Paycheck Protection Program Forgiveness Criteria
Expenses allowed to be used on:
This does not cover the employer portion of matched Social Security and Medicare taxes.
If the borrower knowingly uses the PPP funds for unauthorized purposes, the borrower will be subject to additional liability charges for fraud.
No more than 25% of the forgiven amount can be used for non-payroll costs.
You will owe money when the loan is due if you use the loan amount for anything other than items listed above over the 8 weeks after getting the loan.
You will owe money if you do not maintain your staff and payroll.
To request loan forgiveness:
Interest rate if funds not forgiven is 1% fixed rate.
No prepayment penalties.
Payments begin 6 months after funds received. Loan due in 2 years.
Forgiveness of the PPP funds is non-taxable.
If a business reduces its full-time employees during the “covered period” (defined as the 8-week period after the company receives its first disbursement of PPP funds), the forgiveness amount is reduced by a ratio defined as:
o The average number of FTEs during the covered period (numerator) divided by the average number of FTEs during the base period described below (denominator).
For the purposes of the calculation, the current thinking is that one FTE equals one employee that worked at least 30 hours in a week.
There are three different options to determine the base period, and borrowers can select the one most favorable to them:
o Using 2019 Information –the average number of FTEs per month from February 15, 2019, through June 30, 2019
o Using 2020 Information –the average number of FTEs per month from January 1, 2020, to February 29, 2020
o Seasonal Businesses –the average number of FTEs per month from February 15, 2019, through June 30, 2019
Here is an example:
• Loan amount: $500,000, (assuming you spent all of the funds on qualifying expenses)
• Average number of FTEs from February 15, 2019 to June 30, 2019: 75
• Average FTEs during “covered period” following your first loan disbursement: 55
PPP Calculation: 55/75= 73%
Maximum loan forgiveness: $500,000 * 73% = $365,000
This tells us that the company will need to repay $135,000 of the loan.
There is no requirement that the borrower rehire the same employees.
They introduced a lever that penalized companies who reduced wages per employee by more than 25% compared to the most recent quarter before the PPP loan was made.
For purposes of this calculation, however, businesses only need to consider employees who makes $100,000 or less per year. Removing employees that made over $100,000 from this calculation will help employers “manage” higher payroll without being penalized and, at the same time, incentivize them to fully restore the wages of those making $100,000 or less.
Here is an example:
Loan issue date: April 1, 2020
Employee’s salary in Q1 2020: $20,000
Employee’s salary during eight-week covered period: $13,000
Amount of forgiveness reduction: ($20,000 – $13,000) – ($20,000 X 25%) = $2,000
How can you “correct” reductions of forgiveness?
You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020, and thus eliminate the potential reduction in loan forgiveness. But it is currently unclear mechanically how you would employ the correction. We recommend looking for further clarifying guidance.
What about employee bonuses and raises?
The CARES Act and current SBA guidance remain unclear regarding employee bonuses and raises that would increase payroll costs that are not in the ordinary course of the business. If any borrower wants to use PPP proceeds on such payments, it should have and document a sound reason as to why such expenditures are “necessary to support the ongoing operations” of the business. Borrowers should also remain aware of the rules concerning the $100,000 annualized basis limiting payments.
Alimony Under New Tax Cuts and Jobs Act (TCJA)
By Patricia Jones CPA/ABV/CFF CFE
There is a new tax law regarding alimony effective December 31, 2018. For couples presently in a divorce proceeding they should plan to meet with their tax advisor to discuss the new divorce tax laws.
Under a divorce agreement, a spouse may be legally obligated to make alimony payments to the other party. Before the new Tax Cuts and Jobs Act(TCJA) payments that met the requirements could be deducted by the payer on his/her tax return for federal income tax and the recipient spouse was required to include the payments on his/her tax return as taxable income. As long as the divorce is finalized on or before December 31, 2018 alimony is deductible in future years if the requirements are met listed below:
The old tax law is in effect until December 31, 2018. For payments under a divorce or separation agreement executed after that date the new law eliminates the deduction for alimony payments and the recipient no longer has to include payments as taxable income.
Individuals presently in a divorce proceeding should meet with their tax advisor to discuss the new divorce tax laws or contact our office for a consultation at (727)845-4166.
Will I Get Audited?
By Traci A. Malik, CPA/CFF CFE MAcc
People always want to know what is a red flag on their return and what are their chances of them getting audited. We have the information from tax year 2015 to try to answer those questions for you.
Adjusted Gross Income
Percent of 2015 Returns Filed
Percent of Returns Audited in FY
No Adjusted Gross Income
$1 through $24,999
$25,000 through $49,999
$50,000 through $74,999
$75,000 through $99,999
$100,000 through $199,999
$200,000 through $499,999
$500,000 through $999,999
$1,000,000 through $4,999,999
$5,000,000 through $9,999,999
$10,000,000 or more
Causes for IRS to look at returns:
1.Information reported to IRS for income and not on tax return.
2.Matching issue of unreported alimony.
3.Large itemized or business deductions like charity, home office deduction, car and truck expenses, meals, and travel expenses.
4.Large cash purchases and suspicious activity.
5.Information referrals from angry former spouse, relative, co-worker, neighbor, etc.
Schedule C – Sole Proprietors and Single Member LLCs:
Audit risk increases as gross receipts rise
Under $25,000 0.90%
Under $100,000 1.70%
Under $200,000 2.20%
IRS AUDIT ISSUES – Vehicles Expense
By Patricia Jones CPA/ABV/CFF CFE
IRS is known to audit small business owners for automobile expenses. A business owner is usually extremely busy running the business and not paying attention to the recordkeeping requirement needed for the automobile deduction. If you are self-employed, the deduction can save you thousands of dollars in taxes. You can choose to either take the actual expenses of the vehicle or standard mileage allowance. Whether you use the actual expenses of the vehicle or the standard mileage rate, you need to keep mileage records to claim the deduction.
In order to audit proof yourself for this deduction you need to be tracking your mileage. IRS will allow a Mileage Sampling. The mileage log should indicate date, destination, business purpose, odometer start and stop, total miles.
If you have not kept track of your business mileage, you might consider mileage sampling. It involves maintaining a log for three (3) consecutive months. IRS says you may use a three month selection if it is representative of the entire tax year and could be substantiated with your appointment calendar.. If you decide to use the mileage sampling, you will need the following four odometer readings - beginning of year January 1, beginning of three month log, ending of three month log, and reading on December 31 year end. Remember in an audit situation, if you don’t have the substantiation to support your business deduction, the IRS will disallow them. Always better to be prepared in an audit situation
Home Equity Indebtedness under New Bill
By Traci A. Malik, CPA/CFF CFE MAcc
With the passage of the new tax overhaul bill, came a change to the deductibility of home equity loans and lines of credit. The new law suspended the deduction for interest on home equity indebtedness. Period. So, everyone read that as all home equity indebtedness and were infuriated. But, the IRS has come out and clarified that the home equity indebtedness and lines of credit due to getting bombarded by questions from taxpayers and tax professionals. According to the IRS, the interest is still deductible as long as the funds were used to buy, build or substantially improve the taxpayer’s home that secures the loan. If the funds were used to pay off credit card debt or other personal living expenses, the interest is not deductible.
The Hurricane Relief – Employee Retention Tax Credit was part of the Disaster Tax Relief and Airport Extension Act of 2017 which was signed into law on September 29, 2017. Many taxpayers are unaware of the tax credit available to business owners that were affected in a federally declared disaster zones by Hurricane Harvey (August 23, 2017), Hurricane Irma (September 4, 2017) or Hurricane Maria (September 16, 2017).
Florida was hit hard by Hurricane Irma and many businesses were affected by the storm. Every county in Florida was listed in the disaster zones.
There is a credit equal to 40% of the “qualified” wages paid up to $6,000 per employee when the wages were paid during a time the business was inoperable as a result of damage sustained by the hurricane. The maximum credit per employee is $2,400. Qualified wages include wages paid without regard to whether the employee performs no services, performs services at a different place of employment than such principal place of employment, or performs services at such principal place of employment before significant operations have resumed.
Illustration: Employer X is an eligible employer in Florida. There was a power outage at the business location for 10 days as a result of Hurricane Irma. The business operation had to close due to the power outage. The employer has 7 employees and the total wages paid to the employees for the 10 days the business closed were as follows:
Total wages $11,340 x 40% credit = $4,536
The owner is able to claim a tax credit of $4,536 on Form 5884-A filed with the employer’s tax return.
Wages paid to owners, shareholders and partners are not considered “Qualified” wages and are not eligible. However, shareholders of an S Corporation and Partners in a Partnership are entitled to the employee retention credit based on their respective share for the tax credit.
Many of our clients and friends were affected by Hurricanes and had to close operations for a period of time in preparation, during and after the storm. If you are a qualified employer, you may be entitled to the employee retention credit. Please contact us at Jones & Company CPAs P.A. 727.845.4166 if you have any questions regarding the credit.
