 Identifying tax phishing threats is crucial to protect yourself from falling victim to scams and potential financial loss. Here are several key indicators to help you recognize and steer clear of tax phishing attempts.
 Are you a small business owner operating as an S-Corporation? If so, reasonable compensation is a crucial concept in the realm of business and taxation. But what exactly does reasonable compensation mean, and why is it so important?
Reasonable compensation refers to the amount of salary or wages that an S-Corporation pays to its owner-employee(s) who are actively involved in the day-to-day operations of the business for the services they provide to the company. S-Corps, as pass-through entities, allow the income generated by the business to pass through to the shareholders, who then report and pay taxes on their respective shares of the profits. However, the Internal Revenue Service (IRS) requires S-Corp owners to receive reasonable compensation for their work to prevent the evasion of payroll taxes. But why is reasonable compensation important? There are a few key reasons:
How do you report Reasonable Compensation? At Cornbelt Financial, we leverage Gusto, a comprehensive payroll platform, to help process payroll for S-Corporations. Gusto streamlines the payroll process, making it easy to accurately calculate and document reasonable compensation, ensuring that your payroll is in compliance with IRS guidelines. However, determining reasonable compensation can be complex and involves consideration for multiple factors such as the nature of the business, qualifications and responsibilities of the owner, your role and time spent in the business, industry standards, geographic location, job market, and the financial performance of your company. In summary, reasonable compensation should be the fair and justifiable amount that an individual would be paid for similar services in a similar industry and geographic location. It's important for S-Corp owners to strike the right balance when setting their salary. On one hand, paying a reasonable salary ensures compliance with IRS regulations and helps avoid penalties. On the other hand, setting an unreasonably low salary and taking the majority of income as distributions could raise red flags during an IRS audit. Therefore, seeking our guidance can be beneficial in determining an appropriate salary. Our team of experts at Cornbelt Financial specializes in providing guidance and support for S-Corporations. We can help you navigate the complexities of reasonable compensation, ensuring that you strike the right balance between a fair salary and optimizing tax advantages. Contact us today to discuss your S-Corporation's compensation strategy and learn how Cornbelt Financial and Gusto can simplify the payroll process while ensuring compliance with reasonable compensation guidelines.  Classifying workers as independent contractors — rather than employees — can save businesses money and provide other benefits. But the IRS is on the lookout for businesses that do this improperly to avoid taxes and employee benefit obligations.
To find out how the IRS will classify a particular worker, businesses can file optional IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” However, the IRS has a history of reflexively classifying workers as employees, and filing this form may alert the IRS that your business has classification issues — and even inadvertently trigger an employment tax audit. Contractor vs. employee status A business enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. On the downside, if the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties. That’s why filing IRS Form SS-8 for an up-front determination may sound appealing. But because of the risks involved, instead of filing the form, it can be better to simply properly treat independent contractors so they meet the tax code rules. Among other things, this generally includes not controlling how the worker performs his or her duties, ensuring you’re not the worker’s only client, providing Form 1099 and, overall, not treating the worker like an employee. Be prepared for workers filing the form Workers seeking determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to health, retirement and other employee benefits and want to eliminate self-employment tax liabilities. After a worker files Form SS-8, the IRS sends a letter to the business. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return it to the IRS, which will render a classification decision. But the Form SS-8 determination process doesn’t constitute an official IRS audit. Passing IRS muster If your business properly classifies workers as independent contractors, don’t panic if a worker files a Form SS-8. Contact us before replying to the IRS. With a proper response, you may be able to continue to classify the worker as a contractor. We also can assist you in setting up independent contractor relationships that can pass muster with the IRS. © 2018  Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate.
Type of gift One of the biggest factors affecting your deduction is what you give: Cash. You may deduct 100% gifts made by check, credit card or payroll deduction. Ordinary-income property. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis. Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year. Tangible personal property. Your deduction depends on the situation:
Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle. Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift. Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven. Other factors First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Also, your annual charitable donation deductions may be reduced if they exceed certain income-based limits. In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions. 2018 planning While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers, reducing the tax benefits of charitable giving for them. Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction — plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax. You might be able to preserve your charitable deduction by “bunching” donations into alternating years, so that you’ll exceed the standard deduction and can claim a charitable deduction (and other itemized deductions) every other year. Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward, in light of the TCJA. © 2018  When it comes to income tax returns, April 15 (actually April 17 this year, because of a weekend and a Washington, D.C., holiday) isn’t the only deadline taxpayers need to think about. The federal income tax filing deadline for calendar-year partnerships, S corporations and limited liability companies (LLCs) treated as partnerships or S corporations for tax purposes is March 15. While this has been the S corporation deadline for a long time, it’s only the second year the partnership deadline has been in March rather than in April.
