• October 2016 Individual Due Dates

    30 September 2016
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    October 11 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during September, you are required to report them to your employer on IRS Form 4070 no later than October 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    October 17 – Individuals

    If you have an automatic 6-month extension to file your income tax return for 2015, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.

    October 17 –  SEP IRA & Keogh Contributions

    Last day to contribute to SEP or Keogh retirement plan for calendar year 2015 if tax return is on extension through October 15.

     

    The October 2016 Business Due Dates:

    October 17 –  Electing Large Partnerships

    File a 2015 calendar year return (Form 1065-B). This due date applies only if you were given an additional 6-month extension. March 15 was the due date for furnishing Schedules K-1 or substitute Schedule K-1 to the partners.

    October 17 – Social Security, Medicare and withheld income tax

    If the monthly deposit rule applies, deposit the tax for payments in September.

    October 17 - Nonpayroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in September.

    October 31 – Social Security, Medicare and Withheld Income Tax

    File Form 941 for the third quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. 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 November 10 to file the return.
    October 31 –  Certain Small Employers

    Deposit any undeposited tax if your tax liability is $2,500 or more for 2016 but less than $2,500 for the third quarter.

    October 31 – Federal Unemployment Tax

    Deposit the tax owed through September if more than $500.

     

     

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  • Ingenious Scam Targets Taxpayers

    28 September 2016
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    Crooks have tried all of e-mail scamming, but almost everyone has figured out that the IRS does not send out notices by e-mail. So, crooks have changed their tactics. Recently, there have been reports of taxpayers receiving fake notices by mail requiring immediate payment to a P.O. Box. The P.O. Boxes are located in cities where the IRS has service centers, but of course are not IRS P.O. Box addresses.

    These scammers have duplicated the look of official IRS mail notices, which to the untrained eye would lead one to believe a notice was really from the IRS.

    So be extremely cautious of any notice you may have received from the IRS. If a notice is demanding immediate payment and there has not been any prior contact by the IRS over the issue, then the notice is probably from a scammer. Reports indicate the initial letters were numbered CP-2000.

    Below is a sample fake IRS CP-2000 supplied by Iowa State University.

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    (https://www.calt.iastate.edu/sites/default/files/files-page/SCAMletter.pdf)

    Don’t be a victim! Be sure to have any notice you receive from the IRS, or any tax authority, reviewed by Dagley & Co. before taking action.

     

     

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  • Time Is Running Out! Extended Tax Due Date Just Around the Corner

    26 September 2016
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    Couldn’t file your 2015 return by the normal April due date? Requested an extension? Be aware that the final due date for your return is October 17, 2016. The date is normally October 15, but that falls on a weekend this year, giving you two extra days to meet your individual tax-filing obligation. This is it! There are no additional extensions.

    Even though you have until October 17, you need to be thinking about getting the return completed in advance of the actual due date. Preparing a return takes time, and last-minute issues may need to be resolved before the return is ready to file. In addition, between 10% and 15% of all tax returns are on extension, so, contact us ASAP to set up your appointment before the rush.

    If you are self-employed, October 17 is also the final date when you can fund your existing self-employed retirement plan or establish a new one; without completing your return, there is no way to determine how much you can (or want to) contribute to that retirement plan.

    The extended deadline for K-1s from partnerships, S-corporations, or fiduciary returns to be sent out was September 15, so if you have not received that information yet, you should make inquiries.

    Extended individual federal returns are subject to a penalty of 5% of the tax due for each month (or part of a month) for which the return is not filed by the October 17 due date, with a maximum penalty of 25% of the tax due. In addition, if you end up owing taxes, the IRS will charge you interest on any tax due, going all the way back to the original April due date. If do not file a required state return and do owe state taxes, the state will also charge a late filing penalty and interest.

    Dagley & Co. is waiting for you to supply missing information to complete your return, we will need that information at least a week before the October 17 due date. Please us immediately at (202) 417-6640 if you anticipate complications related to providing the needed information so that we can determine a course of action for avoiding potential penalties.