In the seminar we attended this month, one of the speakers was Special Agent in Charge Mary Hammond of the Tampa Field Office. She is part of the criminal investigation unit. She discussed several topics but one of them was about the 3rd party collection agencies contracted by the IRS. The IRS has turned over to outside collection agencies accounts that are outstanding inactive tax receivables. Taxpayers will be given written notice from the IRS as well as receive written correspondence from the agency assigned to them. They must still respect taxpayers’ rights and cannot accept payment over the phone or via prepaid debit cards, iTunes or gift cards. Payments will be through IRS.gov or via check directly mailed to the IRS not the collection agency. If the collection agencies treat the taxpayer wrongly, then the taxpayer can contact their Taxpayer Advocate for help, 727-318-6061. If taxpayers are not sure if the collection agency is legitimate, they can refuse to talk to them until they contact IRS directly to verify. Also discussed at the seminar by Mrs. Hammond, was what you can do in certain situations where you are not sure if it is really IRS contacting you in person or via phone.
In Person – the criminal investigation unit will not contact you first if they are coming to ask you questions. But, they will have photo identification with them. If you are unsure about someone at your door, they suggest contacting local police to have an officer come out and verify the agent is with the IRS.
On Phone – if someone from the IRS calls you and threatens that they will come arrest you, this is NOT the IRS. The real IRS criminal investigation unit will not warn you that they are coming to arrest you. You can report this activity to https://www.treasury.gov/tigta/ with as much information as you can give them. The phone number that the phony IRS agent is asking you to call would be helpful.
Tax Cuts & Jobs Act
By Traci A. Malik, CPA/CFF CFE MAcc
This new bill certainly does not “simplify” the tax return preparation for taxpayers. There will be no postcard mailings in the near future. There are so many changes in this bill, that this article cannot cover in depth all of them. There is a wealth of information out there on the bill, so I will include some of the important highlights.
Brackets -- There are new tax brackets that will lower tax for everyone, 10%, 12%, 22%, 24%, 32%, 35%, 37%. The taxable income for each bracket has been expanded. For example, if you are a married couple with taxable earnings of $165,000 you will be in the 22% bracket instead of the 28%.
Married Filing Jointly
Up to $9,525
Up to $19,050
$9,526 to $38,700
$19,051 to $77,400
38,701 to $82,500
$77,401 to $165,000
$82,501 to $157,500
$165,001 to $315,000
$157,501 to $200,000
$315,001 to $400,000
$200,001 to $500,000
$400,001 to $600,000
Standard Deduction – Married Filing Jointly $24,000
Head of Household $18,000
All Others $12,000
These new standard deductions are increased significantly, but they took away all personal exemptions. For example a married couple that uses the standard deduction and has one child.
Pre New Law (2017 amounts) $12,700 + ($4,050 x 3) = $24,850
New Law $24,000
Loses out on $850 deduction
Another example for a single person no dependents that has itemized deductions.
Pre New Law $11,300 + $4,050 = $15,350
New Law $12,000
Loses out on $3,350 deduction
An example where it helps taxpayers is a married couple using the standard deduction and has no children.
Pre New Law $12,700 + ($4,050 x 2) = $20,800
New Law $24,000
Adds a $3,200 deduction for them.
This facet of the law will depend on the circumstances for each taxpayer if there are any savings.
Personal Casualty & Theft Losses – You will only be allowed casualty losses for Federally-declared disasters unless you have personal casualty gains on something then you can offset the gains with losses but cannot exceed the gain. So where before you could possibly get a deduction if you had a theft or a pipe broke and insurance didn’t cover it, now you don’t.
Child Tax Credit – They increased the credit which will make up for some of the loss on the exemptions for children. They increased the credit to $2,000 and increased the phase-outs. The new phase-outs are $400,000 for joint and $200,000 for all others.
You can also get a $500 credit for non-child dependents.
State & Local Tax Deduction – Capped at $10,000 for all except married filing separately and $5,000 for married filing separately.
Mortgage & Home Equity Indebtedness Interest Deduction – No deduction allowed for home equity indebtedness. New mortgages after 1/1/2018 indebtedness for deduction capped at $750,000 joint filers and $375,000 for married filing separately. If you purchase a home and have a mortgage for $1,000,000 in October of 2018, the interest on $250,000 of the mortgage is not deductible.
Medical Expense Deduction – The 7.5% of adjusted gross income limitation has been reinstated for all taxpayers, but only for years 2017 and 2018.
Alimony Deduction – For any divorce or separation agreement executed after 12/31/18, the alimony paid by the payor is no longer deductible and the amounts paid to the payee are no longer includible in income.
Miscellaneous Itemized Deductions – All suspended.
Overall Limitation on Itemized Deductions – Suspended.
Moving Expense Deduction – Suspended.
Healthcare Individual Mandate – Repealed beginning 1/1/2019
C Corporate Tax Rate – 21%
C Corporate Alternative Minimum Tax – Repealed.
Section 179 – 1 Million
Net Operating Loss – Limited to 80% of taxable income.
Domestic Production Activities – Repealed
Entertainment Expenses – Disallowed for any activities considered entertainment, amusement, or recreation.
Membership Dues – Disallowed for any club organized for business, pleasure, recreation, or other social purposes.
Qualified Transportation Fringe Benefits – Disallows deduction for this fringe benefit to employees.
20% Deduction for Qualified Business Income – The following is courtesy of Alan Gassman, Esq. of Gassman, Crotty & Denicolo, PA lawfirm in Clearwater, FL. Generally speaking, under 199A taxpayers will receive up to a 20% deduction on what is referred to as qualified business income.
The following businesses or professions will not have the benefit of this deduction, unless the individual taxpayer receiving flow through income has taxable income below $415,000 for taxpayers married filing jointly or $207,500 for single filers:
4. Actuarial science
5. Performing arts
8. Financial services
9. Brokerage services
10. Any trade or business where the principal asset is the reputation or skill of one or more employees
11. Any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.
For non-service businesses and joint taxable income of $315,000 or less or $157,500 or less for single filers, then the deduction will most often be calculated by multiplying the taxpayer’s qualified business income by 20%.
If the taxpayer’s taxable income before such deduction exceeds $415,000 for married taxpayers filing jointly or $207,500 for single filers then the Combined Qualified Business Income Amount is limited to the lesser of:
(1) 20% of the taxpayer’s qualified business income with respect to the qualified trade or business
(2) The greater of:
A. 50% of the W-2 wages with respect to the qualified trade or business
B. the sum of 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis immediately after the acquisition of all qualified property.
Alan Gassman, Esq’s firm is providing a flow chart they prepared to guide people through this code section. Please click here to access.
If you have any questions, please contact our team of CPAs at (727) 845-4166 to help you. Happy Holidays!
The House and Senate recently released their proposals for the Tax Cuts and Jobs Act to overhaul the American tax system with hopes to pass legislation before 2017 year end. In both proposals the standard deduction is doubled, individual tax rates are lowered across the board, and corporate tax rates are cut to 20%. Outline below are some of the differences between the proposals:
Individual Tax Rates 12%, 25%, 35% 39.6%
State and Local tax capped at $10,000
Mortgage interest limited to $500,000 mortgage- one principal home only
Medical expense deductions repealed
Child tax credit $1,600
Corporate tax rate 20% effective 2018
Estate tax: Increase to $10 Million 2018 with repeal after six years (2024)
Individual Tax Rates 10%, 12%, 22.5%, 25%, 32.5%, 35%, 38.5%
Eliminates State and Local tax
Mortgage interest for acquisition debt up to $1 Million, eliminates deduction for home equity debt
Medical preserves the existing medical expense deduction
Child tax credit $1,650
Corporate tax rate 20% delayed until 2019
Estate tax: Doubles the estate tax exemption with no repeal
It is apparent that legislators are looking for tax overhaul before year end. At Jones & Company CPAs P.A., we will be closely following the legislation. Please contact our office if there are any questions on these proposals at 727.845.4166.
According to Forbes, Americans are living longer due to technology, medicine and public health. In 1950, the average American lived to be about 68. Nowadays, the average age is about 78.
In 2010, one fifth of Americans over age 65 reported that they had been the victim of a financial fraud or abuse. Cindy Hounsell of the Women’s Institute for a Secure Retirement states that “[older women] feel badly they have nothing to leave [their relatives], then someone calls up and says, ‘You just won!’ They all say the same thing – that’s why they fall for it”.
Older adults in general believe that people can be trusted according to an MIT study. This changes the brain. In a UCLA study, participants were shown faces that had cues as to their trustworthiness or untrustworthiness. Older participants perceived the untrustworthy faces as significantly more trustworthy and approachable than younger participants did. Decreased activity in the anterior insula portion of the brain in older adults may suggest that their awareness or assessment of risk is not as strong as that of their younger counterparts, which in turn may contribute to a greater vulnerability to fraud and scams. Warning signs to watch out for are aggressiveness or insistence of a telemarketer.
