• Do I Have to File a Tax Return?

    30 January 2017
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    IRS 1040 Tax Form Being Filled Out

    “Do I have to file a tax return?” is a question heard a lot during this time of year. The answer to this popular question is a lot more complicated than many would think. To understand, one must realize the difference between being required to file a tax return vs. the benefit of filing a tax return even when it’s not required to file. We’ve put together a comprehensive description for your better understating:

    When individuals are required to file-

    • Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any).
    • Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
    • Taxpayers are also required to file when they are required to repay a credit or benefit. For example, if a taxpayer acquired health insurance through a government marketplace and received advanced premium tax credit (APTC) they are required to file a return whether or not they are otherwise required to file. A return is required in order to reconcile the APTC with the premium tax credit they entitled based upon their household income for the year.  So generally if you receive a 1095-A you are required to file.
    • Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution.

     

    2016 – Filing Thresholds

    Filing Status                      Age                                 Threshold

    Single                          Under Age 65                         $10,350

    Age 65 or Older                           11,900

    Married Filing Jointly       Both Spouses Under 65            $20,700

    One Spouse 65 or Older                 21,950

    Both Spouses 65 or Older              23,200

    Married Filing Separate   Any Age                                       4,050

    Head of Household         Under 65                               $13,350

    65 or Older                                 14,900

    Qualifying Widow(er)      Under 65                               $16,650

    with Dependent Child      65 or Older                                 17,900

     

    When it is beneficial for individuals to file-

    There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:

    • Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior over-payment. The only way to recover the excess is to file a return.
    • Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.
    • Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child.
    • American Opportunity Credit – The maximum for this credit for college tuition paid per student is $2,500, and the first four years of post-secondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.
    • Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.

     

    For more information about filing requirements and your eligibility to receive tax credits, please contact Dagley & Co. for more information. We recommend not procrastinating, no matter what your stance on filing may be!

     

     

     

     

     

     

     

     

     

     

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  • Missed a 60-Day Rollover? There May Be Relief

    26 January 2017
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    Miss a 60-day rollover? According to the IRA, the acceptable reasons for missing include: An error was committed by the financial institution, the distribution check was misplaced and never cashed, the distribution was mistakenly deposited into an account that the taxpayer thought was an eligible retirement plan, the taxpayer’s principal residence was severely damaged, a member of the taxpayer’s family died, the taxpayer or a member of the taxpayer’s family was seriously ill, the taxpayer was incarcerated, restrictions were imposed by a foreign country, a postal error occurred, or the distribution was made on account of an IRS levy, and the proceeds of the levy have been returned to the taxpayer. If you, or someone you know, fall into any of these situations, as a taxpayer, you can take a distribution from an IRA or other qualified retirement plan and if they roll it over within 60 days they can avoid taxation on the distributed amount.

    Financial Institution Error – Where the failure to meet the deadline is due to financial institution error, the IRS provides an automatic waiver.

    Private Letter Ruling (PLR) – Where automatic waiver does not apply, and the taxpayer feels there is a legitimate reason for missing the 60-day rollover requirement, the taxpayer can request relief though a PLR where the IRS reviews the reason for missing the 60-day rollover period and either allows or denies relief from the 60-day requirement. However, the IRS will charge the taxpayer requesting the PLR a user fee of $10,000, which negates the purpose of a PLR except in cases of very large rollover amounts.

    New Self-Certification Procedure – The IRS recently announced a new certification procedure that allows a taxpayer who misses the 60-day time limit for properly rolling the amount into another retirement plan or IRA to make a written certification to a plan administrator or an IRA trustee that a contribution satisfies one of the acceptable reasons, and therefore is eligible for a waiver of the 60-day rule.

    Please remember: This provision does not apply to required minimum distributions for taxpayers who are 70.5 years of age and over.). Also, taxpayers are limited to one IRA-to-IRA rollover per year.

    The rollover must be completed as soon as practicable after the reason(s) listed above no longer prevent the taxpayer from making the contribution. This requirement is deemed to be satisfied if the contribution is made within 30 days after the reason(s) no longer prevent the taxpayer from making the contribution.

