Small Biz Builder - March 2018

  • Tips for Paying EstimatedTaxes
  • Businesses Will Be Affected by the Tax Cuts and Jobs Act!
Tips for Paying Estimated Taxes
Estimated tax is a method used to pay tax on income that isn’t subject to withholding. You may need to pay estimated taxes during the year depending on your sources of income. For example, income from self- employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, may require you pay estimated tax. For Sole Proprietors, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your Form 1040 return.
As a general rule, individuals must pay estimated taxes for 2018 if both of these statements apply:
·         You expect to owe at least $1,000 of tax on your Form 1040, after subtracting your tax withholding (if you have any) and credits, and
·         You expect your withholding and credits to be less than the smaller of 90% of your 2018 taxes or 100% of the tax on your 2017 return.
If you own a business, often calculating estimated tax on a quarterly basis is a better choice. We can help you determine the safest route to go.
With the passage of the Tax Cuts and Jobs Act, estimating income for 2018 may be more challenging than in the past. In these uncertain times, you need someone you can trust for timely and accurate advice. We are knowledgeable and available to help, so call us to schedule an appointment.
Estimated tax payments are generally due April 15, June 15, Sept. 15 and Jan. 15. The easiest way to pay estimated taxes is electronically through the EFTPS, however; you can also pay by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Businesses Will Be Affected by the Tax Cuts and Jobs Act!

In late December, President Trump signed the Tax Cuts and Jobs Act (TCJA) that provides extensive tax reform to our tax system. Business owners will be faced with several changes as well as tax planning opportunities beginning in 2018. Below is a summary of some provisions included in the TCJA that may affect you:
Corporate Tax Rates. The rate has been reduced to a flat 21%. Previously, corporations were subject to graduated tax rates ranging from 15% - 35%.
Section 179 Expensing/Bonus Depreciation. Effective 1/1/2018, the ability to write off fixed asset purchases through Section 179 expensing has increased from $500,000 to $1 million with phase-out increased from $2 million to $2.5 million. Beginning in 2018, there’s also an opportunity to take bonus depreciation through 100% expensing for qualified property. Used property now qualifies as well as qualified film, television, and live theatrical productions.
Alternative Minimum Tax (AMT). The corporate AMT is repealed for tax years after 12/31/17.
Dividend Received Deduction. The 80% dividend received deduction is reduced to 65% and the 70% dividend received deduction is reduced to 50% for tax years 2018 and beyond.
Like-Kind Exchange Treatment. Beginning in 2018, like-kind exchanges are only available for real property that isn’t held primarily for sale. Therefore, like-kind exchanges on vehicles will no longer be allowed.
Entertainment Expenses. Deductions for entertainment expenses are disallowed for tax years after 12/31/2017. In addition, meals provided by the employer on the premises are subject to 50%, rather than being fully deductible.
Domestic qualified business income. For tax years beginning after 12/31/2017, taxpayers will no longer be able to claim a domestic production activities deduction.
Cash Basis of Accounting. Beginning in 2018, the cash basis of accounting may be used by taxpayers who meet the $25 million gross receipts test (previously $5 million) regardless of income producing activities.
Converting to the cash basis of accounting would result in a change of accounting method and the filing for Form 3115.
Accounting for Inventory. For tax years beginning after December 31, 2107, taxpayers who meet the $25 million gross receipts test are no longer required to maintain inventory, but rather can either treat inventories as non-incidental materials and supplies or in a manner that conforms to the taxpayer’s financial accounting treatment of inventories. The use of this provision will result in a change in accounting method and the filing of Form 3115 and may require paying significant user fees.
While change is often difficult, the TCJA does present opportunities for business owners. To discuss how these new provisions will affect your business, give us a call to schedule a meeting.
                                                                                                                            © 2018 Padgett Business Services
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Due to a number of recent clients receiving calls claiming to be from the IRS we would like to alert you of this SCAM. You should hang up immediately if you get one of these calls and here is a direct quote from the IRS website regarding the obvious signs you're on the phone with a scammer:
The IRS will never:
  • Call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
You may view this information on the IRS website here:
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Tips for Determining Standard Meal Allowances for Business Travel & Entertainment

The cost of certain meals purchased on business trips can be deducted from your taxable income. In fact, this is one of the most common employee and small business expenses claimed each year. When deducting a meal expense, the IRS allows taxpayers to use two different methods: the standard meal allowance or the actual cost of the meal. Follow the tips below to use the standard meal allowance properly.

1. Start by determining if your meals are deductible.

TENot all meals consumed while you are traveling for business are deductible. In general, a meal is deductible if the meal is an essential part of business-related entertainment or if the meal is consumed while you are on a trip that requires you to stop for substantial rest time or sleep in order to perform your duties properly.

2. Understand how the standard meal allowance works.

The standard meal allowance is a calculation method that allows you to deduct meals without keeping records of all of the actual costs you incur. With this method, you are able to use a pre-determined amount to calculate the cost of your daily meals and other incidental expenses while on your trip. This amount is established by the IRS. You can use the standard meal allowance whether you are self-employed or an employee.

3. Use the right amount.

For 2015, the standard meal allowance was $46 per day for trips taken to most locations in the United States before October 1. For trips taken on or after October 1, the standard meal allowance for most locations in the United States was $51 per day. However, some locations qualify for higher meal allowances. To determine the amount of the standard meal allowance for a specific location, you can search by state or city on the United States General Services Administration's website.

