Changes to your itemized deductions for tax year 2018

Many clients have been asking how the new Tax Reform changes will impact their tax returns and itemized deductions in 2018.

Forbes.com posted a fantastic article on the up coming changes. These changes will impact a wide range of clients, but those who have Form W2 wages with unreimbursed employee expenses will see that those deductions are no longer available.

Unreimbursed employee expenses are those ordinary and necessary expenses that you incur while performing your job duties such as: mileage on your personal vehicle, uniforms, continuing education, travel costs, tools and equipment, etc…

Under the new Tax Reform the 2% Misc Deductions have been eliminated. If this change may impact your return, you should speak to your employer about an accountable reimbrusement plan. This would remove those expenses for you – the employee and allow business to reimburse you for those costs.

Check out this article for more information

https://www.forbes.com/sites/kellyphillipserb/2017/12/20/what-your-itemized-deductions-on-schedule-a-will-look-like-after-tax-reform/#30e257006334

You may also want to visit the IRS website and search itemized deductions for the most up to date information.

Happy filing!

 

2018 Tax Updates – What you need to plan for in 2018

4/19/2018

Dear Clients:

The following summarizes important tax developments that have occurred in the first three months of 2018 that may affect you, your family, your investments, and your livelihood.

Appropriations Act tax changes. On March 23, President Trump signed into law the Consolidated Appropriations Act 2018 (P.L. 115-141), a $1.3 trillion spending bill that funds the federal government through September. 30. In addition to funding the government, the bill also contains a number of tax provisions, including a fix to the so-called “grain glitch” which provided a disproportionate tax benefit to farmer who sold goods to co-operatives, a provision enhancing the low-income housing credit with a four year increase in the State housing credit ceiling, and a large number of technical corrections, including ones revamping the new partnership audit rules.

Bipartisan Budget Act includes 2017 impact. On February 9, President Trump signed into law the Bipartisan Budget Act of 2018 (P.L. 114-74). In addition to providing a continuing resolution to fund the federal government through March 23, the 2-year budget contained a number of tax law changes. In particular, the Budget Act retroactively extends through 2017 over 30 so-called “extender” provisions, included welcome tax relief to victims of the California wildfires and Hurricanes Harvey, Irma, and Maria, and provided a number of miscellaneous tax-related provisions.

Short-term funding bill delays some Obamacare taxes. On January 22, President Trump signed into law the Federal Register Printing Savings Act of 2017 (P.L. 115-120), which ended the government shutdown and funded the government through February 8th. It also suspended several Affordable Care Act (ACA, or Obamacare) taxes. The 40% under Code Sec. 4980I excise tax on high cost employer-sponsored health coverage (the so-called “Cadillac tax”) was delayed to apply for tax years beginning after Dec. 31, 2021; the 2.3 % Code Sec. 4191 medical device under was delayed retroactive to the beginning of 2018 to apply to sales after Dec. 31, 2019; and the annual fee on health insurance providers was suspended for 2019 (however, it remains in effect for 2018).

The IRS will not accept “silent” 2017 returns. The IRS said it will not accept electronically filed 2017 tax year returns that don’t report whether the taxpayer has complied with the individual mandate provisions of the ACA. Under the ACA shared responsibility or individual mandate provision, individuals are required to obtain qualifying minimum essential coverage (MEC), receive an exemption from the coverage requirement (e.g., on account of having household income below the return filing threshold), or pay a penalty. Tax returns that didn’t report full-year MEC or an exemption, or pay an penalty, are referred to as “silent returns.” While the Tax Cuts and Jobs Act (TCJA, P.L. 115-97, 12/22/2017) provides that for months beginning after Dec. 31, 2018, the amount of the individual shared responsibility payment is reduced to zero, the IRS will not treat as complete and accurate 2017 returns that are silent on compliance with ACA individual mandate.

Battery qualified for residential energy credit. In a private letter ruling (PLR 201809003), the IRS held that a battery that was integrated into an existing solar energy system was a qualified solar electric property expenditure eligible for the Code Sec. 25D tax credit under which an individual may claim a 30% credit for qualified solar electric property expenditures made by him during the year. Thus, it appears that taxpayers can not only save on their electrical bills and tax bills by installing a solar energy system but will also obtain an additional tax credit and shield themselves from grid outages from storms, etc., by installing a battery and storing the energy generated by their solar equipment. But, note that the battery cost will qualify for the credit only if the battery only stores solar-generated energy.

