- Last Minute Tax Savings
- W2s and 1099s – Upcoming January & February Deadlines:
- Financial Holiday Gifts
- Civil and Criminal Employment Tax Enforcement
Happy Holidays! We are so very grateful for our great clientele, employees, families, and friends. Thank you for giving us the opportunity to serve you this past year. Your trust and your business are appreciated, and your referrals are welcome. We wish you a happy, healthy, and prosperous 2016.
Steve Moskowitz, Esq.
Can you hear the tick-tock of the tax clock winding down – quickly? There is a very short time left to cut your 2015 taxes. Here are some moves you can still make before the year-end.
- Our Number One Tax Tip: If you believe you will owe state or local taxes, consider prepaying them before the end of the year in order to claim the deduction in 2015. (Be aware of alternative minimum tax consequences and phaseouts.)
- Use your credit card to purchase (and deduct) items in 2015. Using a credit card lets you take a deduction when the purchase is made, not when the card balance is paid. You can use the credit card rule for both business and personal transactions
- If you’re a business owner and need additional furniture, fixtures, equipment, and computers to operate your business, consider making the purchases before the end of the year in order to qualify for the Section 179 expensing deduction.
- Don’t ignore stock losses since they can be used to offset stock gains. If you have unrealized losses for 2015, consider selling those positions to offset any gain transactions you might have made but watch out for the “wash loss rules” if you repurchase the stock. You can also deduct up to $3,000 in net capi tal losses against other income. Net losses greater than $3,000 can be carried forward and used on your 2016 tax return.
- Consider making a deductible traditional IRA contribution. If you qualify, you can contribute up to $5,500 for 2015, plus an additional $1,000 “catch up” contribution if you are age 50 or older. You have until mid-April 2016 to make your contribution and still take a deduction for 2015. Also, consider taking much larger deductions for other types of pensions, but some require setting up by 12/31/2015 even though they can be funded in 2016.
- Maximize your employer tax-deferred retirement accounts, such as 401(k), 403(b), or 457 plans.
- Donate appreciated stock or mutual funds to charity. You receive a deduction for the appreciated value, but you don’t have to report or pay taxes on any of the appreciation.
Give Moskowitz LLP a call for more tax-saving tips that you can implement before December 31, 2015.
Most employers have a payroll company that handles their W2 Forms. If you fall into this category, be certain to give your employees their W2 by the end of the month. If you need help preparing your Form W2’s, call Moskowitz LLP for assistance.
In regard to Form 1099, be prepared for the upcoming deadlines next month. Forms 1099 are “information returns” that businesses are required to file annually with the IRS. These forms are used to report amounts paid out by a business that should be reported as income by the form recipient.
Form 1099-MISC, Miscellaneous Income, is probably the most familiar to business owners, but Form 1099-MISC is just one form in a group of more than fifteen different forms used to report various types of income to the IRS.
In order to increase Form 1099 filing compliance, business income tax forms include questions to determine whether the business made payments that require issuing Form 1099(s) and whether the business actually issued it. This scrutiny, coupled with penalties, makes it important for every business to check Form 1099 filing requirements each year.
Here’s what you need to know about Form 1099:
Under current tax law, every person engaged in a trade or business, including nonprofit organizations, must file Form 1099s for certain payments made throughout the year during the course of the payer’s trade or business. Here are some of the most common forms and filing requirements:
Form 1099-INT: Used to report interest payments of $10 or more by financial entities; $600 or more by certain trades or businesses.
Form 1099-DIV: Used to report dividend payments of $10 or more; $600 or more for liquidations.
Form 1099-B: Used to report any proceeds from broker and barter transactions.
Form 1099-R: Used to report distributions of $10 or more from retirement or profit-sharing plans, IRAs, SEPs, annuities, or insurance contracts.
Form 1099-S: Used to report the sale or exchange of present or future ownership interests in real estate.
Form 1099-C: Used to report cancellation of debt of $600 or more.
Form 1099-MISC: Used to report miscellaneous payments generally of $600 or more; $10 or more for royalties; any amount for fishing crews.
Form 1099-MISC is used to report payments for services provided to your business by unincorporated vendors when those payments total $600 or more for the year. Typical payments include rents, royalties, and compensation to independent contractors, such as consultants, web designers, accountants, lawyers, and cleaning services.