4. Apply the limit.

With both the standard meal allowance and the actual cost calculation methods, taxpayers are allowed to deduct only 50 percent of the cost of meals in most cases. For example, if your standard meal allowance is $51 for a given trip, you can typically deduct only $25.50 per day.

5. Keep records anyway.

Keep in mind that even if you use the standard meal allowance, you will still be required to keep records to prove the time, location and purpose of your trip.

6. Don't mix methods.

If you choose to use the standard meal allowance for any trip you take during the year, you must use it for all of the trips you take that year. You cannot use the actual cost of your meals to calculate any travel-related deductions.

7. Compare calculations to get the highest deduction.

In some cases, the standard meal allowance is not the most beneficial calculation method. To determine which method is best for you, consider calculating your deduction both ways to see which is higher.
Calculating meal deductions can be complicated and time consuming. For assistance with travel expense deductions and other tax issues, contact Padgett Business Services.
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How Long Should I Keep My Records After Filing My Tax Return?

The Internal Revenue Service requires you to document the income or deductions you report on your individual or small business tax return. However, once you have used these tax records to complete your return, you may wonder whether you need to keep them and, if so, how long.

paper surrenderWhy Should I Keep My Tax Records?

In most cases, tax returns are processed and accepted without issue. However, on occasion, the IRS will audit your return. Audits can occur shortly after a return is filed, or they can occur several years later. In addition, some people eventually notice that they have completed a tax return incorrectly. When this occurs, you can use your tax records to file an amended return.

Both audits and amended returns must be completed within a specific period after a tax return is filed. This is known as the "statute of limitations."

How Long Should I Keep My Tax Records?

You should keep all of the records needed to validate the information submitted on your tax return at least until the statute of limitations expires. Most taxpayers should keep the records that pertain to their tax returns for at least three years after the return is filed. However, certain types of records should be kept longer. Records that must be kept longer than three years include:
  • Records relating to unfiled returns or fraudulent returns - Keep indefinitely.
  • Records relating to tax years with unreported income that is more than 25 percent of the gross amount reported on your return - Keep for at least six years from the time the return is filed.
  • Records relating to bad debt deductions or a loss from worthless securities. - Keep for at least seven years from the time the return is filed.
  • Employment tax records - Keep for at least four years after the tax is paid or becomes due, whichever is later.
  • Records relating to a claim for a refund or credit that was filed after your tax return - Keep for at least two years from the date you paid the tax or three years from the date you filed your original return, whichever is later.
  • Records relating to property you own - Keep records related to owned property until the statute of limitations for the tax year in which you sold or otherwise disposed of the property expires.

A Word of Caution

Although you may never need your tax records after the statute of limitations has passed, there is always a chance that you will. However, keeping every document indefinitely seems impractical. To balance practicality with preparedness, Padgett Business Services generally recommends keeping all records for at least seven years, regardless of the statute of limitations.
Padgett Business Services can help you determine which records you need to keep and for how long. We can also provide assistance if you have already been audited by the IRS or you need to file an amended tax return. Contact us today.
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Tips for Determining Automobile Allowance for Business Use

Deducting small business expenses is one of the best ways to lower your tax bill. For many businesses and individual entrepreneurs, one of the most advantageous deductions is the automobile allowance. This deduction allows you to reduce your income based on the expenses you incur when using an automobile for business purposes. Follow the tips below to calculate this deduction accurately in 2016. 

1. Know whether you can deduct business mileage.
In general, you can deduct expenses for cars, pickup trucks and SUVs that are used in the course of your business. However, you cannot deduct expenses related to the use of vehicles for hire or vehicles that qualify as equipment, such as dump trucks. You are also unable to deduct any expenses related to you or an employee's personal use of a business vehicle. If a vehicle is used for both business and non-business purposes, you must deduct only the portion of expenses that pertain to business use. 

2. Decide which calculation method to use.
Two different calculation methods are available to taxpayers deducting business mileage. One method, known as the "actual expenses" method, involves calculating the actual expenses you paid for the vehicle throughout the year. Examples of expenses that can be included in this calculation are the cost of gasoline, required repairs and oil changes. If you used the vehicle for both personal and business purposes, only the portion of expenses that pertain to business use can be included in the calculation. The other calculation method is known as the "standard mileage rate" method. To use this calculation method, simply calculate the number of miles driven for business purposes during the year and multiply it by the IRS' standard mileage rate for that tax year. For 2016, the IRS has announced that the standard mileage rate for business miles will be 54 cents per mile. This rate is slightly lower than that of the previous tax year. To determine which of these calculation methods is more beneficial, calculate the deduction both ways and choose the larger amount. 

3. Know the limitations.
In some cases, you may not be able to use the standard mileage rate to calculate your deduction. Specifically, you cannot use the standard mileage rate for more than four vehicles at the same time, after claiming a Section 179 deduction or after using a depreciation method under MACRS. Most miles driven for business purposes are deductible. However, you must omit miles driven to and from work. 

4. Keep records to support your deductions.
If the IRS audits your tax return, you must be able to provide documentation to support your business vehicle deductions. Keep careful records of all of the miles driven throughout the year, and retain any receipts relating to vehicle expenses. Keep these documents for at least three years after you file your tax return. Calculating your business vehicle deductions can be complicated. For assistance with this complex tax topic, contact Padgett Business Services.

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Small Biz Builder - June 2016

This Month: 

  • Are Retirement Plan Distributions Subject To Withholding? 
  • Employing Youth 
  • Prepare for Summer Storms!

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Padgett Business Services
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