Roth IRA conversion recharacterization. In Frequently Asked Questions posted to its website, the IRS clarified the effective date of a provision in the TCJA prohibiting a taxpayer from recharacterizing a Roth conversion. The TCJA amended Code Sec. 408A(d)(6)(B)(iii) such that the provision allowing taxpayers to recharacterize Roth IRA contributions and traditional IRA contributions does not apply to a conversion contribution to a Roth IRA. The TJCA also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as Code Sec. 401(k) or Code Sec. 403(b) plans. The change in law is effective for tax years beginning after Dec. 31, 2017. There was some confusion among tax professionals regarding the effective date of the change. Specifically, there was some debate as to whether the pre-2018 effective date referred to the tax year when the recharacterization was made, or the tax year when the unwinding of that recharacterization occurs. The FAQs provide that if a traditional IRA was converted to a Roth IRA in 2017, it may be recharacterized as a contribution to a traditional IRA until Oct. 15, 2018.

Offshore voluntary disclosure program ending. In IR 2018-52, 3/13/2018, the IRS announced that it will be closing the offshore voluntary disclosure program (OVDP) on September 28, 2018. The OVDP is a tax amnesty program that permits U.S. taxpayers with unreported foreign accounts to avoid criminal charges and pay reduced civil penalties by making a voluntary disclosure to the IRS. The IRS noted that, by alerting taxpayers to the closure now, it intends to provide U.S. taxpayers with undisclosed foreign financial assets time to avail themselves of the OVDP before the program closes.

Withholding tables reflect recently enacted tax reform. The IRS released Notice 1036, Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, which updated the income tax withholding tables for 2018 to reflect changes made by the TCJA, including major changes to the income tax rates, an increased standard deduction, and the elimination of personal exemptions, effective for tax years beginning after Dec. 31, 2017. The IRS also provided information that explained the use of the new tables and related subjects. The 2018 federal withholding tables, which were issued later than usual due to TCJA’s enactment, must be used beginning on Feb. 15, 2018. That is also the deadline for changing the optional flat rate for withholding on supplemental wage payments of $1 million or less (bonuses, commissions, etc.) from 25% to 22%.

Withholding calculator. The IRS also released an updated withholding calculator on its website, as well as a new version of Form W-4, to help taxpayers check their 2018 withholding in light of changes made by the TCJA. IRS also issued a series of frequently asked questions on the withholding calculator. While the updated withholding tables are designed to work with existing Forms W-4 that employers have on file, many taxpayers (such as those with children or multiple jobs, and those who itemized deductions under prior law) are affected by the new law in ways that can’t be accounted for in the new withholding tables. The IRS encourages employees to use the withholding calculator and new form to perform a quick “paycheck checkup” to help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019. It can also prevent employees from having too much tax withheld.

Withholding on certain publicly traded partnership interests suspended. In Notice 2018-8, 2018-4 IRB, the IRS has announced that, pending further guidance, it was suspending withholding obligations under Code Sec. 1446(f) with respect to certain publicly traded partnership (PTP) interests. Code Sec. 1446(f), which was recently added by the TCJA, provides that if any portion of the gain on any disposition of an interest in a partnership would be treated under Code Sec. 864(c)(8) as effectively connected with the conduct of a trade or business within the U.S. (i.e., “effectively connected gain”), then the transferee must withhold a tax equal to 10% of the amount realized on the disposition. The suspension doesn’t extend to new Code Sec. 864(c)(8), as added by TCJA, which provides the extent to which a nonresident alien individual’s or foreign corporation’s gain or loss from the sale, exchange, or other disposition of a partnership interest is effectively connected with the conduct of a U.S. trade or business.

With all of this activity, much of it very technical, the one thing Congress and the President have not done is “simplify the tax code”.

Tax planning for 2018 is more important than ever with the extreme changes from 2017 to 2018 and future years.

Remember, we are here all year to help you.

Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Ellenton 941-722-0470

Bradenton 941-708-5300

Failing to plan is planning to fail.

Sincerely,

A Tax Shelter Inc

Upcoming Important Deadlines

Just a reminder….