    This procedure does not apply where the IRS previously denied a waiver request for the same missed rollover.

    The IRS provides a model letter that can be used to make the self-certification. Please call Dagley & Co. if you need a copy of the letter, have questions, or need assistance related to a missed 60-day rollover.

     

     

     

     

     

     

     

     

     

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  • What Does the Future Hold for Taxes?

    23 January 2017
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    It has only been three short days after the 2017 Inauguration of President Trump, and  already one topic that is frequently being discussed is what the future holds for individual taxation. Predictions are based upon President Trump’s proposal to consolidate the individual income tax rates from seven to three: 12, 25 and 3%. As it is probably too early to have a clear picture of future tax reforms, we are definite that change is sure to come.

    Current Marginal Tax Rates Effective For 2017

    Current Rates (2017) Single Head of Household Married Filing Jointly
    10% $0 to $9,325 $0 to $13,350 $0 to $18,650
    15% $9,326 to $37,950 $13,351 to $50,800 $18,651 to $75,900
    25% $37,951 to $91,900 $50,801 to $131,200 $75,901 to $153,100
    28% $91,901 to $191,650 $131,201 to $212,500 $153,101 to $233,350
    33% $191,651 to $416,700 $212,501 to $416,700 $233,351 to $416,700
    35% $416,701 to $418,400 $416,701 to $444,550 $416,701 to $470,700
    39.6% $418,401 and greater $444,551 and greater $470,701 and greater

     

    Trump’s Proposed Marginal Tax Rates

    Trump’s Proposed Rates Single Head of Household Married Filing Jointly
    12% $0 to $37,500 Use Single Rates $0 to $75,000
    25% $37,501 to $112,500 Use Single Rates $75,001 to $225,000
    33% $112,501 and greater Use Single Rates $225,001 and greater

    Under Trump’s plan, the two highest current rates, 39.6% and 35%, would be eliminated, which generally favors higher-income taxpayers. However, the tax brackets alone do not tell the whole story.

    Trump is also proposing more than doubling the standard deductions, which would generally benefit lower-income taxpayers. Because the marginal tax rates apply only to taxable income (which is currently defined as adjusted gross income minus personal exemptions and deductions—either standard or itemized), the increase in the standard deduction will tend to neutralize the higher marginal rates for lower-income taxpayers.

     

    Proposed Standard Deduction Increase

    Filing Status Current (2017) Trump’s Proposal
    Single $6,350 $15,000
    Married Filing Jointly $12,700 $30,000

    According to an estimate by the nonpartisan Tax Policy Center, of the 45 million filers who would itemize their deductions in 2017, 27 million (60 percent) would opt for the standard deduction under the proposed rules.

    To see how the proposal’s combination of new tax rates, higher standard deductions, and cap on itemized deductions (discussed below) could affect your taxes, pull out your 1040 tax return from either 2015 or 2016 and complete the worksheet below. Then compare line 6 (your tax computed using Trump’s proposed three-tier tax rates and standard deductions) to line 7 (your tax as computed on a prior 1040) to get a rough idea of how these tax proposals could impact you.

     

    Line Description
    1 Adjusted Gross Income – Enter the amount from line 38 on a prior 1040.
    2a Deductions – Enter the amount from line 40 on a prior 1040.
    2b Trump’s Standard Deduction – Enter $15,000 if filing as single or $30,000 if married filing jointly.
    2c Deductions – Enter the larger of line 2a or 2b.
    3 Exemptions – Enter the amount from line 42 on a prior 1040.
    4 Enter the sum of lines 2c and 3.
    5 Taxable Income – Subtract line 4 from line 1 and enter the difference.
    6 Trump Tax – Using Trump’s tax-rate schedule above, enter the tax on the amount given in line 5.
    7 Prior Tax – Enter the amount from line 44 on a prior 1040.

