the name of the shareholder. The notice has four examples; three have the shareholder purchasing health insurance and the other has the S corporation purchasing the health insurance.

The Notice says if the shareholder purchases the health insurance in his own name and pays for it with his own funds the shareholder is NOT allowed an above-the-line deduction (that’s worse, it gets deducted on Schedule A and is subject to various limitations). On the other hand, if the shareholder purchases the health insurance in his own name but the S corporation either directly pays for the health insurance or reimburses the shareholder for the health insurance AND ALSO includes the premium payment in the shareholder’s W-2, the shareholder IS allowed an above-the-line deduction.

For a shareholder to claim an above-the-line deduction (the good kind), the health insurance premiums have to be paid by the S corporation and have to be included in the shareholder’s W-2, so if you have an S Corporation, and you have health insurance, be sure the W-2 will reflect this—contact your payroll provider before year end! The Premiums are income to the shareholder, but are not taxed as Social Security, Medicare nor the various state taxes (except as state income).

“B” Corps

published June, 2012

I was asked about “B” Corps at the Women’s Initiative for Self Employment when I presented a seminar there recently. This is not an official designation from a tax perspective, it is a “certification” that the company meets certain requirements to be socially responsible, and has taken measures to ensure their articles or partnership agreement will not restrict the company from pursuing social goals—which normally might be dictated by the company documents—and a corporation, LLC or sole proprietership can be certified. No tax change, more like a “we’re BBB diamond certified” sort of a designation.

Here’s some info on the “B” Corp” copied from NY Times 4/11/11 by Tina Rosenberg:

“To become a certified B Corp, or benefit corporation, a business must pass an examination of how it treats its employees, the environment, and the community. A non-profit organization called B Lab sets out the requirements and certifies businesses that meet the standard. The idea is that while any company can claim to be a good corporate citizen, a B Corp can prove it—something valuable for consumers and investors.

“B Corps must also procure shareholders’ agreement for a revision of the bylaws to allow business decisions to consider the impact not only on shareholders, but also the workforce, community, and the environment. Shareholders are allowed to sue if they feel the directors aren’t doing enough to take social responsibility into account.

“A B Corp can turn down a high bid in favor of a buyer more committed to responsible behavior without worry of lawsuits. The change also solves other problems faced by mission-driven companies. ‘The top concern we hear is “I’m scared to take in outside money because I’m going to be pushed to do things I don’t want to do,”’ said Jay Coen Gilbert, one of the founders of B Corp. ‘That sort of fear often makes companies not want to take in outside capital, which restricts their growth.’ The changes in bylaws can give small businesses the assurance they need to be able to grow.”

There is a non-profit, B Lab, that does the certification, and they do an on-site review of 10% of the companies they have certified every year, and if you don’t pass your inspection, you have 90 days to correct problems they’ve identified, or you’ll lose your certification.

S Corporations on the Web—Home Office

If you are only working from home, and the use is exclusive and regular, you may qualify to deduct expenses for the office space. Just posted: the Home Office segment of a web based CPE class for S Corporations based on the live in-person seminar so you don’t have to travel, and at a reduced cost. Take a look here: http://www.youtube.com/watch?v=h3ZuW8pFbg8

We’re posting these on YouTube.com so you can watch for free—the information “belongs” to everyone. However, CPE credit costs money (the format, and order that it is presented in, is copyrighted material), plus I think you should be able to sample a seminar before you pay for it. There will be a nominal fee for the CPE credit, or you can make a “contribution” to encourage my behavior (NOT tax deductible). IRS CPE is already available to those who complete the verification sheet (once all the segments are posted). Credit for CTEC will follow—we need to complete the series plus create quiz questions before applying for CTEC approval.

More segments to follow! I’ll also be posting the handout as a PDF as well as the “verification sheet” you’ll need to complete, but only if you want CPE credit.

Changes to S Corporation Rules: Dead or Just Sleeping?

published July, 2010

HR 4213 appears to have been blocked from passage, but they’ll be back in session July 12. There was a vote to reconsider a motion on an amendment to the bill because debate had not been formally ended by “invoking cloture.” Not too clear!

The original bill passed both the House and the Senate, but with differences between the versions. The senate committee trying to resolve the differences before it goes to the President seems to have dropped the ball, at least for now. This doesn’t mean it won’t come back at some point. Law is fun because you can always change things. Whee!

Please google your senators and tell them if you have an S Corporation (or if you don’t!) that with regard to HR 4213 Section 413:

  • punishes smaller firms and favors larger businesses. This does not create a level playing field.
  • The IRS should work to find a “reasonable wage” standard to determine who is “evading” payroll taxes, rather than taking away the S Corporation.

You can check the latest actions at http://www.opencongress.org/bill/111-h4213/actions_votes

If you missed this last month, they’re trying to take away the exclusion for distributions from SE tax in “Professional Service Businesses” if the principal asset of the firm relies on 3 or fewer employees’ reputation and/or skill. If you’re not in a defined “Professional Service Business” or if you have more than 3 key employees, this doesn’t affect you.