Year-End Reminders!

Wishing everyone a happy holiday season and prosperous New Year ahead!  Here are some year-end reminders and tips for our local business owners:

 

  1. If you claim a mileage reimbursement, take a picture on New Year’s Day of your odometer.  It will give you the year-end reading for 2018 and the beginning reading for 2019 (so you have it documented for next year). It also documents the odometer should you ever need proof of the reading.
  2. Make sure any year-end adjustments are made to your books!  If you made any year-end retirement contributions with a company paid portion or did some year end spending, make sure the end of your 2018 is accurate for a smooth tax preparation season.
  3. If you have open invoices in December and are cash basis, remember to not include these amounts in your Profit and Loss Statement!
  4. 1099s are due by January 31st and to be considered on time, many software companies may require an earlier submittal.  Make sure you know the cut-off day and time to submit your 1099s so that they are considered timely to the IRS and you will not face a late penalty fee.  This is also a good time to make sure you have a w9 on file for every contractor and that their information is up to date.  Accurate information will avoid needing to request amended 1099 forms.
  5. W2s are due to your employees by the 31st as well!  Should you have any payroll adjustments, make sure to discuss your questions and changes with your payroll provider prior to year end.  December is also a good time to make sure your employee contact information is up to date so W2s can be mailed to correct addresses.
  6. Estimated taxes are due January 15th for individuals and this applies to business owners with a “flow-through” entity like an s-corp, partnership of single member LLC.  If you did not make estimated tax payments in 2018 but know that you have a tax liability due to the IRS, this is a great time to make a payment to help reduce any underpayment penalties.  As a reminder, if you request an extension of time to file your 2018 taxes, that extension only applies to the tax return itself and does not apply to any taxes that you may owe.  If your tax liability is not paid in full by April 15th (or through estimated payments throughout 2018), then you may be assessed underpayment penalties and interest. 

 

 

Make sure to speak with your Tax Professional if you have questions about closing out 2018 and starting a fresh 2019!  Happy New Year! 

Check your W4 Now to avoid year-end surprises!

In late 2017 Congress passed a major tax bill called the TCJA, which resulted in lower total Federal income taxes for many Americans. Most Americans pay their Federal income tax through withholding taxes taken out of your check every pay period, and at the end of the year many people find that they have overpaid and receive a nice Federal tax refund.

 

The law change this year will result in less total tax, but the way it is structured most people will see less tax withheld every pay period rather than through a refund check at the end of the year. We are quite concerned about this effect and the surprise you may see at tax filing time next spring. Without a review of your tax situation, you may go from a history of receiving refund checks to a balance due to the government at tax time. The good news is that we still have time to change the year-end result if we act soon.

 

We very, very strongly suggest that every client with withholding, whether from a W-2 job, retirement or Social Security, contact us to set up a time to meet (or to drop off your information and let us calculate and call you) for us to calculate your 2018 tax situation and withholding, and to make changes if needed. We will need a copy of your most recent paystubs and some information about any changes in your family or tax status, and we will then calculate our estimates. We will determine where you will be without a change, and how to change your withholding, if needed, to obtain a refund. If you need to change withholding we will even fill out a new W-4 to provide to your employer to change and “catch up”. Because of the time and knowledge necessary to recalculate your 2018 tax withholding, we will charge a small discounted flat fee for this service, without regard to the time it takes to recalculate your 2018 tax estimates, but we strongly urge you to contact us immediately to determine where you will stand, tax-wise, at the end of 2018. We don’t want any surprises either!

First Time Summer Jobs - Understanding Taxes!

With the summer comes the opportunity for our children to learn about money --- earning it, spending it, saving it and of course, paying taxes on it!  It’s important to teach the next generation of tax payers about taxes and the differences between being paid as a W2 employee or a self-employed contractor.  If you are being paid as a W2 employee, then taxes are being taxen out of your check and you will include your W2 on your tax return.  If you are being paid as an independent contractor, or someone who is self-employed, you will receive a 1099 for your earnings and it is important to understand that no taxes are being taken out of your checks.  This means you are responsible for submitting those taxes throughout the year as “estimated tax payments”.  This also means that if you are self- employed, you may have related expenses (deductions) that could reduce the amount of tax that will be owed at the end of the year.  It’s important to understand how you are being taxed and then seek guidance from an accountant so there are no surprises at the end of the year.