Another study by Michael Finke, John Howe and Sandra Huston found that although financial capacity seemed to decline with age, financial confidence did not; essentially, individuals still had faith in their own financial abilities even while they were eroding. This lack of awareness of their changing financial capacities could also put older adults at higher risk for financial fraud or abuse.
For more information on financial fraud, call 727-845-4166 to schedule your appointment at our offices in Trinity, Tampa, Land O Lakes or Springhill.
As a small business owner, you’re aware that tax preparation can be a perpetual nightmare, particularly during the early stages. You need to manage all possible tax breaks to reduce tax liabilities for your business, without conflicting with the IRS. You could rack up even bigger savings than you might be aware of. Here are a few ways to do that.
1. Donate to charity - Year-end tax planning is crucial when it comes to managing exactly what you are expected to owe and strategically reducing it. One way to do this is to make philanthropy a big part of what you’re doing. Firms that are giving back to their community can take big tax write-offs. A good rule of thumb is 10 percent. Devote 10 percent of your total income to charitable causes, and this will help eliminate a lot of extra taxation. Note, this will only benefit you if you itemize your deductions.
2. Accelerate deductions and defer income - The final quarter of 2017 is a great time of year to start deferring income and accelerating deductions. Despite the uncertainty and speculations about how any possible tax reforms will impact business owners, given the current political climate, it’s more likely that taxes on businesses will fall instead of increase. If you’re a sole proprietor, LLC, partnership or S-Corporation, it makes sense to accelerate your deductions in the current year and defer income into 2018 to maximize the anticipated lower tax rates.
3. Save for healthcare needs – One of the best ways to reduce small business taxes is by putting aside money for healthcare needs. Medical costs continue to increase and while you may be healthy now, saving money for unexpected or future healthcare needs is essential. You can accomplish this through a Health Savings Account (HSA) if you have an eligible high-deductible health plan. (For more, see: IRS 2017 HSA Deduction Limits.)
4. Set up a retirement savings plan - As a small business owner, you give up a 401(k) match. You may miss the free money available through the match though there are several retirement account options that maximize retirement savings and reap valuable tax benefits. For example, with the Individual 401(k), the IRS allows you to put away up to $53,000 for retirement. Some of those retirement planning vehicles are: (For more, see: Differences Between Traditional IRA vs. SEP Contribution)
It is important to point out, in the case of Independent 401(k)s, you must open them by December 31st to qualify for the current tax year.
5. Use tax-free ways to extract income from your business.
While salary, bonuses, and distributions of your share of business profits are taxable, there are ways in which you can possibly benefit from your business’ success without triggering tax. Consider talking to your accountant about:
If you’d like to talk with us more about your business taxes, contact us at 727-845-4166 or call for an appointment in our Trinity, Land O Lakes or Tampa offices.
Running your own business can be gratifying, but also stressful. It can consume every ounce of energy and time you have if you let it. And with a to-do list that’s longer than War and Peace, many entrepreneurs skip the important step of creating a growth strategy.
If you think you don’t have time to create a small business growth strategy, consider this: A few hours of strategic planning now could save you hundreds of hours of wasted time in the months and years to come.
Strategic planning will get you focused on the right things, and it helps your business to grow and become profitable much more quickly. Then, you can hire people to help you with that to-do list instead of slowly drowning under it by yourself. Here are 5 things to consider when you are planning for small business growth:
Goal for growth. Saying you want to grow is not enough. You need a target growth rate. A 15% growth rate might double a company in 5 years. However, a 20 - 30% growth rate might be a better goal to ensure your small business survives any pitfalls in the way.
Strategy for growth. There are numerous proven strategies for growth. Look at your target market, and decide what avenues would be best to gain their trust and business. Maybe you want to focus on a mobile strategy, email marketing, blogging, video or social media best practices. Building a strategy takes time, but it is well worth the effort.
Timeline for growth. Building a timeline for your growth. The goals you set earlier should have the basic SMART formula (SMART formula stands for Specific, Measurable, Appropriate, Realistic and Timely.) Be sure you hold yourself accountable for achieving those goals in a realistic time frame.
Measure your growth. You can't manage what you don't measure. It's the only way you can know for sure what's working or what's not. Employ Google Analytics and monitor the sources from where your traffic is coming.
Budget. Here you will need to think about how you finance your cash needs: working capital? Equity? Debt? If you need to raise finance, be sure to add this to your timeline of ‘things you need to do’.
If you struggle with this bit, Jones & Company, CPAs P.A. can help.
Turning a small business into a bigger one is never an easy task. If you have questions about planning for your small business growth, contact Jones and Company CPAs, P.A. at 727-845-4166.
Jones & Company CPAs, P.A. recently opened their 3rd office located in the Bloomin Brands building at the corner of West Shore Blvd and W. Spruce St. in Tampa, at the entrance to the International Plaza.
The address is 2202 N. West Shore Blvd. Suite 200 Tampa, FL 33607.
"As our business grows, we will be more accessible to our clients in Tampa and Hillsborough County," says founder Patricia Jones. "We want to be certain that our clients know we are available and ready to help them with all of their professional accounting needs."
This addition is the third office for the 30 year-old accounting firm, with the main office located in Trinity and a satellite office in Land O' Lakes. The Westshore location is by appointment only.
Jones & Company CPAs P.A. is one of the leading firms in Hillsborough County and Pasco County, FL. By combining expertise, experience and the team mentality of our staff, they assure that every client receives the close analysis and attention they deserve.
Jones & Company CPAs P.A. provides a wide range of services to individuals and businesses in a variety of industries. Professional services include accounting services, auditing and review services, certified fraud examiners, certified QuickBooks advisors, new entity formation, tax services, business valuations, collaborative divorce financial specialist, and estate planning.
For quality professional accounting services in the Trinity, New Port Richey, Land O Lakes, Lutz, Odessa or Tampa areas, contact Jones & Company CPAs P.A. at 727-845-4166 or visit online at www.jonescpas.com.
In a survey conducted by the ACFE last year, Certified Fraud Examiners (CFEs) said increased financial pressure was the leading reason fraud increases an estimated 20 percent during the holiday season. Many of these experts believe that employee embezzlement is the most likely type of fraud to increase.
Those surveyed believe the single biggest contributing factor to be increased financial pressure on perpetrators (61 percent), followed by an increased opportunity to commit fraud (24 percent) and increased rationalization for fraud (10 percent). These three factors are represented in criminologist Donald R. Cressey’s “Fraud Triangle” and their presence is considered to be necessary in order for fraud to occur.
Fewer than 7 percent of respondents said their organization increases their level of resources committed to fraud prevention or detection during the holidays. Most said that the level remains the same (56.7 percent), while more than 9 percent said that the level actually decreases.
The ACFE recommends organizations take the following measures to help lessen vulnerability:
1. Be proactive.
Fewer than 7 percent of survey respondents said their organization, or their clients’ organizations, increase their level of resources committed to fraud prevention or detection during the holidays. Be vigilant and put increased emphasis on monitoring internal controls. Maintain a clear segregation of duties, such that one employee is not in charge of multiple levels of cash-handling or inventory control. Emphasize the employee code-of-conduct during the holidays, and/or make clear that the company will not tolerate any unethical behavior.
2. Follow established hiring procedures for seasonal employees.
While many retailers respond to an urgent need in hiring seasonal employees, the same formal employment guidelines should be followed as during other times of the year. These should include conducting thorough background investigations: check educational, employment and credit history (as permitted by law), as well as references.
3. Train employees in fraud prevention.
Full-time, part-time and seasonal employees should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.
For more information on fraud in the workplace, download our free ebook here or call us at 727-845-4166. Or, if you are in the Trinity, New Port Richey, Land O Lakes or surrounding areas, make an appointment to come visit us.
In many areas of the country, almost everyone has incurred a loss at one time or another from a casualty disturbance of some sort. Tornadoes, earthquakes, fires, hurricanes and other natural disasters cost both taxpayers and insurance companies billions of dollars each year. As we know, Florida’s vulnerability to hurricanes is a major concern, and losses need to be accounted for properly. Here are circumstances under which casualty losses are tax-deductible.
The Sudden-Event Test
To be tax-deductible, a casualty loss must meet the criteria for the sudden-event test, which mandates the following:
Under this definition, losses due to the following events would qualify for deduction:
However, there are several types of losses that would not qualify for deduction:
Who Can Deduct a Loss – and When?
Only the owner of the property that is lost can deduct the loss, within certain limitations, in the year that the loss was incurred. If you are leasing property that is lost or destroyed by a sudden and unforeseeable event that qualifies for deduction, then you may be able to deduct the payments that you make to the lessor that make up for the loss.
If, on the other hand, the taxpayer expects to be reimbursed in full for the loss in a later year, then the loss (or at least the amount of the loss for which the taxpayer reasonably expects remuneration) should not be deducted in the year the loss is incurred. If the reimbursement is never paid, then the loss must still be claimed in the year that it was incurred by filing an amended return for that year. For example, if a taxpayer's house is destroyed by fire in 2016, and the taxpayer expects to receive the insurance proceeds in 2017, then the taxpayer should not declare a loss on the 2016 return. However, if the insurance company denies the claim in 2017, then the taxpayer must file an amended return for 2016 in order to declare the loss.
