Final Notice: Delinquent Use Tax Return?

published August, 2013

Several of my California business clients have received notices that they were supposed to have filed Use Tax Returns with the California Board of Equalization.

Don’t panic if you got one of these notices. They are, for the most part, looking for sales tax on purchase you made from out of state. When you buy something in California for use in California, you pay sales tax in the location where the “transfer” takes place, like the store. When you buy something from out of state, you don’t pay sales tax to that “foreign” state, like Nevada, but if you are the end user of some tangible product, like a book or a toner cartridge, California wants you to report the purchase, and pay “Use” tax (which equals sales tax) on what you bought.

The CA BOE has gone completely on-line, so if you have the “express login code” and the account number, conveniently provided for you on the letters they’re sending out, you can file this on-line.

To find any purchases, I usually start with things from Amazon.

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

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.

Estimated Payments Due 6-15

published June, 2012

For individuals who owe estimated payments, the second payment for 2012 is due June 15. Yes, I know, it isn’t quite the end of the second quarter yet, but the amount is based on what you owed for 2011, but if you’re making a ton more money in 2012, let me know so we can adjust your payment amount up. Also, if you’re making a lot less, let me know this as well, so we can adjust your payment down.

For corporations, the second quarter payment is also due June 15. If you have a corporation and you’re making money, you probably have to make payments for the corp AND yourself!

The systems is supposed to be a “pay as you go” plan so you make the income tax payments as you are earning the money.

W-2 Medical Insurance Reporting

published May, 2012

The IRS has revised the reporting requirements on W-2s. Currently, if you have more than 250 W-2s, you will be required to report“major medical insurance” in Box 12 of the W-2 with Code “DD.” If you have fewer than 250 W-2s, it is optional for 2012 (to be reported January 2013).

More than 2% owners of S Corporations never report their medical insurance paid by the corporation here—it gets added to income on the W-2 (but is not subject to Social Security, Medicare tax, or other non-income tax CA payroll taxes, so you don’t include the amount in the base pay). Make sure your payroll company is doing this properly if your S Corporation is paying your medical insurance. The insurance is generally deductible as self-employed health insurance on the personal return, with some exceptions.

Estimated Payments for Many are Due April 16th

published April, 2012

You may have a requirement to make estimated payments for your 2012 taxes, and then again, you may not. The IRS has a “pay as you go” system where they ask us to make payments during the tax year. Corporations and Individuals have different due dates, and CA is not divided into four equal payments, but most calendar year people and entities have the first payment due April 15th, extended because it’s Sunday.

How do you know what to send in? The default amount is to pay ¼ of what you owed for the prior year. This may be problematic if we haven’t finished your return for the prior year! For corporations, the payment due for the minimum CA tax is $240, but may be more if you owed more money in the prior year.

What was your income in the first Quarter? If it’s less than last year, you may not need to send in as much as the prior year.

Oh, and individual returns or extensions are also due April 16.

Some of you know, Monday April 16 is Emancipation Day in Washington DC, and therefore a holiday, extending the deadline by ONE MORE DAY, but I don’t want to encourage waiting until the last minute, so I’m not going to mention that.

Credit for Small Employer Health Insurance Premiums

published March, 2012

You may have received a letter from the CA EDD about an available credit for health insurance premiums paid.

Excluded from the credit are business owners, partners, and more than 2% shareholders, so most of us will not qualify for the credit.

When you do qualify, the credit is reported on Form 8941.

There is a three part eligibility test. First you have to have paid at least 50% of the premiums for health insurance coverage, and you have to pay uniformly (like 100% for everyone). Second, you have to have fewer than 25 “FTE” employees for the tax year, “FTE” is full-time equivalents. To calculate this, we take the hours of service divided by 2080 hours in a year, rounded down. Third, and this is the “killer” for most of my clients who offer health insurance, average annual wages for the year of less than $50,000 per FTE.

Health insurance does not include workers compensation insurance, or HSAs.

