TAX BREAKS FOR BUSINESSES HIRING NEW EMPLOYEES

If you’re thinking about hiring new employees this this year you won’t want to miss out on tax breaks available to businesses with employees.

1. PAYROLL TAX DEDUCTION FOR STARTUPS

As part of the Research & Development Tax Credit, for tax years 2016 and beyond, startup businesses (C-corps and S-corps) with little to no revenue that qualify for the research and development tax credit can apply the credit against employer-paid Social Security taxes instead of income tax owed. Sole proprietorships, as well as Partnerships, C-corps and S-corps with gross receipts of less than $5 million for the current year and with no gross receipts for the previous year, can take advantage of the credit. Up to $250,000 in payroll costs can be offset by the credit.

2. WORK OPPORTUNITY CREDIT

The Work Opportunity Tax Credit (WOTC) is a federal tax credit for employers that hire employees from the following targeted groups of individuals:

  • A member of a family that is a Qualified Food Stamp Recipient
  • A member of a family that is a Qualified Aid to Families with Dependent Children (AFDC) Recipient
  • Qualified Veterans
  • Qualified Ex-Felons, Pardoned, Paroled or Work Release Individuals
  • Vocational Rehabilitation Referrals
  • Qualified Summer Youths
  • Qualified Supplemental Security Income (SSI) Recipients
  • Qualified Individuals living within an Empowerment Zone or Rural Renewal Community
  • Long Term Family Assistance Recipient (TANF) (formerly known as Welfare to Work)

The tax credit (a maximum of $9,600) is taken as a general business credit (Form 3800, General Business Credit), and is applied against tax liability on business income. It is limited to the amount of the business income tax liability or social security tax owed. Normal carryback and carryforward rules apply.

For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.

Also, an employer must obtain certification that an individual is a member of the targeted group before the employer may claim the credit.

Note: The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020.

For tax-exempt employers, the PATH Act retroactively allows them to claim the WOTC for qualified veterans who begin work for the employer after December 31, 2014, and before January 1, 2020.

3. DISABLED ACCESS CREDIT

Employers that hire disabled workers might also be able to take advantage of two additional tax credits in addition to the WOTC.

The Disabled Access Credit is a non-refundable credit for small businesses that incur expenditures for the purpose of providing access to persons with disabilities. An eligible small business is one that earned $1 million or less or had no more than 30 full-time employees in the previous year; they may take the credit each, and every year they incur access expenditures. Eligible expenditures include amounts paid or incurred to:

1. Remove barriers that prevent a business from being accessible to or usable by individuals with disabilities;2. Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals;

3. Provide qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments; or

4. Acquire or modify equipment or devices for individuals with disabilities.

4. ARCHITECTURAL BARRIER REMOVAL TAX DEDUCTION

The Architectural Barrier Removal Tax Deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of persons with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses for items that normally must be capitalized. Businesses claim the deduction by listing it as a separate expense on their income tax return.

Businesses may use the Disabled Tax Credit and the Architectural/Transportation Tax Deduction together in the same tax year if the expenses meet the requirements of both sections. To use both, the deduction is equal to the difference between the total expenditures and the amount of the credit claimed.

5. STATE TAX CREDITS

Many states use tax credits and deductions as incentives for hiring and job growth. Employers are eligible for these credits and deductions when they create new jobs and hire employees that meet certain requirements. Examples include the New Employment Credit (NEC) in California, the Kentucky Small Business Tax Credit, and Empire Zone Tax Credits in New York.

6. FICA TIP TAX CREDIT

Certain food and beverage establishments can claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. The credit is part of the general business credit. To take advantage of this credit, restaurant managers must complete IRS Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. If the restaurant employs more than 10 tipped employees, then IRS Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tipsis used to report tips and determine allocated tips for tipped employees. The credit is not refundable (there must be taxable income); however, unused FICA credits may be carried back one year or carried forward up to 20 years.

QUESTIONS?

If you’re a business owner and are wondering what tax breaks your business qualifies for, don’t hesitate to call the office and speak to a tax and accounting professional you can trust.