 

Some specific examples to be aware of include the following as noted by the IRS in their publication, Tax Tip 2018-82:

  • Tip income. Someone working as a waiter or a camp counselor who receives tips as part of their summer income should know that tip income is taxable income and subject to federal income tax. They should keep a daily log to accurately report them, as they will report tips of $20 or more received in cash in any single month.
  • Payroll taxes. This tax pays for benefits under the Social Security system. While taxpayers may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer.
  • Reserve Officers' Training Corps pay. If a taxpayer is in an ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive – like food and lodging allowances paid to ROTC students participating in advanced training - may not be taxable. The Armed Forces' Tax Guide on IRS.gov has more details.

 

Remember, if this is your first time earning money from a job, then make sure to ask questions and be informed about your take-home pay and how you are being taxed!  If you are being claimed as a dependent by your parents, it’s a conversation that everyone should be involved in.  You may or may not be required to file a separate tax return depending on the amount that you earned so make sure to ask questions and receive guidance!  

The Certainty of Taxes… everything is NOT so certain!

It is said that Benjamin Franklin wrote in this world nothing can be said to be certain, except death and taxes.”  While the fact that we must pay taxes is a certain, just how much we need to pay and what types of deductions and credits may apply is certainly NOT certain in 2018.  With the new tax law that went into effect on January 1st, many changes took place and many deductions that many of us are used to were eliminated.  However, there are also members of Congress and multiple discussions happening right now that include reinstating certain deductions as well as interpretations of the very complex guidelines as it relates to certain business deductions and calculations.  So, while paying our taxes is certain, the guidance that tax professionals can provide you at this point in time is definitely not.  While we are watching the rules change and trying to keep up with the new game, it is uncertain what the best play is as of now.  So here is what we suggest:

 

  1. If you deducted something in the past, continue to track the amounts just in case.
  2. Continue to keep all receipts as this will eliminate the headache of trying to find a year’s worth of receipts next January.
  3. Don’t make any changes to your business based on the new tax law change at this time.  It is unclear as to which tax entity (s-corp, c-corp or LLC taxed as a sole proprietor) will have the best tax advantage based on your specific situation at this time so when in doubt, keep it the same!

 

We are hopeful that better guidance will become available by July, 2018 and at that time, taxpayers should be able to receive a clear understanding as to what deductions are “still in the game” and how to move forward with their business tax planning. 

The Parallels of Business and Sports

In an article that was published in Forbes Magazine by Ryan Westwood on July 8, 2015, a comparison was made between Sports and Business.  Four of the main points were as follows:  “1) Appoint a Team Captain, 2) Smart Passing Keeps the Ball Moving Forward, 3) If A Play Stops Working, Smart Players Change It, and 4) Well matched positions make great players”.  This morning as I was attending a business networking meeting, the feature presentation also discussed a parallel between business and sports.  Some additional comments included “Start With a Purpose”, “Run a good Huddle”, “Don’t Coast on Last Year’s Successes”, “Develop a Mentoring Culture” and “Education through Questions”. 

 

I thought that these were great items to chat about in our weekly article.  When your employees are on the same page as you are, and everyone is working towards a common goal or purpose, there isn’t confusion about what should be done or where everyone is headed.  It’s important to include your employees in the conversation of your long-term goals so they can also have purpose and help you achieve your own goals. I also thought the line about “Don’t Coast on Last Year’s Successes” was worth mentioning as well.  While it is really important to focus on the future and obtaining new clients, it is equally as important to focus on the clients we have.  Retention is very important because it takes less effort to keep a happy customer than it is to go out, recruit, market, on-board a brand new client.  So we want to keep our current clients happy and if there is something we can do to improve our service, we should definitely address it. 

  

 

Tommy Lasorda once said, “There are 3 types of baseball players:  Those who make it happen; Those who watch it happen; and those who wonder what happens.”  In running a business, I think it is safe to say that we all want to be in the group who “makes it happen”.  If we are “watching it happen,” then we may be losing clients to our competition, not making changes that we should and not keeping an eye on the “game” and in this topic, that means our company’s books, accounting and tax planning.  And if you are wondering “what happened” when you finished filing your taxes, then you want to make a proactive change so you understand your business, your tax structure and what you can do to reduce your tax liability.  By speaking with a trusted tax advisor, go from “what happened” to “make it happen” and take charge of your taxes!