Taxpayers who incur losses as a result of a disaster in a presidentially declared disaster area have the option of declaring their loss on their prior year's tax return, thus allowing them to amend the return and receive an immediate refund as a measure of relief. The Federal Emergency Management Agency keeps an updated list of all eligible disaster areas and the years for which they qualify. Those who do this will need to provide a statement outlining their choice to take the deduction the previous year and provide basic information on the time, place and nature of the disaster. The deadline for this election falls either on the standard filing deadline for the current tax year or the deadline with extensions for the previous tax year. Those who elect to report the loss in a previous year and then change their minds have 90 days to reverse the election and send back any refund that was paid. Victims in these areas do not have to meet the 10% AGI threshold rule if they sustained a net disaster loss (meaning that the loss exceeded any amount of insurance or other remuneration). They also do not have to itemize deductions; in this case, they would report the loss on Form 4684 of the standard deduction worksheet. Those who do itemize will report it in the normal fashion on Schedule A.
The Bottom Line
The IRS allows limited casualty and theft loss deductions as a measure of relief for those who are victimized by theft or natural disaster. There are many rules and regulations pertaining to casualty and theft losses that lie beyond the scope of this article. For more information on this subject, visit the IRS website or see IRS Publication 547.
The following link provides information to those affected by Hurrican Irma.
Self-employed business owners have several choices when it comes to retirement plans. They can set up a Simple IRA, SEP IRA or the one-participant Solo 401K plan. Most owners opt for either the Simple IRA or the SEP IRA, but they should consider setting up a Solo 401K plan for more retirement and tax savings if they have no employees. In a Solo 401K plan, the business owner is both employee and employer. Contributions can be made to the plan in both capacities.
Solo 401K plans are either elective or non-elective. The "elective" plan means you do not have to contribute each year, you decide when to contribute. The "non-elective" means you are required to contribute according the plan. Traditional 401K plans have vesting, which means that the company makes contributions to the employees account, but the employee is not 100% vested or entitled to the funds until they have been with the company for a specific period of time according to the plan documents. In a Solo 401K the self employed owner becomes 100% vested immediately.
For 2017 the maximum employee contribution to a Solo 401K plan is $18,000 and if over the age of 50 there is a catch-up contribution of $6,000 for a total of $24,000. In addition to that, the employer can make a non-elective profit sharing contribution of up to 25% of your pay which is based on your W-2 or 20% based on sole proprietorship or single member LLC. The combined maximum contribution for 2017 is $60,000 including catch-up contribution.
Below is an example of Sole Proprietor, age 45, set up an single member LLC- no W2, reports business income on Schedule C 1040:
Business net income $150,000
Solo 401K contribution (owner/employee) maximum $ 18,000
Company non-elective profit sharing (20%) $ 30,000
Total contribution $ 48,000
Example - Sole Shareholder, age 45, operating as an S Corporation, no other employees, payroll W-2 $100,000 and net income for the year $50,000:
Solo 401K contribution (owner/employee) maximum $18,000
Company non-elective profit sharing (25%) $25,000
Total contribution $42,000
If the company has other employees, the Solo 401K plan is not an option and the business owner would need to consider other plans such as Simple IRA, SEP IRA or a traditional 401K plan.
Jones & Company CPAs P.A. provides services in tax and retirement matters and have offices in the Trinity and New Port Richey area as well as Lutz and Land O Lakes. Please feel free to contact us at 727.845.4166.
A 1099-Misc is an IRS tax reporting information form. There are various reasons to issue a 1099-Misc, but the most common use is for contract labor. It is used to report payments made in the course of a trade or business to a person who is not an employee or to an incorporated business. If you pay them $600 or more in a calendar year, a 1099 is required to be filed. You need to either purchase the forms prior to the end of the year for self-preparation, order them from the IRS for free, or have our firm prepare them for you. Below is a listing of some of the uses of the 1099-Misc form. For additional information please refer to IRS.gov and the instructions to the form.
What is nonemployee compensation?
According to the IRS:
Do you ever issue a 1099-Misc to a corporation?
Yes, the following payments made to corporations generally must be reported on for 1099-Misc.
How do I know if I should issue a 1099-Misc?
You need to request the recipient fill out Form W-9 before payment is made to them and return it to you. This form has them indicate the type of tax classification they are whether it is an individual, S corporation, partnership or Limited Liability Company, LLC. A LLC can be taxed several ways so it is important to pay attention to how the recipient filled out the form. If the LLC is anything but a C or S corporation, then they are required to receive a 1099-Misc. Keep the W-9 on file and provide a copy to us.
When is the 1099-Misc required to be filed?
If you are reporting payments in box 7, then you must provide the form to the recipient and file with the IRS by January 31st of the following year. Example: for 2017 the deadline is January 31, 2018. For 1099-Misc forms that are reporting amounts in boxes other than box 7, the recipient copy must be provided by January 31st and the IRS copy must be filed by February 28th.
What are the penalties for late or non filing?
Small Businesses with Gross Receipts $5 Million or Less
Government Entities and Large Businesses with Gross Receipts of More Than $5 Million
Time returns filed/furnished
Returns due 01-01-18 thru 12-31-2018
Returns due 01-01-18 thru 12-31-2018
Not more than 30 days late
$50 per return/
$50 per return/
(by March 30 if the due date is February 28)
31 days late – August 1
$100 per return/
$100 per return/
After August 1 or Not At All
$260 per return/
$260 per return/
$530* per return/
$530* per return/
This important letter is sent by the IRS to the taxpayers and states that "We received your federal income tax return, but we need more information to verify your identity in order to process your tax return accurately." In the last year or two the IRS has gotten more aggressive trying to combat fraudulent returns from getting processed and losing millions of dollars to thieves.
What you must do:
· Call the toll-free IRS Identity Verification telephone number at 800-830-5084.
· Have a copy of the 4883C letter you received, a copy of your prior year tax return (if you filed one) and your most recently filed tax return (if you filed one), as well as any supporting documentation for each years return (such as W-2’s, 1099’s, Schedule C, Schedule F, etc.) when you call.
If you did file the return, it will take approximately 9 weeks to process it once you verify your identity.
What happens if you don't contact the IRS:
If you ignore the notice and do not contact the IRS with the required verification, they will suspend your tax return from processing. It will not be posted and will show that you have not filed a tax return on your account.
Corporate minutes are meeting notes from the board of directors for a corporation or business. It is an official account of what was talked about at formal meetings including decisions made and actions taken. The shareholders or owners of a corporation should have at least an annual official meeting. It is mainly for key decisions or company activities not for everyday decisions. For example, issuance of new stock, officer announcements, key employee hires and salary changes. You should include the full legal name of your company, the name of the person conducting the meeting, the location and date of the meeting, list of the attendees and list of those that are absent. You would need to record motions and votes. Record when the meeting started and when it was adjourned. Then at the next meeting, have the prior minutes reviewed and approved by the board. You should keep your minutes in a permanent file.
So why should you have a meeting and keep minutes? Just in case the IRS or State audit you and request the minutes. If you don't have minutes and have other issues and you are a S corporation, the IRS could revoke your S status and treat your business as a sole proprietor or partnership instead. They will determine that you are not truly acting as a corporation and therefore will be subject to the self-employment taxes on all net income. The most serious consequence is the loss of liability protection for the shareholders' personal assets regarding the debts of the corporation, usually referred to as "piercing the corporate veil." When a corporation's shareholders are sued personally for the corporation's debts under this legal theory, the court will examine a number of factors, one of which is whether the corporation kept a proper set of books and records, including minutes of meetings.
The QuickBooks program is a user friendly accounting software for businesses. The set up is very important. The settings can be found in the Edit/Preferences screen. Scroll through the list on the left and choose the options best suited for your business. Be sure that you understand what the chart of accounts is and what accounts you need. The chart of accounts are how each transaction is coded to one of the following: asset, liability, equity, income, cost of goods or expense. For example, if you are purchasing a desk for your office you would record in your bank register the payment and code to the asset account for furniture. This properly records the asset in your software. Below are some tips and tricks to help you with other aspects of QuickBooks desktop.
Ctrl + I Create Invoice
Ctrl + E Edit transaction selected in register
Ctrl +Q QuickReport on transaction or list item
Ctrl+ M Memorize transaction or report
Ctrl + N New invoice, bill, check, or list item in context
Ctrl + T Open memorized transaction list
Ctrl + W Write new check
Ctrl + F Find transaction
Ctrl + J Open Customer Center
Ctrl + H Opens transaction history within transaction
Alt + S Save transaction
Alt + N Save transaction and go to next transaction
Alt + P Go to previous transaction
T Date shortcut for today
H Date shortcut for last day of the month
QuickBooks Online tips and tricks will follow later in the summer. Our office can help with QuickBooks setup and training for you and your employees. Contact our office today to set up a training session in the Trinity, New Port Richey, Odessa or surrounding area. Call 727-845-4166.