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Seasonal Employees and Taxes

Many businesses hire part-time or full-time workers, especially in the summer. These types of employees are referred to as seasonal workers, which the IRS defines as an employee who performs labor or services on a seasonal basis (i.e., six months or less). Examples of this kind of work include retail workers employed exclusively during holiday seasons, sports events, or during the harvest or commercial fishing season. Part-time and seasonal employees are subject to the same tax withholding rules that apply to other employees.

All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck; however, Form W-4 worksheets filled out by many employees do not distinguish between part-year jobs and full-year jobs. Taxpayers (including students–more about this topic below) with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability.

CHANGES TO WITHHOLDING UNDER TAX REFORM

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets starting in 2018.

Many taxpayers working part-time or who have seasonal jobs may not be aware of the changes in tax law that could affect their paycheck–and their 2018 tax returns when they file next year. Of note is that any changes a part-year employee makes to their withholding amount has a more significant impact on their paycheck than it does for employees who work year-round.

As such, now is a good time to perform a “paycheck check-up” using the Withholding Calculator, a special tool on the IRS website that can help taxpayers with part-year employment estimate their income, credits, adjustments, and deductions more accurately. It also checks to see whether a taxpayer is having the correct amount of tax withheld for their financial situation.

Using the withholding calculator

  • First, the calculator asks about the dates of a taxpayer’s employment and accounts for a part-year employee’s shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year.
  • Next, the calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well.

Taxpayers should have a completed 2017 tax return available and will also need their most recent pay stub before using the Withholding Calculator.

Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be adjusted. For taxpayers who work for only part of the year, it’s best to do a “paycheck check-up” early in their employment period, so their tax withholding is most accurate from the start.

The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be especially alert to cybercriminals impersonating the IRS. Remember, the IRS does not send emails related to the calculator or the information entered.

If you need to adjust your withholding

If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

STUDENTS WITH INCOME FROM A SUMMER JOB

If your child is a student with a summer job, the income your child earns over the summer is considered taxable income. For example, if your child is working as a waiter or a camp counselor, they may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.

Many students take on odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing. If your child has net earnings of $400 or more from self-employment, they also have to pay self-employment tax. Church employee income of $108.28 or more must also pay self-employment tax. This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax; however, special rules apply to services performed as a newspaper carrier or distributor. As a direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:

  • Your child is in the business of delivering newspapers.
  • All pay for these services directly relates to sales rather than to the number of hours worked.
  • Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.

If your child participates in advanced training as an ROTC student and receives a subsistence allowance it is not taxable. Active duty pay, for example, pay received during a summer advanced camp, is taxable, however.

HELP IS JUST A PHONE CALL AWAY.

As a seasonal or part-time worker, you may not be required to file a federal or state return if the wages you earn at a part-time or seasonal job are less than the standard deduction; however, if you work more than one job, you may end up owing tax. As you can see, seasonal and part-time workers have unique tax situations. If you have any questions about your tax situation, please call.

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Using a Car for Business: New Rules Under TCJA

Many of the tax provisions under tax reform were favorable to small business owners including those relating to using a car for business. Here’s what you need to know.

1. Section 179 Expense Deduction

If you bought a new car in 2018 and use it more 50 percent for business use, you can take advantage of the Section 179 expense deduction when you file your 2018 tax return. Under Section 179 you can immediately deduct (rather than depreciating) the cost of certain property in the year it is placed in service. In 2018, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 million of qualifying equipment placed in service during the current tax year. It is indexed to inflation for tax years after 2018.

For sport utility vehicles (defined as four-wheeled passenger automobiles between 6,000 and 14,000 pounds), however, the maximum deduction is $25,000 (also indexed for inflation). Certain exceptions may apply, however such as a seating capacity of more than nine persons behind the driver’s seat. Vehicles weighing more than 14,000 pounds are typically considered “work vehicles” and would not be used for personal reasons. As such, there is no expense deduction limit.

2. Luxury Auto Depreciation Allowance

For luxury passenger automobiles placed in service after December 31, 2017, the amount of allowable depreciation increases to a maximum of $10,000. The deduction increases to $16,000 for the second year, then decreases to $9,600 for the third year and $5,760 for the fourth year and for years beyond. These dollar amounts are indexed for inflation. Deductions are based on a percentage of business use; i.e., a business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.