     

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  • 9 Finance Tips All Business Owners Should Follow

    22 September 2016
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    With the right tools, resources, and a professional by your side, you can enhance the way you do business, reduce your spend, and increase your profit margins. To get started, you need some basic information on finance. Below are 9 finance tips all business owners should follow.

    #1: Recognize the Importance of Your Books

    Invoices, bank statements, and even some accounting work is commonly done through software programs today. However, it’s more than just accounting for your revenue and losses that’s important. In other words, you need to turn this data into usable information. Your figures can help you know how to grow profits even further if you know how to read them properly.

    #2: Stop Putting It Off

    It is much harder to manage that stack of papers at the end of the month than it is to spend a few minutes each day entering details. Having a pro to do this for you makes it even easier. If you are procrastinating, though, you’re hurting your short-term and long-term financial goals.

    #3: Know Your Risks

    A Headway Capital study found that 57% of business owners planned to grow this year. Most companies set out to grow for the year, but they often lack attention spent on minimizing risks. What’s the worst-case scenario? What’s your break-even point? Addressing risks as a part of your financial strategy really can streamline your finances should the year not go as you planned.

    #4: You Really Didn’t Budget, Did You?

    Some small to medium businesses lack the time it takes to budget. It’s understandable, but that doesn’t make it okay. Budgeting helps address those risks, but it also helps you to make better buying decisions. And, when you have tools in place to help you monitor inventory, expenses, and other unforeseen costs, you can create better budgets that allow you to do more with your profits.

    #5: Tax Mistakes Are Common

    Small to medium businesses suffer from some of the most complicated taxes. Without having a professional to monitor and guide your taxes throughout the year, your business could suffer significantly. The IRS says that, in 2014, $1.2 billion in civil penalties were placed against small business income tax filers. Most small businesses need reliable support to ensure tax filing and reporting isn’t a secondary importance.

    #6: Build from Your Strengths

    You don’t have to build your business on new products or start from scratch each time. It’s best to simply build onto what you have. For example, you’ll want to pinpoint where your biggest profit margins come from. Once you understand who your moneymakers are, target them within your business. By identifying and focusing on these areas, you can build your revenue and profits faster, therefore giving you the room to expand in other areas later.

    #7: Building a Business Is More Than Hours Worked

    It’s very common for business owners to spend a lot of time and hard work building their business on their own. Are you putting in 80 hours a week? If so, you may be limiting your growth potential. Instead, empower professionals and employees to help you with delegated tasks. This can give you more time to spend on what’s really making you money and help you to sleep at night.

    #8: Focus on Lean Practices

    Less really is more. As a business owner, you’ll want to incorporate the lean philosophy of keeping less on hand so you reduce your overhead. You create more value for your customers with less.

    #9: Access Capital When You Can, Not When You Need To

    Having a steady stream of income on hand is important. Instead of waiting until you are desperate for funding, and having to show your investors that you are in that place, focus on planning ahead and minimizing the risk of a negative situation.

    As a business owner, making wise financial decisions for your company is an ongoing process. But, you don’t have to do it alone. Allow Dagley and Co. to help you along the way to better manage your money and you could see it grow faster than you thought possible.

     

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  • Looking for Ways to Maximize Your Retirement Contributions?

    16 September 2016
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    Are you a sole proprietor with no full-time employees other than yourself and/or your spouse? Also, are you are seeking to maximize your retirement plan contributions? If so, a Solo 401(k) may be right for you. The key benefits of a Solo 401(k) plan are as follows:

    • Manage your own account directly without any brokers, banks, or trust companies as middlemen.
    • Generally contribute larger amounts, approximately equal to the 401(k) and profit-sharing amounts combined.
    • Legally avoid the unrelated business income tax (UBIT) that would apply to certain self-directed IRA transactions.
    • Make Roth contributions to the 401(k) element (not the profit-sharing part) of the plan, regardless of the AGI limitations that apply to regular Roth contributions.
    • Transfer existing retirement funds into the Solo 401(k).
    • Direct your investments with absolutely no restrictions on investment choices (including real estate, private companies, foreign assets, precious metals, etc.).