     

    Trump’s Rate Schedule: Single

    Over But Not Over The tax is Of the amount over
    $0 $37,500 —–      + 12% $0
    $37,500 $112,500 $4,500   + 25% $37,500
    $112,500 —- $23,250   + 33% $112,500

     

    Trump’s Rate Schedule: Married Filing Jointly

    Over But Not Over The tax is Of the amount over
    $0 $75,000 —–       + 12% $0
    $75,000 $225,000 $9,000     + 25% $75,000
    $225,000 —- $46,500    + 33% $225,000

     

    Trump also proposes capping itemized deductions at $100,000 for single filers and $200,000 for joint filers. This will generally affect wealthy taxpayers. Under current law, certain itemized deductions phase out for high-income taxpayers. It is unclear whether that provision will be replaced by the proposed cap on itemized deductions or whether both will apply. If the cap is adopted, the amount entered on line 2c of the worksheet above will be limited based on the proposed cap amounts.

    Although this is not clear, Trump’s proposals may include the elimination of personal exemptions. If true, this change would have the greatest effect on lower-income taxpayers because these exemptions are already phased-out for higher-income taxpayers. Those with large families could be impacted the most. If the personal exemptions are eliminated, the amount on line 3 of the worksheet above would be zero.

    Not the Whole Picture – The tax-rate changes, higher standard deductions, and limitations on itemized deductions don’t paint the whole picture of the proposal. It is unclear what will happen to the numerous credits available to lower-income taxpayers under the current tax system. Approximately 48% of all U.S. taxpayers pay no tax at all, and most of them actually receive money back on their returns as a result of refundable tax credits such as the earned income tax credit, the additional child tax credit, and the American Opportunity Tax Credit (a tuition credit).

    The Republicans have started the process of appealing the Affordable Care Act (also referred to as the ACA or Obamacare), and now that they have majorities in both houses of Congress and control of the White House, we are bound to see some changes in this area. The health care marketplaces have already accepted insurance coverage for 2017, so it is doubtful that there will be any changes until 2018. However, Trump has vowed to overturn the ACA’s 3.8% excise tax on net investment income; eliminating this tax would greatly benefit higher-income taxpayers.

    If you have questions about how your tax situation may be impacted, please give Dagley & Co. a call.

     

     

     

     

     

     

     

     

     

     

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  • Along with Tax Season Come the Scams; Don’t Be a Victim

    19 January 2017
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    For those of you who are not aware, with tax season also comes a lot of scams. These “scammers” try to steel your identity to file returns under your personal Social Security number. Be on the lookout for scam emails, phone calls or texts. These scammers will say they are from the IRS or that they are your state’s tax agent. Never be intimidated by what these people say, and NEVER agree to send them money or your personal information (including birth date, address or full name). Always question twice before you send anything over the internet, through the mail, or on the phone.

    Dagley & Co. has provided your with a variety of plots that have been employed in the past:

    You should be aware that the IRS never initiates contact in any way other than by U.S. Mail. So, if you receive a phone call from out of the blue demanding payment, you can be assured it is a scam. Simply hang up the phone without providing any information. If you receive an email from the IRS, do not click on embedded links or attachments. That could cause malware to be installed on your computer, allowing scammers to access your computer. The first thing you should do is call this office.

    Additionally, it is important for taxpayers to know that the IRS:

    • Never asks for credit card, debit card, or prepaid card information over the telephone.
    • Never insists that taxpayers use a specific payment method to pay tax obligations.
    • Never requests immediate payment over the telephone.
    • Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement actions involving IRS tax liens or levies.

    Email Scams & Phishing – Every tax season, the scammers become very active. They create bogus emails disguised as authentic emails from the IRS, your bank, or your credit card company, none of which ever request information that way. They are trying to trick you into divulging personal and financial information that they can use to invade your bank accounts, make charges against your credit card, or pretend to be you to file phony tax returns or apply for loans or credit cards. Always be skeptical! If the email is related to taxes, call this office before doing anything. If it is supposedly from your credit card company, your bank, or another financial institution, call the organization to verify the authenticity of the email.