3. Additional First-Year Bonus Depreciation for Passenger Vehicles

For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used (“new to you”) vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,000.

4. 100 Percent First-Year Bonus Depreciation for Heavy Vehicles

For tax purposes, pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. Heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well, if business-related use exceeds 50 percent. These deductions are based on percentage of business use and vehicles used less than 50 percent for business are required to depreciate the vehicle cost over a period of six years.

5. Deductions Eliminated for Unreimbursed Expenses for Business use of a Car

Under tax reform miscellaneous itemized expenses were repealed. As such starting in 2018, if you are an employee who is required to use your own vehicle for business-related use and are not reimbursed for these expenses by your employer you are no longer able to claim a deduction for unreimbursed expenses for business use of a car on your tax return.

Questions?

If you have any questions about business use of a car, don’t hesitate to call the office.

 

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Self-Employed? Five Easy Ways to Lower Your Tax Bill

If you’re like most small business owners, you’re always looking for ways to lower your taxable income. Here are five ways to do just that.

1. DEDUCTING THE COST OF A HOME COMPUTER

If you purchased a computer and use it for work-related purposes, you can take advantage of the Section 179 expense election, which allows you to write off new equipment in the year it was purchased if it is used for business more than 50 percent of the time (subject to certain rules).

2. MEAL EXPENSES FOR COMPANY PICNICS AND HOLIDAY PARTIES

If you host a company picnic or holiday party–even if it is at your home–100 percent of your meal expenses are deductible. Prior to tax reform legislation passed in late 2017, 50 percent of your business-related entertainment expenses (with some exceptions) were generally deductible. Starting in 2018, however, entertainment-related expenses are no longer deductible. If you have any questions, please don’t hesitate to call.

3. DEDUCT $25 FOR BUSINESS GIFTS TO ASSOCIATES

Don’t overlook the deductible benefit of business gifts during the holidays or at any other time of the year. As a self-employed individual, you can deduct the cost of gifts made to clients and other business associates as a business expense. The law limits your maximum deduction to $25 in value for each recipient for which the gift was purchased with cash.

4. FOOD OFFERED TO THE PUBLIC AT A TRADE SHOW

If you are a frequent trade show exhibitor (or you are in the business of “food”), you know that offering free food is a sure way to get people to visit your booth. Did you know it’s also a tax write off? Typically associated with a promotional campaign, food offered to the public free of charge is 100 percent deductible.

5. MINIMIZE YOUR TAX BILL BY FUNDING A RETIREMENT PLAN

As a self-employed small business owner, there are several retirement plan options available to you, but understanding which option is most advantageous to you can be confusing. The “best” option for you may depend on whether you have employees and how much you want to save each year.

There are four basic types of plans:

  • Traditional and Roth IRAS
  • Simplified Employee Pension (SEP) Plan and Savings Incentive Match Plan for Employees (SIMPLE)
  • Self-employed 401(k)
  • Qualified and Defined Benefit Plans

To make sure you are getting the most out of your financial future, contact the office to determine your eligibility and to figure out which plan is best for your tax situation.

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Time for a Paycheck Checkup

Withholding issues can be complicated, and with the passage of the recent tax reform legislation–most of which takes effect starting in 2018–, it’s important to make sure the right amount of tax is withheld for your personal tax situation. As a first step to reflect the tax law changes, the IRS released new withholding tables in January 2018. A revised Form W-4 was released on February 28, 2018. These updated tables were designed to produce the correct amount of tax withholding.

For taxpayers with simple tax situations, the easiest way to do check whether their withholding is correct is to use the IRS Withholding Calculator on IRS.gov, which is designed to help employees make changes based on their individual financial situation.

Using the Withholding Calculator to perform a quick “paycheck checkup” protects employees from 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. With the average refund topping $2,800, some taxpayers, of course, might prefer to have less tax withheld up front and receive more in their paychecks.

Taxpayers should keep in mind, however, that the IRS Withholding Calculator results are only as accurate as the information entered. If your circumstances change during the year, come back to the calculator to make sure your withholding is still correct.

With the new tax law changes, people with more complex tax situations such as married couples who both work, higher income earners, and who take certain tax credits or itemize might need to revise their Form W-4 completely to ensure they have the right amount of withholding taken out of their pay.

