2019 Q1 tax calendar: Key deadlines for businesses and other employers


Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2018 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2018 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2018 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 11 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2018. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 11 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2018 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 11 to file the return.

February 28

  • File 2018 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 1.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2018 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2018 contributions to pension and profit-sharing plans.

© 2018


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Tax reform expands availability of cash accounting


Under the Tax Cuts and Jobs Act (TCJA), many more businesses are now eligible to use the cash method of accounting for federal tax purposes. The cash method offers greater tax-planning flexibility, allowing some businesses to defer taxable income. Newly eligible businesses should determine whether the cash method would be advantageous and, if so, consider switching methods.

What’s changed?

Previously, the cash method was unavailable to certain businesses, including:

  • C corporations — as well as partnerships (or limited liability companies taxed as partnerships) with C corporation partners — whose average annual gross receipts for the previous three tax years exceeded $5 million, and
  • Businesses required to account for inventories, whose average annual gross receipts for the previous three tax years exceeded $1 million ($10 million for certain industries).

In addition, construction companies whose average annual gross receipts for the previous three tax years exceeded $10 million were required to use the percentage-of-completion method (PCM) to account for taxable income from long-term contracts (except for certain home construction contracts). Generally, the PCM method is less favorable, from a tax perspective, than the completed-contract method.

The TCJA raised all of these thresholds to $25 million, beginning with the 2018 tax year. In other words, if your business’s average gross receipts for the previous three tax years is $25 million or less, you generally now will be eligible for the cash method, regardless of how your business is structured, your industry or whether you have inventories. And construction firms under the threshold need not use PCM for jobs expected to be completed within two years.

You’re also eligible for streamlined inventory accounting rules. And you’re exempt from the complex uniform capitalization rules, which require certain expenses to be capitalized as inventory costs.

Should you switch?

If you’re eligible to switch to the cash method, you need to determine whether it’s the right method for you. Usually, if a business’s receivables exceed its payables, the cash method will allow more income to be deferred than will the accrual method. (Note, however, that the TCJA has a provision that limits the cash method’s advantages for businesses that prepare audited financial statements or file their financial statements with certain government entities.) It’s also important to consider the costs of switching, which may include maintaining two sets of books.

The IRS has established procedures for obtaining automatic consent to such a change, beginning with the 2018 tax year, by filing Form 3115 with your tax return. Contact us to learn more.

© 2018


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Potential Refund for Taxpayers with 2016 Hurricane Losses!

We have been hard at work since the passage of the Tax Cuts and Jobs Act on December 22, 2017. Since we are a boutique CPA firm focused on understanding the intricacies of the ever changing tax environment, we have spent considerable time understanding the new law and its impact on our clients.

Embedded in this Bill was a new provision that changed the rules related to casualty losses from federally declared disaster areas, this includes the areas affected by the named hurricanes in 2016 & 2017. The new law allows losses over $500, even if you did not itemize your deductions, for tax years 2016 & 2017. The old law limited the loss to only amounts over 10% of your adjusted gross. Since most taxpayers filed their 2016 tax return before the passage of this retroactive provision, you can amend your 2016 tax return to reflect these losses and the claim a refund.

The passage of this major tax bill emphasizes the criticality of using highly skilled, credentialed tax CPAs to help navigate this new law and its impact on your specific situation. If we can assist you with your tax situation or gaining a better understanding of the new law, please do not hesitate to contact us.



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WINNERS & LOSERS OF TAX REFORM


There has been a lot written since the Tax Cuts and Jobs Act a.k.a. “Tax Reform” was signed into law on December 22, 2017. As a proverbial  tax geek, I have seen and heard a lot of information that just doesn’t fit into my view of what was passed into law and the impact that it has on taxpayers. It is clear to me that with the passage of this bill there are clear winners and losers, so I thought it would be beneficial to outline our view of the impact of this major tax package.

As with all tax legislation, there is some level of demographic profiling that gets embedded into the law to insure that certain groups of people pay more or less in taxes depending on which party is in power, such as the “wealthy” or the “middle class”. I’ll try to outline the impact in plain language at a very high level without getting into deep technical discussions (which is hard for the proverbial tax geek). Please remember that tax law as a whole is extremely complicated and your specific situation determines the tax impact, so get educated on the topic as it relates to your situation and consult with your tax CPA.


