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2015 Tax issues

With only about seven weeks left until we turn the calendar to 2016, what do small business owners need to consider for the rest of the year and for 2016.

Here are some items to think about:

Sales Tax:  North Carolina changed its sales tax rules effective March 1, 2016, for repair services to be subject to sales taxes.  Currently, separately stated labor charges on repairs are not subject to sales tax.  Parts are subject to sales tax.  This expansion of the sales tax base will affect any business that performs repairs. Businesses will have to adapt their invoicing to capture the additional sales tax.  From a consumer standpoint, your car repairs, your appliance repairs, your equipment repairs, will all cost more with sales tax added on labor costs.

Section 179 and Business Fixed Asset Purchases: Current law ( as of 11-12-15) limits the expensing of new equipment to $25,000.  For 2014,  Section 179 allowed a business to write off up to $500,000 of business personal property additions.  Hopefully, Congress will extend this provision for 2015 and make it retroactive.  This has been done in the past as last-minute December  tax bills.  We recommend that business owners proceed with purchasing needed fixed assets based on the hope that the $500,000 limit will be allowed for 2015.  If the increased Section 179 is not extended, a business could still take regular depreciation on the assets and expense a portion of the costs in 2015.

Obama Care Reporting: All businesses with more that 50 full-time equivalent employees (related party entity rules apply) will have to provide their employees with IRS Form 1095-C which will list information about health insurance coverage paid by the company. This form will have to be provided to employees by January 31, 2016.

Obama Care Penalties: The penalties for large employers (those with more than 50 FTE employees) who do not offer health insurance will affect more businesses.  For 2016, the employer may incur a penalty for each full-time employee over a 30 employee threshold. This threshold was 80 for 2015.

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Tax Identity Theft – Continued

Your tax return will be rejected for Electronic Filing if someone has used your or your spouses Social Security Number on a return that has already been filed and accepted by the IRS.

I have just spent the last hour this morning dealing with just this situation.  It is happening all across the country and the IRS has not been able to solve this problem.

In our previous post, we explained what to do if you get a letter,  Form 5071C, from the IRS about potential problems the IRS knows about with your return.

In this case, the IRS is not yet aware of the fraudulent activity.

Here is what you should do if you are affected:

  • Call your CPA
  • Complete Form 14039, Identity Theft Affidavit
  • Attach a copy of Form 14039 with your Paper Return
  • Mail to the IRS
  • Get a Power of Attorney signed to authorize your CPA to receive communications on this matter.

This is a long process to settle this issue.  If you were expecting a refund, it could easily be six months to a year before this is processed.

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Tax Identity Theft

In the past week, several of our clients have received letters from the IRS notifying them that the IRS needs additional information to process their 2014 returns whenever they have not yet filled for 2014.  Our CPA Connect National Discussion List has notes from other CPA’s across the country that this is happening everywhere.

Just today, the IRS issued this release which addresses what you should do if you receive such a notice.

Taxpayers Receiving Identity Verification Letter Should Use IDVerify.irs.gov 

WASHINGTON – The Internal Revenue Service today reminded taxpayers who receive requests from the IRS to verify their identities that the Identity Verification Service website, idverify.irs.gov, offers the fastest, easiest way to complete the task.

Taxpayers may receive a letter when the IRS stops suspicious tax returns that have indications of being identity theft but contains a real taxpayer’s name and/or Social Security number. Only those taxpayers receiving Letter 5071C should access idverify.irs.gov.

The website will ask a series of questions that only the real taxpayer can answer.

Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them. If they did file the return, it will take approximately six weeks to process it and issue a refund.

Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it. The IRS does not request such information via email, nor will the IRS call a taxpayer directly to ask this information without you receiving a letter first. The letter number can be found in the upper corner of the page.

The letter gives taxpayers two options to contact the IRS and confirm whether or not they filed the return. Taxpayers may use the idverify.irs.gov site or call a toll-free number on the letter. Because of the high-volume on the toll-free numbers, the IRS-sponsored website, idverify.irs.gov, is the safest, fastest option for taxpayers with web access.