Have you been asking yourself "is this the right year to sell my business"? Maybe you are asking a business broker "is this a good time to put my business on the market" or "how is the market these days"? While these are all good questions, it's only a drop in the bucket when it comes to determining the right time to sell your business.
Can you imagine your life without your business? What will you do with your extra time? Have you calculated how much money you will need to retire and continue your current lifestyle after the business sells? These are just a few of the questions you need to answer before determining the right time to sell your business.
How long does it take to sell a business?
Selling a business typically takes 3-12 months but is a difficult process to time. The length of time to sell your business can depend on the industry in which you operate. Also, the process itself takes so long that it is often difficult to accurately time.
What's the best time of year to sell a business?
When revenue and profitability are at it's highest and when your business is established is the best time to sell. Selling a business doesn't have anything to do with the time of the year but everything to do with the many other market factors.
When you are thinking about selling, you need to take a moment and evaluate the situation. Do you have unquestionable reasons to sell? Are the conditions within the company promising in favor of selling at this particular time? Are you emotionally prepared to sell? If the answers to these questions are yes, then maybe the timing is right. If the answer is no, then focus your attention to building your business and increasing its value, and when the day comes that is right to sell, you will get the most beneficial deal.
Selling a business is time-consuming and for many, an emotional venture. Be sure your business is properly valued and that you are proceeding in the manner that will best benefit your bottom line. Contact Jones and Company CPAs P.A for help during your entire process. We are here to help you every step of the way. Contact us at www.jonescpa.com or call 727-845-4166.
Miscellaneous and job-related deductions allow taxpayers to deduct many expenses relating to job searches, employee expenses, and investment expenses. However, most of these deductions must be itemized and are limited to that amount that exceeds 2% of the adjusted gross income (AGI) of the taxpayer — what is commonly referred to as the 2% AGI floor. Adjusted gross income is gross income minus certain adjustments, such as retirement contributions and deductible alimony.
If a miscellaneous expense is subject to the 2% AGI floor, then all such expenses must exceed 2% of the taxpayer's adjusted gross income, and only that portion is deductible.
Most of the miscellaneous expenses subject to the 2% AGI floor are those that can be claimed by jobseekers, employees, or investors, or they are personal expenses that would otherwise not be deductible, and includes such things as:
• unreimbursed travel, meals, entertainment expenses
• unreimbursed local transportation costs
• professional, business association, and union dues
• cost of uniforms and work clothes, including the cost of their cleaning, laundry, and repair
• cost of job searches and job agency fees
• employee home-office expenses
• small tools
• subscriptions to professional journals
• electronic gadgets, such as mobile phones and tablets, and any associated telecommunication expenses
• work-related educational costs
• tax advice and preparation fees
• convenience fees charged for using a credit card to pay taxes
• appraisal fees for casualty losses and charitable contributions
• investment costs, including IRA custodial fees, investment advice, investment counselor fees, and safe-deposit rentals.
Travel costs that are generally not deductible include trips to investigate rental property and trips to conventions, seminars, or other types of meetings, including trips to attend stockholders meetings. Commuting to and from work is never deductible. The cost of traveling to investigate income-producing property or to confer with an attorney, accountant, trustee, or investment counselor about income is deductible but subject to the 2% AGI floor.
The cost of uniforms and work clothes, including the cost for cleaning, laundering, and repairing the clothes, are deductible if they are not suitable to wear elsewhere. However, if the clothes are suitable for wearing off the job, then they are not deductible, even if they are required for the job. So, for instance, television newscasters cannot deduct the cost of their clothing, since they can wear those clothes anywhere.
Computers purchased for work are deductible if it is for the convenience of the employer, and the employer requires it. The work done on the computer must be inextricably linked to the job. Depreciation claimed for computers used to manage investments are also subject to the 2% floor.
Cell phones are also deductible. Previous to 2010, cell phones were classified as listed property. However, the Small Business Jobs Act of 2010 removed cell phones from this list and the strict requirements for documenting the use of listed property.
Generally, the cost of preparing tax returns and audits is subject to the 2% AGI floor. Most of the fees that are deductible must be directly related to preparing a tax return or for help over a specific tax controversy.
Contact Jones and Company CPAs P.A. if you have questions about your taxes. We are here and ready to help. Call 727-845-4166, visit www.JonesCPAs.com, or email your question to us.
Charitable donations are not only a chance to make a difference: They’re also a great way to reduce your tax burden for the year.
However, just because you're feeling generous doesn’t guarantee a tax deduction for charitable giving. As with everything in tax law, it's important to follow the rules. With that in mind, here are a few tips for making your charitable donation count.
Itemize - In order to claim a charitable deduction on your tax return, you must itemize your deductions. You report itemized deductions on Schedule A on your federal form 1040 using lines 16-19.
Choose carefully - Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see their letter from the Internal Revenue Service (IRS).
Get a receipt - No matter what the amount, cash deductions must be substantiated by a bank record such as a canceled check or credit card receipt, or in writing from the organization. The receipt must include the date, the amount and the organization that received the donation.
Donate appreciated assets - Donating property that has appreciated in value, like stock, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you've owned it for at least one year), you avoid paying capital gains tax. Normally, appreciated property is subject to capital gains tax at disposition but there's an exception for donations to charitable organizations
You can't deduct volunteer hours. The IRS does not allow a charitable deduction for the value of your time if you are volunteering. The good news is that most out of pocket expenses relating to volunteering are deductible so long as they're not reimbursed or considered personal in nature.
Watch the calendar - Contributions are deductible in the year made. To make it count during the tax year, gifts must be made by December 31. That doesn't always mean cash out of your account. For example, credit card charges - even if they're not paid off before the end of the year - are deductible so long as the charge is captured by year end.
If you have questions about your charitable deductions or about your taxes in general, feel free to call Jones & Company CPAs P.A. for help. We can be reached at 727-845-4166.
To begin deducting your medical expenses, you first must know which expenses are deductible. The IRS lets you deduct medical costs on your tax return as long as they are more than 10% of your adjusted gross income. (Taxpayers who are 65 or older can still use the previous 7.5% threshold to claim itemized medical expenses through the 2016 tax year.) It may seem unattainable at first glance, but with a little digging you might just meet it.
Medical and dental bills for you, your spouse and your dependents count toward the allowable deduction limit, so keep a list of the medical expenses of everyone listed on your tax return.
Here’s a partial list of deductible expenses:
• Equipment and supplies
• Dental services
• Co Pays
• Medical treatments and laboratory tests
• Nursing services
• Hospital services
• Insurance premiums
• Medically necessary home renovations prescribed by a doctor
Often-overlooked medical deductions:
• Travel expenses to and from medical treatments
• Insurance payments from already-taxed income
• Uninsured medical treatments
• Costs of alcohol or drug-abuse treatments
• Laser vision corrective surgery
• Medically necessary costs prescribed by a physician
• Some medical conference costs
• Long term care premiums
These medical expenses are not deductible:
• Certain expenses for children – If your baby is healthy, you can’t deduct babysitting fees, even if the babysitting allows you or your spouse to receive medical treatment. Maternity clothes are also not deductible. If You or your child take dance or swim lessons to improve overall mental and physical wellbeing, you can’t deduct the cost of lessons and transportation.
• Cosmetic surgery and services – Any procedure that is deemed cosmetic is not deductible. This includes breast augmentations, liposuctions and “tummy tucks.” Both in office and at-home teeth whitening products and services are cosmetic and not deductible.
• Memberships – Memberships and dues to gyms, health clubs and other health programs are not deductible. If you join a weight loss program not prescribed by a physician, you can’t deduct registration or membership fees.
For more information about what the IRS will and won't allow you to count toward your medical deductions, check out Publication 502. You might find a few things there that apply to you -- maybe just enough to get you over that 10% deduction hurdle.
Identity theft is the fraudulent acquisition and use of a person's private identifying information, usually for financial gain. Identity theft for purposes of filing fraudulent tax returns has been occurring for many years. According to Forbes, as of March 5, 2016 the IRS had identified 42,148 tax returns with $227 million claimed in fraudulent refunds. The IRS is working on methods to detect fraudulent returns before being processed. This coming tax season IRS has already warned that returns with Earned Income Credit and Additional Child Tax Credit will be held for additional scrutiny until February 15th. This will allow IRS to compare early filed returns with reported W-2s and 1099s.
What can you do? Protect your SSN. Most of the reasons to provide your SSN to anyone would be to open bank accounts, apply for credit cards/loans, file tax returns, fill out W-4s and I-9s for employment, and fill out W-9s as a subcontractor. Others may ask for it, but be sure to find out why they need it. Many doctors offices ask for it in their paperwork, but find out why they need it. I only provide them with the last four digits of my SSN.
There are many phishing scams trying to obtain your sensitive information. The current ones to watch out for according to the IRS are:
1 Fake emails purporting to contain an IRS tax bill related to the Affordable Care Act. IRS does not email notices to you.