Upcoming Important Deadlines-

January 16th:

– 4th Quarter 2017 Estimated Tax Payment Deadline – If you did not pay 2017 income tax through withholding you must pay your final installment of 2017 estimated tax with Form 1040-ES: Estimated Tax for Individuals. If you plan on filing your return and paying the tax due by January 31, you can disregard this deadline.

– Payroll Tax Deposits Due – If you had more than 12k in Payroll in 4th quarter (for you and/or your employees in total) your 2017 payroll tax deposit is due if you’re not on a semiweekly deposit schedule. (S-Corp owners pay attention to this). Make sure to open your emails from our Payroll Service Team if you are using our service!

January 31st:

– 1099 Forms Must be Issued – Give Form 1099 information statements to the recipients of certain payments you made for services during 2017. This can include independent contractor compensation, interest on seller financed mortgages, rent, professional services fees, real estate transactions, profit-sharing and pension plan distributions. If you need help with 1099’s, please call our Bradenton office at 941-708-5300 or Ellenton office at 941-722-0470.

– ALL Payroll Tax Reports Due – Issue W-2 forms to all Employee, and File Form 941 (payroll tax) and 940/944 (unemployment tax) for the 2017 tax year, and don’t forget any State Forms. If you are currently a payroll client, we will be automatically preparing these forms for your signature and contact you directly.

Happy Filing!!

www.ataxshelter.com

What the new Tax Reform Bill means for your tax return

There have been a lot of posts online and news articles about how the new tax reform bill will impact your personal taxes. The new rules go into effect on January 1, 2018 and will impact your 2018 tax return filing in the spring of 2019.

There are still seven tax brackets, but those tax rates and earnings thresholds have changed

Income Tax Rate Income Levels for Those Filing As:
Current Tax Bill Single Married-Joint
10% 10% $0-$9,525 $0-$19,050
15% 12% $9,525-$38,700 $19,050-$77,400
25% 22% $38,700-$82,500 $77,400-$165,000
28% 24% $82,500-$157,500 $165,000-$315,000
33% 32% $157,500-$200,000 $315,000-$400,000
33%-35% 35% $200,000-$500,000 $400,000-$600,000
39.6% 37% $500,000+ $600,000+

There will be many changes to the itemized deductions that are reported on Schedule A,

We will be reverting back to the lower AGI threshold for medical expenses. The AGI threshold will drop from 10% to 7.5%, allowing more of your medical deductions to be used as part of your itemized deduction total.

Taxpayers must choose if they are going to deduct property taxes, state and local income taxes or sales tax. Under the old rules, taxpayers could elect to deduct all three forms of taxes paid, this deduction was unlimited. This deduction will now be capped at $10,000.

Mortgage interest will still be deductible but home equity line interest will no longer be deductible. Deductible mortgage interest will be for debt of up to $750,000, down from $1 Million.

Charitable cash contributions limitations have been raised from 50% of your AGI to 60% of your AGI.

Standard deduction amounts will double for tax year 2018, Single filers will increase from $6,350 to $12,000, married filing joint filers will increase from $12,700 to $24,000. This means that your allowable itemized deductions would have to exceed the new standard to benefit from itemizing. Most taxpayers will elect to take the standard deduction.

Personal exemptions have been removed, meaning that you will no longer receive the additional $4,050 per person listed on your tax return. This change will reduce the tax savings benefits that some taxpayers would have felt under the new tax provisions.

The child tax credit has been increased from $1,000 per child to $2,000 per child and the income thresholds for single parents has increased to $200,000 and married filing joint parents to $400,000. This will allow more families to receive this benefit on their tax return.

There is now a $500 credit for other qualified dependents on your tax return, such as children over the age of 17, elderly parents or disabled dependents.

The student loan interest deduction will still be available for those paying down their student loans. You may be able to deduct up to $2,500 of the interests paid as an adjustment to your income as long as your AGI is below the income threshold of $80,000 for individuals and $160,000 for married filing joint filers.

Educators will still be able to deduct $250 of their classroom expenses on page 1 of Form 1040. But the additional amounts paid over the $250, will no longer flow through to the Schedule A “Miscellaneous Deductions” as part of your unreimbursed employee deductions. Employees who have unreimbursed employee expenses may no longer be able to write off those costs on the Schedule A.