Winner – The Middle Class

There has been a lot of political rhetoric that tax reform will not help the middle class. I guess it depends on your definition, but based on the hundreds of projections we have done to determine the impact across a wide range of taxpayers, I just don’t see where this doesn’t reduce the overall tax burden of the middle class. First, the tax rates across the board have been reduced by 2%-4%. This will result in less tax on our income. Second, there is a higher standard deduction which will reduce the amount of income subject to tax for taxpayers who cannot generally itemize.  For married taxpayers, this is $24,000 which is a big number for middle class families. Itemized deductions are generally made up of state and local taxes not to exceed $10,000 which we’ll talk about later, home mortgage interest and charitable contributions. For most families the $24,000 standard deduction will well exceed their itemized deductions. In fact, all projections indicate that around 90% of all taxpayers will not itemize under these new rules. There is also a new enhanced credit for your dependents that will further reduce the tax liability for the middle class.


Loser – Unmarried People

Apparently the new law does not really favor unmarried taxpayers, particularly those who earn over $157,500 in taxable income. The rates get higher for these individuals much quicker. Also the standard deduction is much lower and the elimination of the personal exemption will not help this group. In our projections, we generally see a 2%-4% increase in overall tax for this group. I guess that’s much cheaper than a spouse but it is the price you will pay for being an unmarried, high income earner.


Winner – Simplification

For taxpayers with only W-2 income, maybe a house and some kids (this is by far the largest group of taxpayers), the filing requirements are extremely simply. You don’t need a tax preparer and should be able to handle the filings yourself in a few minutes. The new law also eliminated some pretty high abuse areas such as deductibility for unreimbursed employee expenses and miscellaneous itemized deductions. There are a lot of unethical tax preparers that “sell refunds” through making up deductions or creating invalid trade or businesses to shift income or create losses. The new law puts an end to this abuse. The IRS has started targeting these prepares and their clients to eliminate the abuse (see the IRS 2018 dirty dozen list of tax scams to avoid at http://bit.ly/2wOd3eb).


Loser – Taxpayers in High Tax States

As has been highly publicized, starting in 2018 you can no longer deduct state and local tax over $10,000. For states that have high property taxes and state income taxes this will reduce the amount of deductions they receive. Some states have passed laws to try to circumvent this law by allowing taxpayers to pay these taxes through charitable donations. The IRS recently published proposed regulations on this topic which will not make this a viable strategy. Additionally, as part of the new law, you are limited to deducting mortgage interest on new mortgages over $750,000. In states that have high property values, usually the same ones with high real estate taxes, this will further reduce the amount of allowable deductions.


Winner – Small Business

There are a lot of benefits in the new law for business as a whole. The new law allows a trade or business to only pay tax on 80% of their business income if it is a flow through business (sole proprietor, partnership, S Corporation) or a significantly lower tax rate (21%) for traditional C Corporations. In typical Congressional style, the 20% deduction is complicated and the specific type of company, income and wages paid play into your ability to get the tax benefit. In this area, you need to engage a qualified tax CPA to help you plan and report the impacts of this new law. Additionally, the new law allows businesses to significantly accelerate the depreciation of newly acquired assets while easing some of the complicated rules for businesses under $25 million of average gross revenue.


Loser – Charities

Unfortunately, an unintended loser to tax reform is charities. First, the increase in the standard deduction will have less taxpayers itemizing which will eliminate the tax incentive for these small donations. Most studies estimate that there will be around a 10% reduction in donations attributable to this change in law. Additionally, the new law increased the estate exemption amount to around $11.2 million per person ($22.4 for married couples). This means that only a person with over this amount would be subject to estate taxes. The lower limit provided opportunities to create tax strategies for large donors to reduce their exposure to estate taxes. This increased limit will significantly reduce the tax incentive for a significant amount of donors. Charities will have to change their marketing strategies for how they attract these donors, but the impact is projected to reduce the amount of total contributions further.


Winner – Big Business and Corporations

Businesses as a whole are clearly the big winner in tax reform. There are a wide variety of incentives and benefits to this group throughout the new law. Changes to depreciation allow all businesses to significantly accelerate the benefits they receive when buying business assets. Additionally, the corporate tax rate was reduced to a flat 21%, down from 35%. In an effort to incentivize multi-national companies to keep their profits in the US, the new law eased the requirements (albeit extremely complicated) to allow companies to bring their foreign profits back to the US with little or no tax. The new law also allows these companies to pay tax on their prior untaxed profits at a historically low rate and spread the payments over 8 years.

The current tax environment clearly creates a great divide between different types of taxpayers. It is imperative to understand your tax situation and develop strategies to help you minimize your tax liability. 



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Can a PTO contribution arrangement help your employees and your business?