2 IRS impersonation calling demanding payment for back owed taxes and wanting payment. IRS would have sent you many notices before any call would be made to you and would not ask for payment over the phone or for you to obtain prepaid cards.
3 Fake emails citing tax fraud and trying to trick victims into verifying the last four digits of their SSN by clicking on the link provided.
4 IRS impersonation call saying they have your tax return and just need to verify a few details to process your return. The scam tries to get you to give up personal information such as SSN or personal financial information, such as bank numbers or credit cards.
5 Fake email phishing scheme to payroll and human resource professionals that purports to be from a company executives and requests personal information on employees.
Of course scams evolve all the time and you should be leery of anyone asking you for sensitive information or money. The best thing to do is take down their name and number and ask us about it. You can also call the IRS directly at 1-800-829-1040.
As we are getting close to the end of the year, we have time to consider some year end planning tips.
If you have questions about your 2016 taxes, call Jones and Company CPAs PA at 727-845-4166 or visit online at www.jonescpas.com.
by: Patricia Jones CPA/ABV/CFF CFE
There are several choices in entity types when setting up a new business. Most businesses set up as either a Limited Liability Company or a Sub Chapter (Sub S) Corporation. If you set up as an LLC, you can elect to be treated as a Sub S Corporation for tax filing purposes.
The major advantage as a LLC is that you protect your personal assets from the creditors of your business. For a LLC, you normally would not be financially responsible for more than your investment in the company. For both LLCs and Sub S Corporations, you pay personal income tax, but not corporate tax.
Below are some noted differences between the two entities.
Limited Liability Company(LLC)
Subchapter S Corporation(Sub S)
If you have questions or need help deciding, feel free to call Jones and Company CPAs P.A. at 727-845-4166 or visit onlinwww.jonescpas.com.
A good bookkeeper is crucial to business for many reasons, but have you ever considered training all of your staff for those responsibilities? Many businesses are employing QuickBooks to help with bookkeeping functions, but many of the staff do not know how to properly use the program. There are many benefits to having a team that is trained and knowledgeable about the accounting functions and the basics of QuickBooks.
1. Vacation or Leave - If the designated bookkeeper takes a vacation, takes maternity or paternity leave or is away for an extended period of time, you can be sure that you have staff that are trained to pick up and keep the company rolling along smoothly.
2. Helps prevent fraud - Sharing in the bookkeeping function helps to decrease fraud in the workplace. A person is far less likely to commit a fraud if he or she has co-workers who are knowledgeable about the process and able to check in at any time.
3. More cohesive team - When the entire team understands the accounting process, items generated outside the accounting department such as purchase orders, quotes or shipping receipts are more likely to be detailed correctly and more accurate. When co-workers understand what each other needs to do his or her job correctly and efficiently, the company runs more productively and more profitably.
4. Increase employee morale - People appreciate the extra attention from their manager, they like the coaching because they want to do a better job, and they like that all employees are being coached and held accountable to the same performance.
Jones and Company CPAs, P.A. are Certified QuickBooks Advisors and can help you train a single person or your entire staff. For information on our training program, contact us at 727-845-4166 or visit online at www.JonesCPAs.com.
Collaborative divorce is a relatively new legal option that meets the needs and desires of many divorcing couples and their counsel and is an increasingly popular approach to handling your divorce or legal separation. When spouses or domestic partners get ready to file for divorce or legal separation, they may negotiate an agreement with professional help.
This process is designed to assist the parties in working out their disputes rather than litigating them. When parties elect to utilize the collaborative divorce process, they can avoid some of the stress and emotional challenges of conventional litigation, with a team designed to minimize conflict and develop respectful and equitable resolutions.
In a collaborative divorce process, you and your spouse or domestic partner negotiate an agreement with professional help. You each hire specially trained collaborative lawyers who advise and assist you in negotiating the settlement agreement.
You meet separately with your own lawyer, and both clients also meet together regularly. Sometimes you and your spouse or domestic partner can bring in other people, like child custody specialists or accountants, to help you settle your case without having to go in front of a judge in a contested case.
Collaborative divorce is becoming more popular for couples who choose to end their marriages without the conflict and emotional anguish that can accompany more traditional divorce proceedings. It can also be a more cost-effective option for couples looking to minimize the financial impact of divorce. In addition, where children are involved, this simpler process can help minimize the emotional impact that more turbulent divorces can have on the children in a family.
The collaborative team financial specialist works with the couple provide on-going, practical financial guidance, planning, support, and budgeting advice throughout the divorce process. They make sure that both parties have a thorough understanding of their current financial situation, and assist by gathering and organizing documentation and information relating to the parties' incomes, expenses, assets, and debt. The financial specialist will also educate the clients regarding the short and long-term economic consequences of settlement plans being considered so as to enable them to make fully informed decisions and choose what is most appropriate for their situation.
If you would like more information or a on collaborative divorce, contact Jones and Company CPAs P.A. at 727-845-4166 or visit online at www.JonesCPAs.com.
Everyone knows that separations and divorces are hard on everyone involved. There is so much involved in separating assets and agreeing to financial terms. But, many do not consider the tax effects involved as well. Some to consider are:
If you need help understanding the tax implications of your divorce, call Jones & Company CPAs, P.A. at 727-845-4166.
We get a lot of questions about this topic. Some taxpayers decide to move and rather than sell their current home, they convert it into a rental property. There are special rules regarding this situation come tax time.
Basis for Depreciation – you are allowed to take a deduction for the depreciation of the home once it is an placed into service as a rental property. The figure used for a converted property is the lower of either the fair market value of the property when converted or the adjusted basis of the purchase price. The adjusted basis is the amount you paid for the property plus any capital improvements.
Deductions – any expenses you pay for the property while a rental property are deductible. For example: association dues, repairs, mortgage interest, property taxes.
Loss Limitations – there are limitations in place if you have rental losses. Rental activity is considered a passive activity. As such, the deductions are allowed up to the amount of income collected unless you actively participate in the activity. If you actively participate then up to $25,000 of losses can be claimed unless your modified adjusted gross income is above the phase-out limit of $150,000 (married filing jointly). These un-allowed losses are carried forward.
Sale of Property – a special rule is in place for converted properties. The figure used will depend if the sale is a loss or gain. If the converted property is sold at a gain, the basis used is the adjusted tax basis. If the sale results in a loss, the basis is the lower of the adjusted tax basis at the time of the conversion or the fair market value when converted.
For more help on converting your residence into a rental property, contact Jones and Company CPAs P.A. at 727-845-4166.
Income determinations and classification issues require expertise and you need an experienced divorce financial professional on your team to work through all the financial angles of your settlement.
A forensic accountant is trained to examine personal and business financial records with an eye not only for what they show, but for what is being withheld. In other words, forensic accountants can “sense problems”.
Many times, a spouse will stall before handing over financial documents for the other divorce team to review, driving up legal bills before they even get a look. This serves to make things disordered, confusing, time-consuming and even more costly.
When you finally do get to examine the financial disclosures, you may have the feeling they’ve been manipulated in a way that hides the true financial situation. Even if you can’t tell precisely what is missing, you might suspect your spouse is understating income, or hiding assets to keep them from being divided in your settlement.
Underhanded maneuvers like these can be difficult to prove in court –especially if your spouse owns a business with a significant part of its income in cash or assets have been hidden for many years.
A forensic accountant is trained to examine personal and business financial records with an eye not only for what they show, but for what is being withheld.
A forensic accountant can uncover unethical practices, such as:
creating fake debt
transferring assets to dummy corporations
purchasing expensive items with secret cash
While hiring a forensic accountant may seem excessive and you may feel reluctant to add yet another professional to your divorce team, keep in mind that the efforts of a forensic accountant can pay off immeasurably by assuring the assets, debts and income are fairly reported. Contact Jones and Company CPAs P.A. for more information on our forensic accounting services.
Four basic structure types are:
• The simplest legal structure for any business and is not legally separated from the owner.
• The legal business name is typically the same as your legal name, but establishing a business name separate from your own is possible by creating a doing business as (DBA) name or fictitious name.
• Owner can take cash withdrawals from the business at will.
• Owner required to make quarterly extimated tax payments.
• Some states and municipalities may require obtaining a license or permit.
• The difference between a sole proprietorship and partnership is that a sole proprietorship has only one owner and a partnership has two or more owners.
• Owners can take withdrawals and, if specified in the partnership, guaranteed payments.
• Owners pay taxes quarterly.
• Can be started through an oral agreement, though a written agreement is advisable.
• A separate legal entity from its owners.
• Corporate documents are filed with the state and annual fee is paid.
• Separate corporate bank accounts and records are created,and assets and money generated by the corporation are owned by the corporation.
• Most businesses must register with the IRS and state and local revenue agencies. Although any business that has employees will need to get a tax ID number, it is required for a corporation.
• Unlike sole proprietors and partnerships, corporations pay income tax on their profits. In some cases, corporations are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.