    One scam last year was an email sent to taxpayers requesting that they click on a link in the email to verify their identity before their tax refund could be released. The link took them to the ID thief’s website, made to look like the IRS’s, where victims entered their names, SSNs, and birthdates. Others used the same scheme, pretending to be an individual’s bank or credit card company.

    Phone Scams – Very aggressive scammers will call, claiming to be an IRS agent, and tell the person answering the call that they owe money that must be paid immediately or their home will be seized, their wages will be attached, or even that they will be arrested. After threatening the victim with jail time or driver’s license revocation, the scammer hangs up. Soon, someone else calls back pretending to be from the local police or DMV, and the (rigged) caller ID supports their claim.

    These are frequently thieves from outside the U.S., and once the money is transferred, there is no chance of getting it back.

    ID Thieves – These rip-off artists file phony tax returns using stolen IDs and counterfeit W-2s and have the refunds directly deposited into their bank accounts, which they then clean out before the victim or the IRS discovers what happened. If the IRS rejects your return because a SSN on your return was previously used to file, that is a good indication your ID has been stolen, and you should contact this office for instructions on notifying the IRS. Once your ID has been compromised, the IRS will issue a special six-digit Identity Protection number that can be used in conjunction with your SSN to file your return.

    If your ID has been compromised, or you suspect it might have been, contact Dagley & Co. immediately so we can assist you in notifying the IRS, so that they block returns filed with your SSN but without the special six-digit filing number.

    If you have other questions, please give Dagley & Co. a call at (202) 417-6640.

     

     

     

     

     

     

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  • Important Tax Changes for Small Businesses

    17 January 2017
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    Are you a small business owner, or work within a small business’s accounting department? We have your rundown of some changes that need to be considered when preparing your 2016 and 2017 returns. As of December 2015, legislation passed the “Protecting Americans from Tax Hikes” Act which extended a number of business provisions and made some permanent changes. As you start to file 2016’s taxes, please be aware of these provisions, as they can have a significant impact on you business’s taxes:

    Section 179 Expensing – The Internal Revenue Code, Sec. 179, allows businesses to expense, rather than depreciate, personal tangible property other than buildings or their structural components used in a trade or business in the year the property is placed into business service. The annual limit is inflation-adjusted, and for 2017, that limit is $510,000, which is unchanged from 2016. The limit is reduced by one dollar for each dollar when the total cost of the qualifying property placed in service in any given year exceeds the investment limit, which is $2,030,000 for 2017, a $20,000 increase from the 2016 amount.

    In addition to personal tangible property, the following are included in the definition of qualifying property for the purposes of Sec. 179 expensing:

    • Off-the-Shelf Computer Software
    • Qualified Real Property – The term “qualified real property” means property acquired by purchase for use in the active conduct of a trade or business, which is normally depreciated and is generally not property used for lodging except for hotels or motels. Qualified retail property includes:
    • Qualified leasehold improvement property,
    • Qualified restaurant property, and
    • Qualified retail improvement property.

     

    Bonus Depreciation – Bonus depreciation is extended through 2019 and allows first-year depreciation of 50% of the cost of qualifying business assets placed in service through 2017. After 2017, the bonus depreciation will be phased out, with the bonus rate 40% in 2018 and 30% in 2019. After 2019, the bonus depreciation will no longer apply. Qualifying business assets generally include personal tangible property other than real property with a depreciable life of 20 years or fewer, although there are some special exceptions that include qualified leasehold property. Generally, qualified leasehold improvements include interior improvements to non-residential property made after the building was originally placed in service, but expenditures attributable to the enlargement of the building, any elevator or escalator, and the internal structural framework of the building do not qualify.

    In addition, the bonus depreciation will apply to certain trees, vines and plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

     

    Vehicle Depreciation – The first-year depreciation for cars and light trucks used in business is limited by the so-called luxury-auto rules that apply to highway vehicles with an unloaded gross weight of 6,000 pounds or less. The first-year depreciation amounts for cars and small trucks change slightly from time to time; they are currently set at $3,160 for cars and $3,560 for light trucks. However, a taxpayer can elect to apply the bonus depreciation amounts to these amounts. The bonus-depreciation addition to the luxury-auto limits is $8,000 through 2017, after which it will be phased out by dropping it to $6,400 in 2018 and $4,800 in 2019. After 2019, the bonus depreciation will no longer apply.