Other Miscellaneous Deductions subject to the 2% AGI Floor have been suspended until tax year 2026. This will affect people who claim unreimbursed employee expenses, such as travel costs, home office and other business-related expenses are related to their W2 income.

People work in the entertainment industry may also see a reduction in the amount of business expenses that they can deduct on the Schedule A under that 2% floor.

Other deductions that were lost due to the suspension of Schedule A Miscellaneous Deductions are Union dues, tax preparer fees and other related business expenses. Gambling losses will also be limited under this new provision.

Moving expenses will no longer be deductible starting tax year 2018, if you are planning to move for work – prepay those expenses in tax year 2017 so that they can be deductible on your 2017 income tax return.

Alimony for new divorcees in 2018, will no longer be tax deductible for the person paying alimony and the alimony recipient will no longer have to claim that as taxable income. For divorcees that currently are paying or receiving alimony, the rules stay the same.

Flow through income from your business, Partnerships, LLC’s, S-corps will now have a 20% deduction against the flow through income. There is a formula to calculate how much of your income, wages and other business related items would be used to calculate the deduction. We will address this in a later blog as the IRS defines the calcations and thresholds.

The ACA individual mandate (ObamaCare Penalty), will no longer apply starting tax years after December 31, 2018.

Home owners will still be able to use the Primary Residence Exclusion when selling their primary residence as long as they qualify using the two out of the last five years “look back”.

Estate tax exclusion has been raised for the current amount of $5.49 Million to $10.98 Million. This change will exclude most taxpayers from paying this tax.

The corporate tax rate has been reduced from 35% to 21% for C-corp related profits.

To read more on the new tax reform visit

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

Wonderful Article for Baby Boomers and Required Minimum Distributions (RMD’s)

It’s important for my retirees to track their Required Minimum Distributions from their IRA Retirement accounts. If you do not take your required RMD’s the IRS can impose stiff penalties. To learn more about RMD’s and your distribution requirements, visit this link

https://www.kiplinger.com/slideshow/retirement/T045-S001-8-things-boomers-must-know-about-rmds-from-iras/index.html?rid=EML-wealth&rmrecid=3144865480

 

 

 

 

New Tax Reform Changes – the GOP Bill Explained

I know that you are all just as eager to see what the final revisions to the tax reform bill will be once the Senate returns from the Thanksgiving break. Mark J Kohler has create a wonderful video to explain some of the biggest changes proposed in the new tax bill.

Check out his video from Entrepreneur.com, and check back to see what additional changes that the Senate will make before the final bill  is passed.

These new tax changes will impact your business and personal returns, so be sure to request a tax planning appointment with one of our principal officers at A Tax Shelter, Inc.

You can contact us in our Bradenton location at 941-708-5300 or via email at tarah@ataxshelter.com

You can contact us in our Ellenton location at 941-722-0470 or via email at tonya@ataxshelter.com.

We look forward to helping navigate the changes in the US tax code and prepare a tax plan for for you.

Click the link below to watch Mark J Kohler’s video

http://<iframe src=”https://www.facebook.com/plugins/video.php?href=https%3A%2F%2Fwww.facebook.com

Proposed Senate Changes

https://www.journalofaccountancy.com/news/2017/nov/senate-committee-modifies-tax-reform-proposal-201717898.html

 

 

Do you owe the IRS, can’t pay the entire balance, here are some tips!

It’s almost April 18th and you have a balance due to the IRS. This is a familiar situation for many Americans, Mark J Kohler and his team have some great recommendations for you. Check out his latest blog!!

You can make your payments or set up an installment agreement directly through the IRS website. www.irs.gov/payments

Mark J Kohler Blog

What to do if you Can’t Pay Your Upcoming Tax Liability
First and most importantly, don’t let your inability to pay your tax liability in full keep you from filing your tax return properly and on time. If you don’t file your tax return, it only makes things worse.

If you can, include as much of a partial payment as you can, and consider borrowing the funds for payment. As discussed below, just filing without full payment can save you substantial amounts in filing penalties. More importantly, procedures exist for payment extension and installment payment arrangements which will keep IRS from instituting its collection process (liens, property seizures, etc.).

Overview of the most common penalties. There are several penalties you should be aware of before you try and postpone payment. These can quickly add up and make things inevitably worse as you try to deal with the problem.