• To be considered an S corp, you must first charter a business as a corporation in the state where it is headquartered.
• An S corp is different from a C corp in that its profits and losses can pass through to the owner’s personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed. Losses are limited to the shareholder’s tax basis.
• Shareholders can be paid wages, receive distributions of profits or a combination of wages and distributions.
LIMITED LIABILITY COMPANY (LLC)
• A hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
• Unlike shareholders in a corporation, in most states LLCs are not taxed as a separate business entity. Instead, all profits and losses are passed through the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
If you have questions about forming a new business or changing your businesses structure, Jones and Company CPAs can help. Contact us at 727-845-4166 or find us online at www.JonesCPAs.com.
For most business owners, the word ‘growth’ is one of the best in their vocabulary. In their minds, growth denotes a successful business. Unfortunately, many entrepreneurs have learned the hard way that growth is a two edge sword. While a growth phase typically means you are doing something right, reaching capacity can cause the chain to weaken and could kill your business.
A small growing firm reaches its capacity limit at some point in their growth process. They either run out of human power, business resources, or capacity to manage operational issues. Once they reach capacity, every entrepreneur has a tough decision – do they believe that this is a true growth phase… or is this merely a spike in work?
If the business owner hires the wrong people, they hurt the business by having staff who are not generating a needed ROI. If the entrepreneur incorrectly rides the storm, thinking its simply a spike in work, the firm suffers by having stressed employees, lower quality, and even a damaged reputation. Growth can be a very difficult process to manage – especially as a small business.
Here are some thing to consider when you’re headed into a growth phase.
* Add systems and procedures
As your business grows, you won’t be able to spend as much time personally checking over details as you did initially. Having systems and procedures in place helps you be sure that management and staff are consistently making checks in the same manner you would have. The more your day-to-day business operations rely on systems and procedures, the more growth you will be able to effectively achieve.
* Watch non-financial limits
Because the lack of money is such an overwhelming barrier to growth, it is easy to overlook other issues that may limit your ability to grow. You might feel that some people on your staff, your computer system, your facilities, or some other component of your business is being overtaxed by continuous growth. If so, don’t hesitate to slow down the pace of growth for a while until you feel that that component of your operations is running smoothly again. It takes a wise, disciplined manager to hold back on rapid growth to ensure that the company can continue to deliver quality products in a professional manner.
* Invest in yourself
In the early stages of your business, you'll likely see a very lean profit margin so any money you do make should go directly toward helping you grow. Early growth is is directly affected by a company's ability to invest in itself. In the early years, it's critical to make sure that you're redirecting any revenues back into the company. Invest early and heavily in order to grow quickly.
Your employees have direct contact with your customers, so you need to hire people who are motivated and inspired by your company’s value proposition. Be cheap with office furniture, marketing budgets and holiday parties. Hire few employees, but pay them what they are worth. Having a trusted, solid team that will be there for you when hours get long and stress gets high will be well worth the investment during a growth phase. Be aware of certain rules for the numbers of employees as well. For example, non-construction businesses with 4 or more employees need to have workers compensation insurance, while construction related businesses need workers comp for any number of employees.
There are many, many strategies to managing growth. The most valuable advice is for you to actually sit down and analyze your business. Determine your growth, how it is affecting you, and what steps you need to take to cope. If you have questions about managing growth, contact Jones & Company CPSa P.A. for guidance.
From day one, small businesses should create a good system of bookkeeping and accounting. It is critical to the financial well-being of any good business. Here are a few tips for small businesses.
1. Keep bookkeeping current and accurate. Good record keeping is vital. Many start-ups, as well as existing business owners tend to neglect this aspect of their business until the end of financial year is upon them. Allocate time each week and devote to your books. Regular reviews will let you know how your business is going and allow you to control your cash flow.
2. Keep accounts receivable payments and borrowed funds separated.
Small business owners often need financial backing or loans for startup capital, marketing campaigns, and other initial expenses. To make sure the loans don’t appear in the receivables, use software that separates income from borrowed funds. Don’t lose sight of what is yours and what needs paying back.
3. Be sure you have a good collections policy.
While a large number in the receivables column is a good thing, the money doesn’t really count until it is in your bank account. Be sure your clients make their regular payments. Insist you receive payment for past orders before letting them have more materials or services, or set up pre-payment and/or credit card payment options. The receivables department is crucial in keeping your company afloat.
4. Detail daily expenses for a solid budget.
Business owners should keep good records of everyday expenses the company incurs. Rather than calculating expenses every two weeks, focus on every day or every week. This will help better understand where finances are each week and how much money you’ll need to budget for in the upcoming weeks.
5. Know your minimum monthly profit.
Sometimes, knowing how much it takes to keep a company up and running can be complicated. Create an accurate system of expenses and regular financial obligations so you know minimum amount of income you need every month. This will not only keep you focused on your financial goals, but your marketing goals as well.
If you have other questions about accounting for small business, feel free to contact Jones and Company CPAs, P.A. at 727-845-4166 or online at www.jonescpas.com.
If business is booming but you are finding less time to keep up, it might be time to hire some help.
Here are eight must-know things that can help you start the hiring process and ensure you are following key federal and state regulations.
1. Obtain an Employer Identification Number (EIN)
Every business needs one, but before hiring your first employee, you must get an employment identification number (EIN) from the Internal Revenue Service. The EIN is also referred to as an Employer Tax ID. Businesses need an EIN for reporting taxes and other documents to the IRS. In addition, you need an EIN when reporting information about your employees to state agencies. Obtain the number via online with the IRS or using Form SS-4.
2. Set up Records for Withholding Taxes
Businesses must keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Below are three types of withholding taxes you need for your business:
Federal Income Tax Withholding
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment.
Federal Wage and Tax Statement
Every year, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2, wage and tax statement. Employers must complete a W-2 form for each employee who they pay a salary, wage or other compensation.
Employers must send Copy A of W-2 forms to the Social Security Administration by the last day of January to report wages and taxes of your employees for the previous calendar year. In addition, employers must send copies of W-2 forms to their employees by Jan. 31 of the year following the reporting period.
Depending on the state where your employees are located, you may be required to withhold state income taxes.
3. Employee Eligibility Verification
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee's citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form.
Employers do not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later.
4. Register with Your State's New Hire Reporting Program
All employers are required to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.
5. Obtain Workers' Compensation Insurance
Businesses with four or more part-time or full time employees in a non-construction industry in the State of Florida are required to carry workers' compensation insurance coverage through a commercial carrier, on a self-insured basis or through their state’s Workers' Compensation Insurance program. In Florida for a construction industry employer, the number is reduced to one or more part-time or full time employees. The construction industry owner may request an exemption for himself/herself.
6. Post Required Notices
Employers are required to display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws.
7. File Your Taxes
Employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer's Quarterly Federal Tax Return.
8. Get Organized and Keep Yourself Informed
Simply following these steps won’t make you a good employer. Maintaining a healthy and fair workplace, providing benefits and keeping employees informed about your company's policies are key to your business' success. Be sure to set up good record keeping that are in compliance with standards for employee rights in regards to equal opportunity and fair labor standards. And, following statutes and regulations for minimum wage, overtime, and child labor will help you avoid error and a lawsuit.
If you need some help with your first new hire, feel free to contact Jones and Company CPAs P.A. at 727-845-4166.
While the idea of starting a business may be daunting, over 500,000 new businesses are started annually in the United States, according to the Small Business Association.
Own your name - Make sure the company name you choose is available and an appropriate internet domain name can be obtained. Check for fictitious name registrations or trademarked names. Failure to properly obtain a trademark could put your business at risk — not to mention that the time and money you have invested in establishing your business name could go to waste if someone else owns the trademark.
Know the law - Understand the regulations, licenses and taxes you will need to follow, obtain and pay for your new business. Consult with an accountant or a lawyer to help structure your business to be in compliance with the law. Typically, you will need to need to be sure you are charging the correct amount of tax that your business is promoting and have all of the proper licenses needed to run your new business. A good accountant can help you with all of the filings you will need to start your company.
Know your needs - When working on your business plan, do not forget about your needs. Consider all of your living costs from rent, mortgages, health insurance, gas or groceries. - all things that don’t pay for themselves. Make sure you account for unforeseen or unexpected expenses by factoring a little flexibility into your budget for those “just-in-case” moments. To do this, you will most likely need to cut out all the unnecessary extras you can live without.
Don’t over (or under) spend. Starting a business can be financially taxing on you and your family. You will need to learn good cash flow management practices as well as the best places to spend your money. It’s important not to waste those precious seed dollars but it’s equally important to spend where necessary. In any business, you often have to spend money to make money. Be sure to provide for the things your company needs, but have a clear definition of ‘need’. For example, it may be worth it to put $1500 in an online vendor listing, but it may not be necessary to give every new customer a $15 coffee mug. Beware of impulse buying and be disciplined with your funds.