Here are five conditions for payments that must be reported using Form 1099-MISC:
- The payment was made to a nonemployee.
- The payment was made for services (not goods) provided to the trade or business.
- The payment was made to an unincorporated entity (except for payments to attorneys and medical and health care payments).
- The payment or payments generally totaled $600 or more for the year.
- The payment was not made electronically (e.g., with a credit or debit card or with PayPal).
January 31 – Give one copy of Form 1099 or W2 to the payment recipient by this date in the year following payment.
February 28 – Send one copy of Form 1099 or W2 to the IRS by this date in the year following payment, unless the form is filed electronically.
March 31 – If Form 1099 is filed electronically, this is the deadline for providing a copy to the IRS.
NOTE: Electronic filing is required for businesses filing 250 or more information returns and optional, though encouraged, for businesses filing fewer than 250 information returns.
The penalties for failing to file Forms 1099 range from $50 to $250 per form, depending on how late your filing is and whether or not the failure to file was intentional. Total penalties can go as high as $1 million for businesses with gross receipts under $5 million or $3 million for those with gross receipts over $5 million.
To increase compliance of Form 1099 filing, federal income tax returns for businesses include the following questions:
- Did your business make any payments during the year that would require it to file Form(s) 1099?
- If “yes,” did or will the business file required Form(s) 1099?
- If you receive a Form 1099 with an incorrect dollar amount, request a corrected copy from the payer before tax filing time. If the issuer refuses to correct the 1099 then report the amount shown on the 1099 and then subtract the incorrect amount on the “other” line on page one of the 1040 and write “see attached disclosure statement”. Then make your explanation on the “Disclosure Statement, IRS Form 8275”.
- Only trades and businesses are required to report payments made in the course of business on Form 1099. No reporting is required for personal payments. For example, a business owner who pays a dentist $1,500 for a child’s dental work does not need to report that payment on Form 1099.
- Payments of $600 or more made to attorneys during the course of business must be reported on Form 1099-MISC, whether the attorney is incorporated or not. Medical and health care payments made to corporations must also be reported.
- Payments to vendors by credit or debit card, or by services like PayPal, should not be reported on Form 1099-MISC. The bank or third-party payment provider is required to report those transactions on Form 1099-K.
- Nonprofit organizations are subject to Form 1099 filing requirements because they are considered to be “engaged in a trade or business.”
- The fact that payments may not have to be reported on Form 1099 does not mean that the payments are exempt from income tax. All income must be reported on the income tax return of the recipient.
- To properly complete Forms 1099 and avoid penalties, a business needs the recipient’s name, taxpayer identification number, and a mailing address. Obtain this information by sending the recipient Form W-9, Request for Taxpayer Identification Number and Certification. If the recipient fails to provide the necessary information, the business may have to withhold taxes from payments and remit these amounts to the IRS.
- Review accounts payable and cash disbursements to capture reportable payments.
- Verify that the information on Form W-9 is current for each vendor.
- Initiate a policy that no vendor will be paid unless Form W-9 is completed.
For additional information about the Form 1099 filing requirements and defenses if you are being penalized for not filing previous 1099s or if the IRS has disallowed your deductions because you did not file 1099s that apply to your business, please contact the Moskowitz LLP office.
When planning gifts for children on your holiday list, you may want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.
Some financial gift options you might consider:
U.S. savings bonds. While paper bonds are a relic of the past, you can gift “electronic” bonds by purchasing them through the U.S. Department of Treasury website (www.TreasuryDirect.gov).
IRAs (regular or Roth). For 2015, you can contribute the lower of $5,500 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.
Stocks or mutual funds. Equities are a good way to introduce a child to the investment world. If you give appreciated securities to an adult child or grandchild, your gift could allow the child to enjoy beneficial capital gain rates when the shares are sold.
Vintage stock certificates. Vintage framed certificates are available for many companies. A historic or collectible stock certificate can provide a colorful reminder of the importance of investing for the future.
Collectibles. Postage stamps or coin collection kits can provide years of enjoyment and form the basis for a life-long hobby. Consider starting a child’s collection with an official U.S. Mint proof coin set for the year the child was born.
Please call Moskowitz LLP if you would like to review the tax issues related to any of these financial gift options, especially if you are considering gifting a larger amount.
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Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice from a tax attorney based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.