“Failure to file” penalty accrues at the rate of 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return should show you owe.
“Failure to pay” penalty is gentler, accruing at the rate of only 1/2 % per month or part of a month (to a maximum of 25%) on the amount actually shown as due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the total combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter the failure to pay penalty can continue at 1/2% per month for 45 more months (an additional 22.5%). Thus, the combined penalties can reach a total of 47.5% over time. Both of these penalties are in addition to interest you will be charged for late payment.
“Missed Estimated Tax Payments“. If you also missed estimated tax payments, an additional penalty is tacked on for the period running from each payment’s due date until the tax return due date, normally April 15th (or earlier, if the payment is made before the due date). This penalty is computed at 3% above the fluctuating federal short term interest rate for the period.
Undue hardship extensions. It’s important to remember that an extension of time to file your return does not mean you have an extension of time to pay your tax bill. An extension of time for payment may be available, however, if you can show payment would cause “undue hardship,” as discussed below. You will avoid the failure to pay penalty if an extension in granted, but you will still be charged interest. If you qualify, you will be given an extra six months to pay the tax shown as due on your tax return. If IRS determines a “deficiency,” i.e., that you owe taxes in excess of the amount shown on your return, the undue hardship extension can be as long as 18 months and in exceptional cases another 12 months can be tacked on. However, no extension will be granted if the deficiency was the result of negligence, intentional disregard of the tax rules, or fraud.

To establish undue hardship it is not enough to show that it would just be inconvenient to pay your tax when due. For example, if you would have to sell property at a “sacrifice” price you may qualify. But if a market exists, having to sell property at the current market price is not viewed as resulting in undue hardship.

You would have to show that you do not have enough cash and assets convertible into cash in excess of current working capital to meet your tax obligations. You would also have to show you cannot borrow the amount needed except on terms that would inflict serious loss and hardship.

To qualify for an extension, you have to provide security for the tax debt. The determination of the kind of security—such as bond, filing a notice of lien, mortgage, pledge, deed of trust, personal surety, or other form of security—will depend on the particular circumstances involved. When your application for an extension is granted you must deposit any collateral agreed upon with the IRS. No collateral will be required if you have no assets.

Form 1127 is used to apply for an extension. A statement of assets and liabilities must be attached as well as an itemized list of receipts and disbursements for the 3 months preceding the tax due date.

Borrowing money to pay taxes. If you don’t think you can get an extension of time to pay your taxes, borrowing money to pay the taxes should be considered. Loans from relatives or friends are often the simplest method to pay the bill. One advantage of such loans is that the interest rate will probably be low, but you must also consider that loans over $10,000 at below market interest rates may trigger tax consequences. Where loans from individuals are not available, a loan from a bank or other commercial source could be sought, but such loans are not likely to be made on favorable terms to a hard pressed taxpayer. Moreover, interest on a loan to pay taxes is nondeductible personal interest. In contrast, if you can take out a home equity loan and use the proceeds to pay off your tax debts, you will probably be paying at a lower rate than with other types of loans, and the interest payments will be deductible even if the loan proceeds aren’t used in connection with the house.

Home equity loans are, of course, not an option for everyone and they may be too time-consuming in some situations. However, it is relatively quick and easy to use credit cards or debit cards to pay the income tax bill whether you file your income tax return by mailing a paper copy or by computer. Several companies are authorized service providers for purposes of accepting credit card or debit card payments. Only those cards approved by IRS may be used. However, as with other loans from businesses, credit card loans are likely to be at relatively high interest rates and the interest is not deductible. Moreover, the service providers also charge a fee based on the amount you are paying.

Installment agreement request. Another way to defer your tax payments is to request IRS to enter into an installment payment agreement with you. This request is made on Form 9465 or by applying for a payment agreement online. IRS charges a fee for installment agreements, which will be deducted from your first payment after your request is approved. Form 9465 requires less information than the hardship extension application. If the liability is under $50,000, you will not be required to submit financial statements. Even if your request to pay in installments is granted, you will be charged interest on any tax not paid by its due date. But the late payment penalty will be half the usual rate (1/4% instead of 1/2%), if you file your return by the due date (including extensions).