While there’s so much to starting a business, be sure to get experienced guidance. It is the best support system of all and can save you a lot of headaches. Ask friends and colleagues who have started a company for a list of what to do or what not to do. and hire competent partners to help with the process, and feel free to contact Jones and Company CPAs at 727-845-4166 if you have questions.
Poor cash flow management is a big stumbling block for entrepreneurs and is the main reason for business failure, according to many business analysts. Therefore, it is vital to businesses to understanding the basic concepts of cash flow will help you plan for the unforeseen eventualities that nearly every business faces.
Cash is ready money in the bank or in the business. It’s commonly referred to as a liquid asset and is not inventory, accounts receivable or property. While these can potentially be converted to cash, they are not readily available sources used to pay suppliers, rent, or employees.
Cash flow refers to the movement of cash into and out of a business. Watching the cash inflows and outflows is one of the most important management tasks for any business. The outflow of cash includes those checks you write each month to pay salaries, suppliers, and creditors. The inflow includes the cash you receive from customers, lenders, and investors.
Why is Cash Flow Management so Important?
While there are many reasons why having a good understanding of your businesses cash flow is important, these seem to top the list:
Having cash puts you in a more stable position with better buying power. While you can borrow money at times, cash affords you greater protection against loan defaults or foreclosures.
When you borrow money to buy buildings, equipment and inventory, you essentially use future cash flow to make your purchases. As a result, you need positive future cash flow to pay for your debt commitments.
Along with debt management, strong cash flow provides the comfort and capabilities a business needs to invest in growth. Cash flow also gives your business greater flexibility in responding to emerging dilemmas or making critical decisions.
Confidence in cash flow makes it easier to make critical purchases in the near term rather than waiting. It also allows you to disperse cash in the form of dividends to shareholders or owners. This strengthens the bond between the company and its owners. Strong cash flow also makes your business more appealing to a lender if you desire to take on new debt at some point. You also have the ability to offer favorable credit terms to attract new buyers if you are less desperate for cash.
What Are the Components of Cash Flow?
A Cash Flow Statement shows the sources and uses of cash and is typically divided into three components:
Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It comes from sales of the product or service of your business, and because it is generated internally, it is under your control.
Investing cash flow is generated internally from non-operating activities. This includes investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations.
Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock, and the payment of dividend are some of the activities that would be included in this section of the cash flow statement.
How Do I Practice Good Cash Flow Management?
Good cash management can be simple. The basics you need are:
1. Knowing when, where, and how your cash needs will occur
2. Knowing the best sources for meeting additional cash needs
3. Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.
The starting point for good cash flow management is developing a cash flow projection. As a business owner, you must know how to develop both short-term cash flow projections to help manage daily, weekly and monthly cash needs. Annual and long-term cash flow projections will serve to help develop the necessary capital strategy to meet business needs. It is also beneficial to prepare and use historical cash flow statements in order to understand how money has been spent in the past.
If you have questions about cash flow management, contact Jones & Company, CPAs at 727-845-4166. We will be happy to answer any questions.
Source: Summary of Findings – From the 2014 Global Fraud Study (ACFE)
According to the 2014 Report to the Nation on Occupational Fraud and Abuse (copyright 2014 by the Association of Certified Fraud Examiners, Inc.), research shows that the typical organization loses 5% of its annual revenue each year due to employee fraud. Prevention and detection are crucial to reducing this loss.
The median loss caused by the frauds in our study was $145,000. Additionally, 22% of the cases involved losses of at least $1 million.
The median duration — the amount of time from when the fraud commenced until it was detected — for the fraud cases reported to us was 18 months.
Many cases involve more than one category of occupational fraud. Approximately 30% of the schemes in our study included two or more of the three primary forms of occupational fraud.
Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.
Organizations with hotlines were much more likely to catch fraud by a tip, which our data shows is the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.
The smallest organizations tend to suffer disproportionately large losses due to occupational fraud. Additionally, the specific fraud risks faced by small businesses differ from those faced by larger organizations, with certain categories of fraud being much more prominent at small entities than at their larger counterparts.
The higher the perpetrator’s level of authority, the greater fraud losses tend to be. Owners/executives only accounted for 19% of all cases, but they caused a median loss of $500,000. Employees, conversely, committed 42% of occupational frauds but only caused a median loss of $75,000. Managers ranked in the middle, committing 36% of frauds with a median loss of $130,000.
Approximately 77% of the frauds in the study were committed by individuals working in one of seven departments: These departments include accounting, operations, sales, executive/upper management, customer service, purchasing and finance.
It takes time and effort to recover the money stolen by perpetrators, and many organizations are never able to fully do so. At the time of our survey, 58% of the victim organizations had not recovered any of their losses due to fraud, and only 14% had made a full recovery.
To find out more about fraud or to schedule a private consultation, contact us at 727-845-4166.
By Traci A. Malik, CPA CFE MAcc
This question has been around for many years. Starting in 1987, the IRS required Social Security numbers of all dependents over the age of 5 claimed on returns. That year 7 million American children disappeared from the nation's tax returns according to Snopes.com. Nowadays with matching technology and Social Security numbers getting issued upon birth, it's nearly impossible to get away with claiming a fictional dependent. Who can you claim then?
Dependent is a qualifying child
Five tests must be met for a child to be your qualifying child. The five tests are:
or a qualifying relative.
Four tests must be met for a person to be your qualifying relative. The four tests are:
What is the member of household or relationship test?
To meet this test, a person must either:
Live with you all year as a member of your household, or
Be related to you in one of the ways listed under Relatives who don't have to live with you.
Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.)
Your brother, sister, half brother, half sister, stepbrother, or stepsister.
Your father, mother, grandparent, or other direct ancestor, but not foster parent.
Your stepfather or stepmother.
A son or daughter of your brother or sister.
A son or daughter of your half brother or half sister.
A brother or sister of your father or mother.
Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in- law, or sister-in-law.
If you have other questions or for more information, contact our office or IRS Publication 501.
|Schedule C Income||50,000||50,000|
|Adjusted Gross Income||40,967||37,174|
|Federal Income Tax||4,139||3,570|
|Self Employment Tax||7,065||7,065|
Each year we must report to Uncle Sam whether we likei t or not. It is not enjoyable for anyone, but must be done. We put together a list of some end of the year ideas that might be able to save you some hard earned money on your taxes.
There are some deductions that were not renewed and have yet to be signed into law to be in effect for the 2015 tax year. These include the sales tax deduction, mortgage insurance premium deduction, above the line deduction for qualified tuition, exclusion of income for discharge of qualified principal residence indebtedness, $250 deduction for school teachers.
We hear about fraud and think this could never happen to us. In the 2014 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners, Asset Misappropriation accounts for about 85.4% of fraud causing a median loss of $130,000. On average the amount of time from when fraud commenced until it is detected in the study was 18 months.
Fraudulent asset misappropriation occurs many different ways by theft of cash, fraudulent disbursements, skimming, cash larceny, payroll schemes, check tampering and expense reimbursements schemes.
Most small business owners are busy with scheduling, customers, employees, ordering, sales and marketing that they don't have time for bookkeeping. They will hire a bookkeeper, trusted friend, family member or company to help with the task.
Just a few tips that may help a business owner protect against fraud:
Background check. A pre-employment background check will usually provide criminal record information.
Review bank statements. In today's digital world, most bank statements are sent electronically. If a bank statement is mailed, the owner should always open statement first. Look for unusual items such as transfers to other bank accounts, large transactions and debit transactions to unknown vendors.
Bank reconciliations monthly. Request bookkeeper provide a copy of reconciliation. Look for unusual items such as old outstanding deposits in transits and outstanding checks.
Online banking. The owner should go online to review the bank account. Most banks will provide online copies of cancelled checks. Review cancelled checks for the payee and endorsement.
Online banking access. Limit access capabilities for online banking. Owners should have full access, while other users should be set up with controls and limited access. Controls can limit access to specific bank accounts if the company has more than one account, dollar limits for daily amounts or transactions, ability to transfer between accounts, and online bill paying.
Check registers. Many small business owners use accounting programs, such as Quickbooks. Compare the payee/vendor on checks written to the actual cancelled check with online banking. As an example, fraudster may issue check payable to "CASH" for $x,xxx and then cash the check. However, in the accounting program, the fraudster would change the check payee from "CASH" to "ABC Supply Company" so it is not noticed by owner or manager.
If your company becomes of victim of fraud it is advisable to notify the appropriate authorities. All too often when fraud is discovered no criminal charges are made. Owners terminate the fraudster's employment and will agree not to press charges in return for restitution. Unfortunately, if there is no public criminal record the fraudster's next employer may be the next victim.
By Traci A. Malik, CPA CFE MAcc
Gathering your documents for your personal taxes can be daunting for some. When clients come into meet with us or drop off their tax documents, we tend to get asked about how to save money on tax preparation and what are the documents that we need. Hopefully, this will help serve as a guide for you.
What we need:
What we don't need or may cost you more:
If you would like a tax organizer to help with the planning of the documents needed, please feel free to contact us for one. We look forward to helping you with your taxes!