    Solo 401(k) Contributions – The maximum annual contribution to a Solo 401(k) for 2016 is $53,000 but not exceeding 100% of compensation. The Solo 401(k) contribution consists of two parts: (1) a profit-sharing contribution of up to 20% of net self-employment income for unincorporated businesses or 25% of W-2 income for incorporated businesses and (2) a salary-deferral contribution (same as the 401(k)) of as much as 100% of the first $18,000 ($24,000 if age 50 or over) of the remaining compensation after the profit-sharing contribution, as a tax-deductible contribution.

    Given sufficient income, a self-employed individual and spouse (assuming the spouse is employed in the same business) may contribute, for 2016, up to $106,000 combined. Because of the way the contribution is calculated, a larger contribution can usually be made into a Solo 401(k) than to a Keogh or SEP IRA at the same income level.

    Discretionary Funding –The funding of the Solo 401(k) plan is completely discretionary and flexible every year. Funding can be increased, decreased, or skipped entirely, if necessary.

    Where Deducted – If your business is organized as a Subchapter S or C corporation, or LLC electing to be taxed as a corporation, then you are an employee of the business, so the salary-deferral contribution reduces your personal W-2 earnings and the profit-sharing contribution is deducted as a business expense.

    For a sole proprietorship, a partnership, or an LLC taxed as a sole proprietorship, the owner’s salary-deferral and profit-sharing contributions are deductible only from personal income (i.e., on page 1 of Form 1040, as an adjustment to gross income), and not as an expense of the business.

    Deadlines – The deadline for establishing a Solo 401(k) is December 31st for an individual or the fiscal year end for corporations. For unincorporated businesses, the deadline for making the contributions is the regular April income tax filing due date plus extensions. For incorporated businesses, the deadline is 15 days after the close of the fiscal year.

    Roth Option – The 401(k) portion of the contribution can be designated as a non-deductible qualified Roth contribution, provided the plan document permits Roth contributions.

    If you think a Solo 401(k) might be right for you, please call Dagley & Co. at (202) 417-6640 for further details. We will help you to determine if your particular circumstances permit you have, and whether you will benefit from a Solo 401(k).

     

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  • Preparing Your Own Tax Return? That May Not Be a Wise Decision.

    14 September 2016
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    At Dagley & Co. we hear a lot about the complexity of the tax code, as well as a lot of rhetoric from Washington about simplifying it. Tax codes were originally written to bring in money (taxes) to pay for government costs. But over the years, Congress has used tax codes more as a tool to manage social reform. As a result, the code has become very complex.

    So with taxes becoming more complex with each passing year, why do people think they can prepare their own returns? We use software-costing thousands of dollars, so why do individuals, not educated in tax law and using low-cost computer software, think they can get their tax result right? Well, they may not, and they may miss deductions, credits, income exclusions, retirement benefits, and even more beneficial filing options just to save a few bucks on tax preparation costs.

    However, paying a little more in tax than they need to should not be their biggest concern. A more troublesome situation is getting more tax refund than they are entitled to, and then a year or two later getting a letter from the IRS wanting the excess back. This is especially devastating to lower-income individuals and families that spend what they bring in just making ends meet and have no savings to fall back on when the IRS comes calling, leaving them with even a bigger financial hole.

    To make matters worse, they may not even understand the IRS letter or the issue it is dealing with, and since they did their own return, they have no one to call for help in getting the tax assessment reduced or knowing how to get penalties abated.

    Professional tax preparation offers more than just entering numbers into a computer program. If you usually file your own tax returns, perhaps you should consider a firm that can not only prepare your taxes properly, but also provide tax, financial and retirement guidance. We are also here to help plan for the future. Give Dagley & Co., CPA’s a call this year, we are here to help.

     

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  • Hobbies and Income Tax

    12 September 2016
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    Hobbies and Income Tax

    Millions of U.S. taxpayers engage in hobbies such as collecting coins or stamps, refurbishing old cars, crafting, painting or breeding horses.