The fee for entering into an installment agreement is $105, except that the fee is $52 when the taxpayer pays by way of a direct debit from the taxpayer’s bank account, and, notwithstanding the method of payment, the fee is $43 if the taxpayer is a low-income taxpayer. A low-income taxpayer is an individual who falls at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services.

Note that an installment agreement request can be made after your hardship extension period expires. Additionally, IRS has the authority to enter into an installment agreement calling for less than full payment of the tax liability over the term of the agreement. It may do so if it determines such an agreement will facilitate partial collection of the liability.

IRS may terminate an installment agreement if the information you provided to IRS in applying for the agreement proves inaccurate or incomplete or IRS believes collection of the tax involved is in jeopardy.

IRS may modify or terminate an installment agreement if any of the following occur:

you miss an installment.
you fail to pay another tax liability when it’s due.
you fail to provide an update of your financial condition where IRS makes a reasonable request for you to do so.
IRS determines that your financial condition has significantly changed.
IRS must give you 30 days notice before altering, modifying or terminating the installment agreement and it must explain its reasons for the action. This notice requirement does not apply when collection of the tax is in jeopardy.

A $5,000 penalty applies to any person who submits an application for an installment agreement if any portion of the submission is either based on a position which IRS has identified as frivolous, or reflects a desire to delay or impede the administration of federal tax laws. IRS may also treat that portion of the submission as if it had never been submitted. However, the penalty is clearly aimed at those who abuse the process and should not deter taxpayers with legitimate applications from using the installment agreement process.

Avoiding more serious consequences. Too many taxpayers hide their heads in the sand when they run into financial difficulties, for example, by failing to file their tax returns. But tax liabilities do not go away if left unaddressed. It is very important that you file a properly prepared return even if full payment cannot be made. Include as large a partial payment as you can with the return and start working with the IRS for a hardship extension or installment agreement as soon as possible. The alternative will include escalating penalties, plus the risk of having liens assessed against your assets and income. Down the road, the collection process will also include seizure and sale of your property. In many cases, these tax nightmares can be avoided by taking advantage of arrangements offered by the IRS.

Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”.

Post navigation
– See more at: http://markjkohler.com/pay-upcoming-tax-liability/#sthash.gPHb0Nfq.dpuf

Are you protecting your corporate veil?

Here is another wonderful article from the team at Mark J Kohlers office – the corporate veil is an important part of your entity and asset protection – take care to safe guard your entity.

 

“Piercing the Veil” – Are you Appropriately Maintaining your LLC or Corporation?

Our law firm takes the position that an entity (such as an LLC or corporation, etc.), if properly maintained and used, can serve an important function in terms of liability protection, in addition to other forms of risk management such as insurance. This may be a business owner looking to put some distance between him and his business operations, or it may be an entity which forms subsidiaries or has sister companies setup for legitimate operational reasons.

However, there are limits to how much liability protection an entity can serve to provide. Even though the presumption is that a legal entity such as an LLC or corporation is separate from the owners and management, i.e., “veil piercing” is rare, don’t shoot yourself in the foot by doing things, such as commingling business and personal funds, or failing to do things such as entity maintenance or appropriately title assets that would rebut this presumption.

With that in mind, here is a brief snapshot of a few recent court cases throughout the country that have discussed “piercing the veil” and some of the factors that were considered:

In a case called Knopf v. Phillips (S.D.N.Y., 2016), which was decided last month (December 2016), the number one factor as to whether or not the “veil” of corporate/entity protection should be “pierced” was the disregard of corporate formalities. The court ruled that the plaintiff’s adequately pleaded a claim for veil piercing/alter ego because the defendant had “abused the corporate form” to defraud the plaintiffs. Another factor which is often analyzed in these cases, including this one, is the fact that the defendant has “undercapitalized” his business as evidenced by the inability to pay debts, in conjunction with the fact that the defendant had diverted thousands of dollars from one entity to another entity despite the inability to pay its debts. The takeaway from this case is that if you’re going to setup an entity, take the time to treat it as a separate entity and be sure you have enough funds inside the business to service debts of the business.