There is a reduction to the credit if your average is over $25k (but must still be under $50k), and there’s also an upper limit to the amount of coverage cost allowed in figuring the credit—in California the coverage limits are $4,790 for single and $11,493 for family coverage. Its $5,146 and $12,328 in New Mexico, and the lowest limits are $4,378 and $9,849 in Arkansas. Clearly people in Arkansas are healthier than they are in New Mexico and California!

See http://www.irs.gov/instructions/i8941/ar02.html for more information.

Personal Returns due April 17th

Emancipation Day is April 16th this year, and April 15th is a Sunday, so the filing season is extended again for 2011 returns until April 17th. Extensions are still good until October 15th, you don’t get an extra two days on the extension deadline.

April 16th was the day Abraham Lincoln signed the Compensated Emancipation Act in 1862 for the release from slavery of people held in the District of Columbia. This was nine months before the Emancipation Proclamation, the one you’ve heard of before, was signed on January 1, 1863—and for tax purposes, this one was already a holiday. Because the Mayor of DC declared this day a public holiday, it has affected Federal tax filing deadlines.

The Emancipation Proclamation provided freedom for slaves in states that did not return to the Union, but didn’t outlaw slavery. That wasn’t until the Thirteenth Amendment took effect in December 1865.

When I was in St Louis at an NATP conference last year, I had a few hours before I had to be at the airport, so I got a cup of coffee and wandered around the neighborhood next to the St Louis Arch. I went into the old courthouse building behind the hotel, and discovered an exhibit about the Dred Scott case, which had been decided there in the 1850s. And I was reading Team of Rivals by Doris Kearns Goodwin at the time, which I’ll recommend. The book includes some of the same images they have in their display at the courthouse.

1099-B: The Delayed 1099

published February, 2012

The IRS has set up new rules for brokerage houses (Schwab, Scott Trade, etc) that they now have to include BASIS as well as their estimation of long term or short term holdings. This means your 1099-B may be delayed this year. And that may mean a delay in processing your tax return.

The tax return for 2011 has a new Schedule D—the place we report capital gains and losses. It is now a summary only, with details of the transactions getting reported on a new form, the Form 8949. There are two sides to this new form, one side for short term, and the other for long term. Also, there are three boxes at the top of each side of each page—and you can only check one box per page. The boxes are to tie to the 1099-B forms: box A is checked when reporting transactions where the brokerage house IS reporting the basis to the IRS. Box B is checked when reporting transactions where the brokerage house IS NOT reporting the basis. Some securities transferred from one brokerage to another didn’t include the basis information, so the new brokerage just doesn’t have the information about basis, so they can’t report it on the 1099-B. If you’ve only used one brokerage house over the years, they MAY have the basis info, but they previously didn’t have to report it to the IRS, so I’m not promising they’ll have it.

Since there is a change in the reporting requirements, several brokerage houses have said it may take them until February 15th to report.

To report stock trades for 2011, we’ll need to have the 1099-B in hand, to make sure what we submit to the IRS on your tax return matches what the brokerage house reports – or you’re likely to get a letter from the IRS asking you to explain the difference.

There IS a column on the Form 8949 for “adjustments” in the unlikely (!) event your brokerage house does not compute the gain/loss correctly when reporting the sale price and the cost.

If you have several 1099-B transactions that are short term, and the brokerage has the basis for some and not for others, you’ll have two pages of Form 8949, one with box A checked and another page with box B checked. Since most returns will be efiled, this is not so much a waste of paper as it might seem.

e-Filing Starts January 17th and is required

published January, 2012

I’ve already received my first few sets of tax information for the 2011 tax filing and done the data entry. We’re still waiting for my software provider to code the most recent California changes into the program, but we can’t e-file until January 17th at the earliest anyway, per the IRS. They’re still coding their computers too.

Sometimes it takes a couple of days for the IRS to get their systems working (not always!).

Since I will prepare more than 100 returns for the 2011 tax year, I’m required to e-file by the IRS, and if I don’t, I’ve got to explain why for each return on a Form 8948 to include with each return I paper file. Amended returns will still be paper filed (for now).

If you have a fiscal year company, your deadlines will be different from the calendar year deadlines.