Small business owners or sole proprietors who owe self-employment tax, or individual taxpayers who need to pay the alternative minimum tax, or owe tax on unearned income from dependents, as well as people who have capital gains and dividends should contact the office and speak to a tax professional.

Using the Withholding Calculator

The Withholding Calculator asks taxpayers to estimate their 2018 income and other items that affect their taxes, including the number of children claimed for the Child Tax Credit, Earned Income Tax Credit and other items. It does not request personally-identifiable information such as name, Social Security number, address or bank account numbers, nor does the IRS save or record the information entered on the calculator. Here are the steps you need to take:

    • Gather your most recent pay stub from work. Check to make sure it reflects the amount of Federal income tax that you have had withheld so far in 2018.
    • Have a completed copy of your 2017 tax return handy. Information on your return can help you estimate income and other items for 2018. If you haven’t filed your 2017 tax return yet you can use a 2016 tax return; however, please remember that the new tax law made significant changes to itemized deductions.
    • Use the results from the Withholding Calculator to determine if you should complete a new Form W-4 and, if so, what information to put on a new Form W-4. There is no need to complete the worksheets that accompany Form W-4 if the calculator is used.
    • As a general rule, the fewer withholding allowances you enter on the Form W-4 the higher your tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

If you complete a new Form W-4, you should submit it to your employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step early on. If you have any questions, please call.

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Five Tax Tips for Older Americans

Everyone wants to save money on their taxes, and older Americans are no exception. If you’re age 50 or older, here are five tax tips that could help you do just that.

1. Standard Deduction for Seniors. If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind.

2. Credit for the Elderly or Disabled. If you and/or your spouse are either 65 years or older–or under age 65 years old and are permanently and totally disabled–you may be able to take the Credit for Elderly or Disabled. If you are under age 65, you must have your physician complete a statement certifying that you had a permanent and total disability on the date you retired. You must also have taxable disability income that meets certain requirements.

The Credit is based on your age, filing status, and income and you must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ.

You may only take the credit if you meet the following:

In 2017 your income on Form 1040 line 38 must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

and

The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).

3. Retirement Account Limits Increase. Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,500 in 2018 (up $500 from 2017). The amount includes the additional $6,000 “catch up” contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.

4. Early Withdrawal Penalty Eliminated. If you withdraw money from an IRA account before age 59 1/2 you generally must pay a 10 percent penalty (there are exceptions–call for details); however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty–but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.

5. Higher Income Tax Filing Threshold. Taxpayers who are 65 and older are allowed an income of $1,550 more ($2,500 married filing jointly) in 2017 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $11,950 ($23,300 married filing jointly)in 2017 or less may not need to file a tax return.

Don’t hesitate to call if you have any questions about these and other tax deductions and credits available for older Americans.

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Late Filing and Late Payment Penalties

April 17 is the deadline for most people to file their federal income tax return and pay any taxes they owe. The bad news is that if you miss the deadline (for whatever reason) you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. The good news is that there is no penalty if you file a late tax return but are due a refund.

Here are ten important facts every taxpayer should know about penalties for filing or paying late:

1. A failure-to-file penalty may apply. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late.

2. Penalty for filing late. The penalty for filing a late return is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late and starts accruing the day after the tax filing due date. Late filing penalties will not exceed 25 percent of your unpaid taxes.

3. Failure to pay penalty. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

4. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact the office today if you need help figuring out how to pay what you owe.

5. Extension of time to file. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. Two penalties may apply. One penalty is for filing late and one is for paying late–and they can add up fast, especially since interest accrues on top of the penalties but if both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. Minimum penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. Reasonable cause. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Please call if you have any questions about what constitutes reasonable cause.

9. Penalty relief. The IRS generally provides penalty relief, including postponing filing and payment deadlines, to any area covered by a disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA). For example, taxpayers who were victims of Hurricane Maria in certain municipalities of Puerto Rico and the Virgin Islands have until June 29, 2018, to file and pay.

10. File even if you can’t pay. Filing on time and paying as much as you can, keeps your interest and penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill the less you will owe.

If you need assistance, help is just a phone call away!

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