Taxpayers should have available their prior year tax return and their current year tax return, if they filed one, including supporting documents, such as Forms W-2 and 1099 and Schedules A and C.

Taxpayers also may access idverify.irs.gov through www.IRS.gov by going to Understanding Your 5071C Letter or the Understanding Your IRS Notice or Letter page. The tool is also available in Spanish. Taxpayers should always be aware of tax scams, efforts to solicit personally identifiable information and IRS impersonations. However, idverify.irs.gov is a secure, IRS-supported site that allows taxpayers to verify their identities quickly and safely

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Beware IRS email Scam

This post is from the IRS Newswire:

What’s Hot

March 2014
New Email Phishing Scam

The IRS has been alerted to a new email phishing scam. The emails appear to be from the IRS Taxpayer Advocate Service and include a bogus case number and the following message:

“Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

The recipient is directed to click on links that supposedly provide information about the “advocate” assigned to their case or that let them “review reported income.”  The links lead to web pages that solicit personal information.

Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. For more information, visit the IRS’s Report Phishing web page.

The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.

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IRS Regulations are a Moving target for 2015 Tax Season

in September 2013, the Department of the Treasury finalized rules for the capitalization of tangible property, with the purpose of clarifying the line between expenditures that should be deducted as repairs, and those that must be capitalized and depreciated.  These new rules apply to every business taxpayer (sole proprietor-Schedule C, rental property- Schedule E, farmer-Schedule F) who acquires, produces, or improves tangible property, and are in effect for tax years beginning on or after 1/1/2014.

Up until yesterday, February 13, 2015 (yes, a Friday the 13th), the IRS position was that almost every taxpayer with a business or rental property should file Form 3115, Application for Change in Accounting Method, (a complex eight page form not including required explanations) with their 2014 tax returns and a duplicate copy to the IRS in Ogden, Utah.

After CPA firms have spent countless hours working to make sure our clients are compliant with these regulations, the IRS announced in Rev. Proc. 2015-20 that this complex filing may not be required for small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less.

For most taxpayers, this is a welcome relief.

For CPA’s, trying to follow the IRS regulations is like a dove hunt, it is really hard to hit (or comply in this case) with a moving target.

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When can I file my 2015 individual taxes?

You have been receiving various tax documents over the past several weeks, W-2’s, mortgage interest statements, 1099’s from banks, etc.  Can I file now?

Trying to file your 2015 tax return too early can lead to mistakes.  Brokerage companies will not be sending their consolidated brokerage statements until February 15th.  Many of these statements will have changes after the initial statements are mailed, especially if you invest in Real Estate Investment Trusts and Mutual funds.

Partnerships and  S corporations and trusts generally do not issue their K-1’s usually until late February or sometime in March.  Trust K-1s are often issued in late March or early April.  The due dates for partnership and S corporation K-1s for extended returns is September 15th.  Partnerships that invest in hedge funds generally cannot issue K-1s until September.

So, when do I bring my “tax stuff” to my CPA?

When you have most of your tax information together and  have completed your tax organizer, then you should forward your information to you CPA.  For many taxpayers, this will be sometime after February 15th.  Don’t wait on the final K-1 that always comes in late March before you drop off your tax information. Late K-1s can easily be added to tax returns that are in process, CPA’s do this all the time.

If you have a student in college and will be completing a FAFSA Form, then you need to get your tax return information in as soon as you have gathered the bulk of it. Communicate to your CPA what is missing and your deadline for having numbers for the FAFSA form. The FAFSA can filed with tentative numbers and amended later.

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Business Personal Property Tax Listings-Don’t pay taxes on assets you don’t have!

Business personal property tax listings are due at the end of January.  County tax offices use these listings to determine taxable value and to assess property taxes.  Even though your business may have fully depreciated an asset, the county tax office still assigns a value to assets which may be up to 20% of the original cost.  The county property tax assessors do not remove assets from their listing rolls unless you notify them that the asset is no longer in use.

Bottom line, if you have all assets on your depreciation schedules that you no longer own, you are paying more in property taxes than you should.  Now is the time to review your depreciation schedules and remove those assets from your books and from your 2015 business personal property tax listings.