Why the deadline change? One of the primary reasons for moving up the partnership filing deadline was to make it easier for owners to file their personal returns by the April filing deadline. After all, partnership (and S corporation) income passes through to the owners. The earlier date allows owners to use the information contained in the pass-through entity forms to file their personal returns. What about fiscal-year entities? For partnerships with fiscal year ends, tax returns are now due the 15th day of the third month after the close of the tax year. The same deadline applies to fiscal-year S corporations. Under prior law, returns for fiscal-year partnerships were due the 15th day of the fourth month after the close of the fiscal tax year. What about extensions? If you haven’t filed your calendar-year partnership or S corporation return yet, you may be thinking about an extension. Under the current law, the maximum extension for calendar-year partnerships is six months (until September 17, 2018, for 2017 returns). This is up from five months under prior law. So the extension deadline is the same — only the length of the extension has changed. The extension deadline for calendar-year S corporations also is September 17, 2018, for 2017 returns. Whether you’ll be filing a partnership or an S corporation return, you must file for the extension by March 15 if it’s a calendar-year entity. When does an extension make sense? Filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. But keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by the unextended deadline. There may not be any tax liability from the partnership or S corporation return. If, however, filing for an extension for the entity return causes you to also have to file an extension for your personal return, you need to keep this in mind related to the individual tax return April 17 deadline. Have more questions about the filing deadlines that apply to you or avoiding interest and penalties? Contact us. © 2018  Individuals can deduct some vehicle-related expenses in certain circumstances. Rather than keeping track of the actual costs, you can use a standard mileage rate to compute your deductions. For 2017, you might be able to deduct miles driven for business, medical, moving and charitable purposes. For 2018, there are significant changes to some of these deductions under the Tax Cuts and Jobs Act (TCJA).
Mileage rates vary The rates vary depending on the purpose and the year:
In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls. 2017 and 2018 limits The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify. For example, if you’re an employee, only business mileage not reimbursed by your employer is deductible. It’s a miscellaneous itemized deduction subject to a 2% of adjusted gross income (AGI) floor. For 2017, this means mileage is deductible only to the extent that your total miscellaneous itemized deductions for the year exceed 2% of your AGI. For 2018, it means that you can’t deduct the mileage, because the TCJA suspends miscellaneous itemized deductions subject to the 2% floor for 2018 through 2025. If you’re self-employed, business mileage can be deducted against self-employment income. Therefore, it’s not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies. Miles driven for health-care-related purposes are deductible as part of the medical expense deduction. And an AGI floor applies. Under the TCJA, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. For 2019, the floor will return to 10%, unless Congress extends the 7.5% floor. And while miles driven related to moving can be deductible on your 2017 return, the move must be work-related and meet other tests. For 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families. Substantiation and more There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates. We can help ensure you deduct all the mileage you’re entitled to on your 2017 tax return but don’t risk back taxes and penalties later for deducting more than allowed. Contact us for assistance and to learn how your mileage deduction for 2018 might be affected by the TCJA. © 2018  If you purchased qualifying property by December 31, 2017, you may be able to take advantage of Section 179 expensing on your 2017 tax return. You’ll also want to keep this tax break in mind in your property purchase planning, because the Tax Cuts and Jobs Act (TCJA), signed into law this past December, significantly enhances it beginning in 2018.
2017 Sec. 179 benefits Sec. 179 expensing allows eligible taxpayers to deduct the entire cost of qualifying new or used depreciable property and most software in Year 1, subject to various limitations. For tax years that began in 2017, the maximum Sec. 179 deduction is $510,000. The maximum deduction is phased out dollar for dollar to the extent the cost of eligible property placed in service during the tax year exceeds the phaseout threshold of $2.03 million. Qualified real property improvement costs are also eligible for Sec. 179 expensing. This real estate break applies to:
Permanent enhancements The TCJA permanently enhances Sec. 179 expensing. Under the new law, for qualifying property placed in service in tax years beginning in 2018, the maximum Sec. 179 deduction is increased to $1 million, and the phaseout threshold is increased to $2.5 million. For later tax years, these amounts will be indexed for inflation. For purposes of determining eligibility for these higher limits, property is treated as acquired on the date on which a written binding contract for the acquisition is signed. The new law also expands the definition of eligible property to include certain depreciable tangible personal property used predominantly to furnish lodging. The definition of qualified real property eligible for Sec. 179 expensing is also expanded to include the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems. Save now and save later Many rules apply, so please contact us to learn if you qualify for this break on your 2017 return. We’d also be happy to discuss your future purchasing plans so you can reap the maximum benefits from enhanced Sec. 179 expensing and other tax law changes under the TCJA. © 2018  Many businesses hired in 2017, and more are planning to hire in 2018. If you’re among them and your hires include members of a “target group,” you may be eligible for the Work Opportunity tax credit (WOTC). If you made qualifying hires in 2017 and obtained proper certification, you can claim the WOTC on your 2017 tax return.