As the year winds to a close, most businesses see employees taking a lot of vacation time. After all, it’s the holiday season, and workers want to enjoy it. Some businesses, however, find themselves particularly short-staffed in December because they don’t allow unused paid time off (PTO) to be rolled over to the new year, or they allow only very limited rollovers.

There are good business reasons to limit PTO rollovers. Fortunately, there’s a way to reduce the year-end PTO vortex without having to allow unlimited rollovers: a PTO contribution arrangement.

Retirement saving with a twist

A PTO contribution arrangement allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.

This can be appealing to any employees who end up with a lot of PTO left at the end of the year and don’t want to lose it. But it can be especially valued by employees who are concerned about their level of retirement saving or who simply value money more than time off of work.

Good for the business

Of course the biggest benefit to your business may simply be that it’s easier to ensure you have sufficient staffing at the end of the year. But you could reap that same benefit by allowing PTO rollovers (or, if you allow some rollover, increasing the rollover limit).

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

Also, a PTO contribution arrangement might help you improve recruiting and retention, because of its appeal to employees who want to save more for retirement or don’t care about having a lot of PTO.

Set-up is simple

To offer a PTO contribution arrangement, simply amend your retirement plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms. Additional rules apply.

Have questions about PTO contribution arrangements? Contact us. We can help you assess whether such an arrangement would make sense for your business.

© 2018


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When holiday gifts and parties are deductible or taxable


The holiday season is a great time for businesses to show their appreciation for employees and customers by giving them gifts or hosting holiday parties. Before you begin shopping or sending out invitations, though, it’s a good idea to find out whether the expense is tax deductible and whether it’s taxable to the recipient. Here’s a brief review of the rules.

Gifts to customers

When you make gifts to customers, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you need not include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift-wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as pens or stress balls imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (a gift basket for all to share, for example) as long as they’re “reasonable.”

Gifts to employees

Generally anything of value that you transfer to an employee is included in the employee’s taxable income (and, therefore, subject to income and payroll taxes) and deductible by you. But there’s an exception for noncash gifts that constitute “de minimis fringe benefits.”

These are items so small in value and given so infrequently that it would be administratively impracticable to account for them. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits are not included in an employee’s taxable income yet are still deductible by you. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Keep in mind that cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small and infrequent.

Holiday parties

The Tax Cuts and Jobs Act reduced certain deductions for business-related meals and eliminated the deduction for business entertainment altogether. There’s an exception, however, for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) provided they’re primarily for the benefit of non-highly-compensated employees and their families. If customers also attend, holiday parties may be partially deductible.

Gifts that give back

If you’re thinking about giving holiday gifts to employees or customers or throwing a holiday party, contact us. With a little tax planning, you may receive a gift of your own from Uncle Sam.

© 2018


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The tax deduction ins and outs of donating artwork to charity


If you’re charitably inclined and you collect art, appreciated artwork can make one of the best charitable gifts from a tax perspective. In general, donating appreciated property is doubly beneficial because you can both enjoy a valuable tax deduction and avoid the capital gains taxes you’d owe if you sold the property. The extra benefit from donating artwork comes from the fact that the top long-term capital gains rate for art and other “collectibles” is 28%, as opposed to 20% for most other appreciated property.

Requirements

The first thing to keep in mind if you’re considering a donation of artwork is that you must itemize deductions to deduct charitable contributions. Now that the Tax Cuts and Jobs Act has nearly doubled the standard deduction and put tighter limits on many itemized deductions (but not the charitable deduction), many taxpayers who have itemized in the past will no longer benefit from itemizing.

For 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly. Your total itemized deductions must exceed the applicable standard deduction for you to enjoy a tax benefit from donating artwork.

Something else to be aware of is that most artwork donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.

IRS auditors are required to refer all gifts of art valued at $20,000 or more to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s critical to provide a solid appraisal to support your valuation.

Finally, note that, if you own both the work of art and the copyright to the work, you must assign the copyright to the charity to qualify for a charitable deduction.

Maximizing your deduction

The charity you choose and how the charity will use the artwork can have a significant impact on your tax deduction. Donations of artwork to a public charity, such as a museum or university with public charity status, can entitle you to deduct the artwork’s full fair market value. If you donate art to a private foundation, however, your deduction will be limited to your cost.

For your donation to a public charity to qualify for a full fair-market-value deduction, the charity’s use of the donated artwork must be related to its tax-exempt purpose. If, for example, you donate a painting to a museum for display or to a university’s art history department for use in its research, you’ll satisfy the related-use rule. But if you donate it to, say, a children’s hospital to auction off at its annual fundraising gala, you won’t satisfy the rule.