    Some hobbies will actually generate income, or  even evolve into businesses.  The tax treatment of hobbies with income is quite different than that of a trade or business, and making the distinction can be rather complicated.  The main issue here is that the IRS does not want taxpayers to write off hobby expenses under the guise of trade or businesses expenses.

    The first question to ask yourself is whether the activity is a hobby, trade or business. The tax law doesn’t really provide a bright-line definition of the term “trade or business,” probably because no single definition will apply in all cases.  But certainly, to be considered a trade or business, an activity must be motivated by the taxpayer’s profit motive, even if that motivation is unrealistic. Along with a profit motive, the taxpayer must carry on some kind of economic activity.

    Factors to determine profit motive – The IRS uses a series of factors to determine whether an activity is for profit.  No one factor is decisive, but all of them must be considered together in making the determination.

    • Is the activity carried out in a businesslike manner?
    • How much time and effort does the taxpayer spend on the activity?
    • Does the taxpayer depend on the activity as a source of income?
    • Are losses from the activity the result of sources beyond the taxpayer’s control?
    • Has the taxpayer changed business methods in attempts to improve profitability?
    • What is the taxpayer’s expertise in the field?
    • What success has the taxpayer had in similar operations?
    • What is the possibility of profit?
    • Will there be a possibility of profit from asset appreciation?

    Presumption of profit motive – There is a presumption that a taxpayer has a profit motive if an activity shows a profit for any three or more years during a period of five consecutive years.  However, if the activity involves breeding, training, showing or racing horses, the period is two out of seven consecutive years.  An activity that is reported on a tax return as a business but has had year after year of losses and no gains is likely to eventually come under scrutiny by the IRS.

    Tax Treatment of Hobbies – While trades or businesses can have losses without restriction, if the activity is deemed to be a hobby, then special rules – frequently referred to as “hobby loss” rules – apply.  Under these rules, any income from the hobby is reported on the face of the tax return, and the expenses are only deductible if a taxpayer itemizes their deductions on Schedule A.  In addition, hobby expenses are limited by category as follows:

    Category 1: This category includes deductions for home mortgage interest, taxes, and casualty losses.  They are reported on the appropriate lines of Schedule A as they would be if no hobby activity existed.

    Category 2: Deductions that don’t result in an adjustment to the basis of property are allowed next, but only to the extent that gross income from the activity is greater than the deductions under Category 1.  Most expenses that a business would incur, such as those for advertising, insurance premiums, interest, utilities, wages, etc., belong in this category.

    Category 3: Business deductions that decrease the basis of property are allowed last, but only to the extent that the gross income from the activity is more than the deductions under the first two categories.  The deductions for depreciation and amortization belong in this category.

    Additional limit Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A, which are subject to the 2% AGI reduction; as a result, they are not deductible for alternative minimum tax purposes.

    Hobby loss rules can be complicated.  Need assistance determining whether your activity qualifies as trade or business, or whether it is subject to the hobby loss rules? Give Dagley & Co. a call at (202) 417-6640 or email at info@dagleyco.com.

     

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  • Avoid These 4 Common Small Business Accounting Mistakes

    8 September 2016
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    When you decided to open for business, you have a vision. You identified a need and came up with a solution you could provide and sell, and you invested your time, your money, your knowledge, and your drive to make it into a reality. The only problem is, if you’re like a lot of small business owners,  you did not anticipate having to handle your business’s accounting needs. Many highly intelligent, responsible business operators get caught making common small-business accounting mistakes that can trip them up and cost them in the long run. If you are afraid this might happen to you — or if it already has — the best way to avoid these costly errors, before time starts ticking and the money starts to pile up, is to learn the top four small-business accounting mistakes and how to prevent them.

    The Top 4 Accounting Mistakes Made by Small Businesses

     The truth is that these four mistakes are relatively easy to address. The best way to avoid them is to set aside time every week for the specific purpose of taking care of basic accounting tasks. Once you get into the habit of doing them regularly and the right way, you’ll be able to avoid the hassle of having to go back and correct these mistakes in the future.