    New Filing Due Dates – There are some big changes with regard to filing due dates for a variety of returns. Many of these changes have been made to combat tax-filing fraud. The new due dates are effective for tax years beginning after December 31, 2015. That means the returns coming due in 2017.

    Partnerships

    • Calendar Year: The due date for 1065 returns for the 2016 calendar year will be March 15, 2017 (the previous due date was April 15).
    • Fiscal Year: Due the 15th day of the 3rd month after the close of the year.
    • Extension: 6 months (September 15 for calendar-year partnerships).

    S Corporations

    • Calendar Year: 2016 calendar year 1120-S returns will be due March 15, 2017 (unchanged).
    • Fiscal Year: Due the 15th day of the 3rd month after the close of the year.
    • Extension: 6 months (September 15 for calendar-year S Corps).

    C Corporations

    • Calendar Year: The due date for Form 1120 returns for the 2016 calendar year will be April 18, 2017 (the previous due date was March 15). Normally, calendar-year returns will be due on April 15, but because of the Emancipation Day holiday that is observed in Washington, D.C., the 2017 due date is the 18th.
    • Fiscal Year: Due the 15th day of the 4th month after the close of the year, a month later than in the past (exception: if fiscal year-end is June 30, the change in due date does not apply until returns for tax years beginning after December 31, 2025).
    • Extension: 6 months. (Exceptions: [1] 5 months for any calendar-year C corporation beginning before January 1, 2026, and [2] 7 months for June 30 year-end C corps through 2025.) Thus, the extended due date for a 2016 Form 1120 for a calendar-year C Corp will be September 15, 2017.

    W-2s, W-3s and 1099-MISC reporting non-employee compensation

    • Due Date: For 2016 W-2s, W-3s, and Forms 1099-MISC reporting non-employee compensation, the due date for filing the government’s copy is January 31, 2017 (the previous due date was February 28 or March 31 if filed electronically). The due date for providing a copy to the employee or independent contractor remains January 31.
    • Extension – The 30-day automatic extension to file W-2s is no longer automatic. The IRS anticipates that it will grant the non-automatic extension of time to file only in limited cases in which the filer or transmitter’s explanation demonstrates that an extension of time to file is needed as a result of extraordinary circumstances

     

    Work Opportunity Tax Credit (WOTC) – Employers may elect to claim a WOTC for a percentage of first-year wages, generally up to $6,000 of wages per employee, for hiring workers from a targeted group. First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date the target-group member begins work for the employer.

    This credit originally sunset in 2014, but the PATH Act retroactively extended the credit for five years through 2019.

    • Generally, the credit is 40% of first-year wages (not exceeding $6,000), for a maximum credit of $2,400 (0.4 x $6,000).
    • The credit is reduced to 25% for employees who have completed at least 120 hours but fewer than 400 hours of service for the employer. No credit is allowed for an employee who has worked fewer than 120 hours.
    • The legislation also added qualified long-term unemployment recipients to the list of targeted groups, effective for employees beginning work after December 31, 2015.

    Research Credit – After 21 consecutive years of extending the research credit year by year, the PATH Act made it permanent and made the following modifications to the research credit:

    • For years after December 31, 2015, small businesses (average of $50 million or less in gross receipts in the prior three years) can claim the credit against the alternative minimum tax.
    • For years after December 31, 2015, small businesses (less than $5 million in gross receipts for the year the credit is being claimed and no gross receipts in the prior five years) can claim up to $250,000 per year of the credit against their employer FICA tax liability. Effectively, this provision is for start-ups.

    What is in the future?

    With the election of a Republican president and with a Republican majority in both the House and Senate, we can expect to see significant tax changes in the near future. President-elect Trump has indicated that he would like to see the Sec. 179 limit significantly increased and the top corporate rate dropped to 15%. Watch for future legislation once President-elect Trump takes office this Friday.