Plan carefully

Donating artwork is a great way to share enjoyment of the work with others. But to reap the maximum tax benefit, too, you must plan your gift carefully and follow all of the applicable rules. Contact us to learn more.  

© 2018


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Donate appreciated stock for twice the tax benefits


A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

2 benefits from 1 gift

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits:

  1. If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and
  2. You can avoid the capital gains tax you’d pay if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

Stock vs. cash

Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%. Let’s also say you itemize deductions.

If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

By instead donating the stock to charity, you save $5,366 in federal tax ($1,666 in capital gains tax and NIIT plus $3,700 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,700.

Watch your step

First, remember that the Tax Cuts and Jobs Act nearly doubled the standard deduction, to $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly. The charitable deduction will provide a tax benefit only if your total itemized deductions exceed your standard deduction. Because the standard deduction is so much higher, even if you’ve itemized deductions in the past, you might not benefit from doing so for 2018.

Second, beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 60% and 30%, respectively, for cash donations).

Finally, don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

Minimizing tax and maximizing deductions

For charitably inclined taxpayers who own appreciated stock and who’ll have enough itemized deductions to benefit from itemizing on their 2018 tax returns, donating the stock to charity can be an excellent year-end tax planning strategy. This is especially true if the stock is highly appreciated and you’d like to sell it but are worried about the tax liability. Please contact us with any questions you have about minimizing capital gains tax or maximizing charitable deductions.

© 2018


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Mutual funds: Handle with care at year end


As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.

Avoid surprise capital gains

Unlike with stocks, you can’t avoid capital gains on mutual funds simply by holding on to the shares. Near the end of the year, funds typically distribute all or most of their net realized capital gains to investors. If you hold mutual funds in taxable accounts, these gains will be taxable to you regardless of whether you receive them in cash or reinvest them in the fund.

For each fund, find out how large these distributions will be and get a breakdown of long-term vs. short-term gains. If the tax impact will be significant, consider strategies to offset the gain. For example, you could sell other investments at a loss.

Buyer beware

Avoid buying into a mutual fund shortly before it distributes capital gains and dividends for the year. There’s a common misconception that investing in a mutual fund just before the ex-dividend date (the date by which you must own shares to qualify for a distribution) is like getting free money.

In reality, the value of your shares is immediately reduced by the amount of the distribution. So you’ll owe taxes on the gain without actually making a profit.

Seller beware

If you plan to sell mutual fund shares that have appreciated in value, consider waiting until just after year end so you can defer the gain until 2019 — unless you expect to be subject to a higher rate next year. In that scenario, you’d likely be better off recognizing the gain and paying the tax this year.

When you do sell shares, keep in mind that, if you bought them over time, each block will have a different holding period and cost basis. To reduce your tax liability, it’s possible to select shares for sale that have higher cost bases and longer holding periods, thereby minimizing your gain (or maximizing your loss) and avoiding higher-taxed short-term gains.

Think beyond just taxes

Investment decisions shouldn’t be driven by tax considerations alone. For example, you need to keep in mind your overall financial goals and your risk tolerance.

But taxes are still an important factor to consider. Contact us to discuss these and other year-end strategies for minimizing the tax impact of your mutual fund holdings.

© 2018


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Could “bunching” medical expenses into 2018 save you tax?


Some of your medical expenses may be tax deductible, but only if you itemize deductions and have enough expenses to exceed the applicable floor for deductibility. With proper planning, you may be able to time controllable medical expenses to your tax advantage. The Tax Cuts and Jobs Act (TCJA) could make bunching such expenses into 2018 beneficial for some taxpayers. At the same time, certain taxpayers who’ve benefited from the deduction in previous years might no longer benefit because of the TCJA’s increase to the standard deduction.

The changes

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only to the extent that they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. The TCJA reduced the floor for the medical expense deduction for 2017 and 2018 from 10% to 7.5%. So, it might be beneficial to bunch deductible medical expenses into 2018.

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible.

However, if your total itemized deductions won’t exceed your standard deduction, bunching medical expenses into 2018 won’t save tax. The TCJA nearly doubled the standard deduction. For 2018, it’s $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly.

If your total itemized deductions for 2018 will exceed your standard deduction, bunching nonurgent medical procedures and other controllable expenses into 2018 may allow you to exceed the applicable floor and benefit from the medical expense deduction. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

Planning for uncertainty

Keep in mind that legislation could be signed into law that extends the 7.5% threshold for 2019 and even beyond. For help determining whether you could benefit from bunching medical expenses into 2018, please contact us.

© 2018


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