     Reporting Employees as Independent Contractors

    If you hire people to work for you, it’s important for you to understand the difference between employees and contractors, and to classify them correctly. There are very specific ways that you must account for each type of worker, and if you don’t get it right you will likely have to make corrections — and possibly pay penalties — in the future. If somebody is your employee, then you have control over when they work, how they get paid, and how they do their job. You are also responsible for withholding payroll tax on their behalf. By contrast, when you bring somebody in to do work for you as an independent contractor, they have more control over their own schedule, the work that they do, and how they get paid by you. They are responsible for their own taxes.

     Not Reconciling Bank Accounts Regularly

    Just as there are certain tasks that need to be done to keep your business running smoothly, there are certain accounting tasks that need to be addressed on a regular basis. Reconciling your bank accounts is one of those things. You need to make sure that every expense and every deposit is recorded in your books, and the best way to do that is to compare what you’ve written down to the statement that the bank provides. When you do this regularly, you are able to more immediately identify and address items that don’t match up so that you can correct any mistakes and take full advantage of available deductions. Far too often small business owners assume that this task is a waste of time and wait until the end of the year to do it. Not only is this much more time consuming, but it is harder to catch all mistakes and figure out what is missing when you have a full year’s worth of information to go through.

     Forgetting to Record Payments Against Open Invoices

    You receive a check in the mail or make a deposit into your bank account for an open invoice. If you don’t go back and check off the box showing that receivable as paid, your accounting data will be incorrect and incomplete. Get into the habit of immediately linking payments to their open invoices in order to avoid problems in the future.

     Not Understanding the Differences Between Cash Flow and Profit

    The money that comes in from your customers and the money that goes out as you make expenditures to operate your business represents cash flow. It’s important to have a positive cash flow, as that is a good indication that your company is healthy. It also means that you can pay your bills. But cash flow is not the same thing as profit. Profitability is a measure of whether you are making more from the sale of your service or product than you spend in bringing it to market. You may be profitable, but if the cash isn’t in hand then you can still have a negative cash flow. And people can pay you quickly so that you have cash on hand but you still may not be making a profit.

    The single best and easiest way to avoid these mistakes it is by taking advantage of all of the tools and functions that your accounting software package offers. Most accounting programs include powerful tools and how-to guides, but in many cases small business owners just invest in the packages without taking the time to learn all that they can do — or to learn it well. By taking a little time on the front end to go through the available tutorials, you’ll find that you’ll save yourself both time and trouble on the back end. Our best advice is to set aside time one day of the week, first to learn the software and then, going forward, to go through that week’s records. Set aside the same time slot each week as if it is a meeting or appointment. It’s a good habit to get into.

    If you are struggling to learn your software, don’t hesitate to give us a call at Dagley and Co. at (202) 417-6640 for tips and training. Once you learn what you’re doing, make sure that you include backing up your files!

     

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  • September 2016 Business Due Dates

    6 September 2016
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    September 15 –  Corporations

    File a 2015 calendar year income tax return (Form 1120 or 1120-A) and pay any tax, interest and penalties due (due date applies only if you timely requested an automatic 6-month extension).

    September 15 – S Corporations

    File a 2015 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you requested an automatic 6-month extension.

    September 15 – Corporations

    Deposit the third installment of estimated income tax for 2016 for calendar year corporations.

    September 15 –  Social Security, Medicare and withheld income tax

    If the monthly deposit rule applies, deposit the tax for payments in August.

    September 15 – Nonpayroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in August.

    September 15 – Partnerships 

    File a 2015 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension. Provide each partner with a copy of K-1 (Form 1065) or a substitute Schedule K-1.

    September 15 – Fiduciaries of Estates and Trusts

    File a 2015 calendar year return (Form 1041). This due date applies only if you were given an additional 5-month extension (If applicable, provide each beneficiary with a copy of K-1 (Form 1041) or a substitute Schedule K-1).

    Give Dagley & Co. a call for more details on taxes and your businesses September due dates.

     

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