A few months earlier (October 2016), 5th Circuit Federal Court of Appeals, a case called Janvey applied some of the same analysis as in Knopf yet because of the facts, reached a different conclusion. In Janvey, it involved a parent company and a subsidiary and whether the parent company should be liable for the actions of the subsidiary. Here, the outcome was in favor of the parent company that the “veil” should not be pierced between the subsidiary and the parent company, and one of the factors the court looked at was how assets of the subsidiary were titled and how the subsidiary was operated. Had there been a disregard and failure to appropriately hold title of the subsidiaries assets in the name of the subsidiary rather than the parent company, or had the overall operations of the subsidiary collapsed into the parent company where it would have been indistinguishable to differentiate between the subsidiary’s business operations and the parent company’s operations, the court might have more seriously considered allowing the veil to be pierced. This is one reason why in the real estate context it is important to ensure that if a parent company with subsidiary’s is going to be utilized, that assets are appropriately held and maintained by the subsidiaries rather than everything in the name of the parent company.

A case in Ohio in November 2016 called Premier Therapy v. Childs, provides further instruction. Some of the factors the court looked at were “lack of corporate records” and “disregard of corporate roles”, as well as the entity’s inability to pay its debts to due siphoning of funds for personal use. In this case, the business had been unable to pay its debts and was essentially insolvent at the time the plaintiff was injured by the acts of the business, so the court (appellate court) decided there was more than enough facts to allow a jury trial to make a determination whether to pierce the LLC/corporate veil. This case highlights the importance to keep corporate records such as annual minutes.

Lastly, a case out of California last year (2016) called Boeing v. Energia highlights the importance of properly maintaining entities with the state, holding annual meetings, and keeping corporate records. The defendant was a parent company which had setup multiple subsidiaries to hold various assets such as licenses, etc., and some of the main reasons the court disregarded the corporate veil was because the subsidiaries were not properly maintained (Delaware) in terms of annual filings and payment of franchise taxes, and also because there was a dearth of corporate meetings and records held and maintained by the subsidiary. In applying Delaware law, despite a court’s reluctance to pierce the veil, it may do so when a “parent and subsidiary operate as a single economic entity” and there is an “overall element of injustice or unfairness that is present”.

Although a typical requirement for the veil of your entity to be pierced by a plaintiff or injured party is that the entity was used to perpetuate fraud, illegal acts, or unlawful behavior, and certainly we hope you aren’t committing such acts, you nevertheless don’t want to open up yourself to a “pierce the veil” claim for failure to appropriately maintain your entity.

For more on this general issue in the LLC context, which would receive the about the same analysis for “veil piercing” as a corporation, please read http://kkoslawyers.com/llcs-and-limited-liability-protection-a-primer-for-the-small-business-owner/ . For a brief list of our suggestions for best practices in operating your entity, please read http://markjkohler.com/piercing-the-corporate-veil-what-you-need-to-know-that-t/ .

1099 Rules for Business Owners in January 2017

Another wonderful article from Mark J Kohler – business owners need to be aware that the Form 1099 is not only for your subcontractors who are taxed as individuals. Check out these rules that may affect your business in 2017!!!

Over the past few years there have been a number of changes and updates regarding the reporting rules for the mysterious 1099-Misc Forms.  I say “mysterious” because many business owners simply guess as to what the rules are and oftentimes get exasperated and just give up choosing to file nothing at all.  This can be a dangerous result as the penalties can add up quickly.

First, the general rule is that business owners must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You don’t need to issue 1099s for payment made for personal purposes. You are required to issue 1099 MISC reports only for payments you made in the course of your trade or business.

The penalties for not doing so can vary from $30 to $100 per form ($1.5 million for the year), depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.  Bottom line, the penalties can add up!!

Here are the basics you should know.