Whether or not you’re eligible for 2017, keep the WOTC in mind in your 2018 hiring plans. Despite its proposed elimination under the House’s version of the Tax Cuts and Jobs Act, the credit survived the final version that was signed into law in December, so it’s also available for 2018. “Target groups,” defined Target groups include:
A potentially valuable credit Qualifying employers can claim the WOTC as a general business credit against their income tax. The amount of the credit depends on the:
Employers aren’t subject to a limit on the number of eligible individuals they can hire. In other words, if you hired 10 individuals from target groups that qualify for the $2,400 credit, your total credit would be $24,000. Remember, credits reduce your tax bill dollar-for-dollar; they don’t just reduce the amount of income subject to tax like deductions do. So that’s $24,000 of actual tax savings. Offset hiring costs The WOTC can provide substantial tax savings when you hire qualified new employees, offsetting some of the cost. Contact us for more information. © 2018 Families with college students may save tax on their 2017 returns with one of these breaks2/26/2018  Whether you had a child in college (or graduate school) last year or were a student yourself, you may be eligible for some valuable tax breaks on your 2017 return. One such break that had expired December 31, 2016, was just extended under the recently passed Bipartisan Budget Act of 2018: the tuition and fees deduction.
But a couple of tax credits are also available. Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. Higher education breaks 101 While multiple higher-education breaks are available, a taxpayer isn’t allowed to claim all of them. In most cases you can take only one break per student, and, for some breaks, only one per tax return. So first you need to see which breaks you’re eligible for. Then you need to determine which one will provide the greatest benefit. Also keep in mind that you generally can’t claim deductions or credits for expenses that were paid for with distributions from tax-advantaged accounts, such as 529 plans or Coverdell Education Savings Accounts. Credits Two credits are available for higher education expenses:
If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, consider claiming the Lifetime Learning credit. But first determine if the tuition and fees deduction might provide more tax savings. Deductions Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction. Be aware that the tuition and fees deduction was extended only through December 31, 2017. So it won’t be available on your 2018 return unless Congress extends it again or makes it permanent. Maximizing your savings If you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2017 tax returns — and which will provide the greatest tax savings — please contact us. © 2018  If you moved for work-related reasons in 2017, you might be able to deduct some of the costs on your 2017 return — even if you don’t itemize deductions. (Or, if your employer reimbursed you for moving expenses, that reimbursement might be excludable from your income.) The bad news is that, if you move in 2018, the costs likely won’t be deductible, and any employer reimbursements will probably be included in your taxable income.
Suspension for 2018–2025 The Tax Cuts and Jobs Act (TCJA), signed into law this past December, suspends the moving expense deduction for the same period as when lower individual income tax rates generally apply: 2018 through 2025. For this period it also suspends the exclusion from income of qualified employer reimbursements of moving expenses. The TCJA does provide an exception to both suspensions for active-duty members of the Armed Forces (and their spouses and dependents) who move because of a military order that calls for a permanent change of station. Tests for 2017 If you moved in 2017 and would like to claim a deduction on your 2017 return, the first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction. The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would have increased your commute significantly. Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.) Deductible expenses The moving expense deduction is an “above-the-line” deduction, which means it’s subtracted from your gross income to determine your adjusted gross income. It’s not an itemized deduction, so you don’t have to itemize to benefit. Generally, you can deduct:
But don’t expect to deduct everything. Meal costs during move-related travel aren’t deductible • nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return. Please contact us if you have questions about whether you can deduct moving expenses on your 2017 return or about what other tax breaks won’t be available for 2018 under the TCJA. © 2018 |
AuthorAdam Carr, MBA, EA Archives
November 2024
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