  • Who are you required to send a Form 1099?  You are required to send Form 1099 to vendors or sub-contractors during the normal course of business you paid more than $600, and that includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate.
  • Who are considered Vendors or Sub-Contractors?  Essentially, this is a person or company you have paid for services that isn’t your employee.
  • What are the exceptions?  The list is fairly lengthy, but the most common is that you don’t need to send a 1099 to:
    • Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9…see below)
    • Sellers of merchandise, freight, storage or similar items.
    • Payments of rent to or through real estate agents (typically property managers). However, keep in mind you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
  • Don’t worry about credit card payments and Paypal. The IRS allows taxpayers to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card, or third-party payment network such as PayPal. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
  • Lawyers get the short end of the stick.  Ironically, the government doesn’t trust that lawyers will report all of their income, so even if your lawyer is ‘incorporated’, you are still required to send them a Form 1099 if you paid them more than $600.
  • The W-9 is your “best friend”.  Some of you may be frustrated that you don’t have the information you NEED to issue the 1099.  One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them.  Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number, and also require them to indicate if they are a corporation or not (saving you the headache of sending them a 1099 next year).  You can download a W-9 here.
  • The procedure. Regrettably, you CANNOT simply go to www.irs.gov and download a bunch of 1099 Forms and send them out to your vendors before the deadline.  The form is “pre-printed” in triplicate by the IRS.  Thus, you have to order the Forms from the IRS, pick them up at an IRS service center, or hopefully grab them while supplies last from the post office or some other outlet.
  • Deadline to Payees. Taxpayers are required to issue and mail out all Form 1099s to vendors by January 31st. (Wish you would have kept better records when paying folks during 2015?)
  • Deadline to IRS.   Next, don’t forget you have to compile all of your 1099s and submit them to the IRS with a 1096 by January 31st as well (NOT the end of February- the old rule).  Also, depending on state law, you may also have to file the 1099-MISC with the state. Sounds like fun…right? (This is where delegating the task to your accountant may come in helpful).
  • What about foreign workers? Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file the 1099. It is your responsibility to verify that the worker (1) is indeed a non-U.S. citizen, and (2) performed all work inside or outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you Form W-8BEN.
  • Procedures for 2017.  Moving forward this year, make sure to get a Form W-9 from all your vendors before they can get paid.  This will save you a lot of headaches next January so you don’t have to track down their mailing addresses or EINs.

Don’t ignore the 1099 or the process and get with your CPA to make sure to finish up the process before the end of January.  This could save you major penalties if you get caught not filing the Forms and you can show reasonable cause for your delays.

– See more at: http://markjkohler.com/1099-rules-for-business-owners/#sthash.jhDLsmMB.dpuf

Starting tracking your dining and entertainment expenses PROPERLY in 2017

Mark J Kohler is a wonderful resource for great tips on how to document your expenses during the year. Here is his list of “How To’s on Dining”

Start the Year Off Tracking Your Dining Properly
I challenge you to start off the New Year tracking your dining expenses more aggressively and accurately. It can save you THOUSANDS of tax dollars during the year and make you a better “business owner” in the process!! That’s right…here’s how:

Never eat alone. When you find yourself eating alone, think of all the strategic partners you could be networking with and talking business. You don’t have to ‘buy’ someone’s lunch to still talk about about ways to make money together.
Look for reasons to make it a ‘business meal‘. Bring up what you do for work. How you can make someone money. Talk about what you’re passionate about. Give out your business card. You never know what the lunch could turn into.
Here are a few tips that could add up to big savings at tax time next year

1. Start by watching my Video below. I highlight three options for writing-off dining. a) Dining with others, b) Dining by yourself, and c) Group expenses at the office or at workshops.

2. Take pictures of your receipts rather than scanning. It’s fast and easy and works as well as keeping the receipt. Set up an ‘App’ on your phone to capture all of your pictures in your 2016 Receipts Folder.

3. Remember Tips are Deductible as well. However, only 50% of the tips are deductible; just as the meal expense itself…unless you are tipping the facility where you held your live event.

3 Ways to Write-off 100% of Your Dining or Food Expenses

4. The “Bar tab” is deductible too. Make sure you include it in your dining expense if you are ‘talking business’ over your drinks.

5. Keep in mind the IRS actually expects you to make a note on the receipt with a few details. Try to note things such as the time and place (usually included on the pre-printed receipt from the restaurant), the business purpose of the meal, and business relationship with the person entertained or dined with.

My suggestion: just do your best and make sure to take the write-off even if you didn’t write it on the receipt. If necessary, you can hopefully remember or consult your Outlook calendar as to who you were eating with and the business purpose. Check out my cool iPhone App that will help you track your receipts AND your auto mileage in 2016 Mark Kohler App.

Finally, remember to keep your New Year’s Resolution ‘diet’ while you take those deductions! Don’t let the ‘tail wag the dog’ justifying a higher more rich meal just because ‘it’s a write-off”.

Happy New Year!!

For more information visit him at www.markjkohler.com.