    Contact us at Dagley & Co. if you have any questions or concerns regarding your 2016’s tax returns.

     

     

     

     

     

     

     

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  • Ten Questions to Ask Your Financial Team When Starting Up

    11 January 2017
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    Starting your own business or service can be an exciting, yet confusing time. To make it easier, we recommend working with us, as well as a financial planning team, to get off to a good start. We also recommend asking these ten questions to a professional:

    #1: What should be in a basic business plan?

    A business plan should outline each detail of your company including who will run it, how much you’ll charge, and what you expect to earn. Putting time into creating a thorough business plan is important. Work with your team to ensure your plan is accurate and represents your business well.

    #2: Who will you need to pay taxes to?

    Your local jurisdiction and state have specific taxation requirements. You’ll likely have to pay taxes on sales, but also costs associated with payroll. Ensure your accountant not only talks to you about who you need to pay, but payment deadlines as well.

    #3: What is a projected cash flow for the business?

    How much cash does your company need to keep on hand? The key here is to be able to anticipate how much it will cost you to operate your business. Most companies should not expect to have positive cash flow for at least a year, often longer. Your professionals can help you decide what your cash flow projections are.

    #4: How much of an investment do you need to put into your company right now?

    Your financial team can help you project the cost of setting up your new business. This will include costs related to establishing the physical business and paying for supplies. Your initial investment generally will be the highest amount put into the company by the founder, but it changes significantly from one company to the next.

    #5: What is your break-even analysis?

    This may be an important question to ask early on. How much do you need to make to break even? You’ll want to talk to your financial team about the timeline for this and what can be done to help ensure you break even as soon as possible.

    #6: What liability insurance do you need?

    While most tax professionals don’t offer recommendations here, having adequate policies to cover potential loss is important. Work with your team to ensure you have comprehensive protection to minimize risks against your company’s financial health.

    #7: What will interest cost you?

    Interest on loans is not something to overlook. You’ll want to ensure you have an accurate representation of how much you are paying in interest so you can make adjustments to pay off any borrowed debt sooner, make better decisions about borrowing, or factor in the cost.

    #8: How will you manage payroll?

    This is a very big component of starting up since it can be troublesome for most startups to actually know how to pay employees and meet all federal and state requirements. Working with a payroll provider is often the easiest option (and most financially secure since paying an employee to do this work tends to be more expensive).

    #9: How can you reduce your taxes?

    Tax professionals will work with you to determine if there are any routes to reducing taxation on your business including local incentives that may be available. You’ll also want to talk about projects taxes, investments that could reduce taxes, and having all possible deductions in place.

    #10: What’s the right profit margin?

    Working with a financial team often comes down to this question. How much should you charge to make the best profit possible while still ensuring your company can grow? It’s not a simple question, but having the right team by your side ensures it will be clarified as much as possible.

    Make an appointment with Dagley & Co. to get your business off to the right start. We are here for you for any tax, payroll or accounting questions or issues you may have for your new business.

     

     

     

     

     

     

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  • New Form 1099 Filing Date

    9 January 2017
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    Did your business utilize an independent contractor in 2016? Did you pay him/her $600 or more during the calendar year? If so, you are required to issue him/her a Form 1099-MISC. The purpose of this form is to avoid penalties and the possibility of losing the deduction for his/her labor and expenses in an audit. Different from last year, the IRS moved up the filing due date to January 31, 2017.

    In addition to being used to report payments to independent contractors, Form 1099-MISC is also used to report payments made by a business for rents and royalties and to attorneys for legal services, among others. If there are no independent contractor payments to report, the 2016 1099-MISC issued for other payments continues to be due to the IRS by the normal due date of February 28, 2017. However, where both independent contractor and other payments are being reported, the January 31 due date should be observed so that late filing penalties are avoided regarding the independent contractor payments.

    It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual that you need to file the 1099-MISCs for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward.

    IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the data required to file 1099s for your vendors. It also provides you with verification that you have complied with the law in case the vendor gives you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 before you engage in business with them. The W-9 is for your use only and is not submitted to the IRS.

    The penalty for failure to file the required informational returns is substantial and is $260 per informational return. The penalty is reduced to $50 if a correct but late information return is filed not later than the 30th day after the January 31, 2017, required filing date, or it is reduced to $100 for returns filed after the 30th day but no later than August 1, 2017. If you are required to file 250 or more information returns, you must file them electronically.

    Please note: To avoid penalties, all forms must be sent to the IRS by January 31, 2017.

    Dagley & Co. is here to prepare your 1099 for submission. We recommend using this 1099 worksheet  to provide us with the information needed to prepare your 1099.

     

     

     

     

     

     

     

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  • Standard Mileage Rates for 2017 Announced

    7 January 2017
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    The Internal Revenue Service announced the adjusted optional standard mileage rates for 2017. These rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. For those who do not know, the change in rates year-over-year is due to inflation.

    Standard mileage rates for the use of a car (or a van, pickup or panel truck) are:

    • 53.5 cents per mile for business miles driven (including a 25-cent-per-mile allocation for depreciation). This is down from 54.0 cents in 2016;
    • 17 cents per mile driven for medical or moving purposes. This is down from 19 cents in 2016; and
    • 14 cents per mile driven in service of charitable organizations.

    The standard mileage rate for a business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by congressional action) and has been 14 cents for over 15 years.

    Important Consideration: The 2017 rates are based on 2016 fuel costs, which were at a historic low. On top of that, OPEC has decided to cut production in an effort to drive up fuel costs. The Automobile Club has predicted an increase in fuel prices in the near future. Based on the potential for substantially higher gas prices in 2017, it may be appropriate to consider switching to the actual expense method for 2017, or at least keeping track of the actual expenses, including fuel costs, repairs, maintenance, etc., so that option is available for 2017.

    Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to the potential for higher fuel prices, the extension of the bonus depreciation though 2019 may make using the actual expense method a worthwhile consideration in the first year the vehicle is placed in service. The bonus depreciation allowance adds an additional $8,000 to the maximum first-year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less.

    However, the standard mileage rates cannot be used if the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) has been used in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles simultaneously.

    Employer reimbursement – Where employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.

    Employees whose actual employment-related business mileage expenses exceed the employer’s reimbursement can deduct the difference on their income tax return as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. However, an employee who leases an auto and is reimbursed using the mileage allowance method can’t claim a deduction based on actual expenses unless he does so consistently beginning with the first business use of the auto.

    Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) – Many of today’s SUVs weigh more than 6,000 pounds and are therefore not subject to the luxury auto depreciation limit rules; taxpayers with these vehicles can utilize both the Section 179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the Section 179 deduction must be applied first and then the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle early, before the end of the 5-year period, as many do, a portion of the Section 179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using Section 179 should be considered.

    If you have questions related to your vehicle or the documentation required, please give Dagley & Co. a call. We are located in Washington, D.C. but our clients are around the world.

     

     

     

     

     

     

     

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  • January 2017 Business Due Dates

    5 January 2017
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    Are you a business owner, or is it your job to take control of your company’s accounting department? Don’t be overwhelmed by the new year! We’ve compiled a list of important due dates for you to remember. We advise you to write these down or add them to your phone/computer calendar! The due dates are as follows:

    January 17 – Employer’s Monthly Deposit Due –

    If you are an employer and the monthly deposit rules apply, January 17 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for December 2016. This is also the due date for the non-payroll withholding deposit for December 2016 if the monthly deposit rule applies. Employment tax deposits must be made electronically (no paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return.

    January 31 – 1099-MISCs Due to Service Providers & the IRS –

    If you are a business or rental property owner and paid $600 or more to individuals (other than employees) as non-employee compensation during 2016, you are required to provide Form 1099 to those workers by January 31. “Non-employee compensation” can mean payments for services performed for your business or rental by an individual who is not your employee, commissions, professional fees and materials, prizes and awards for services provided, fish purchases for cash, and payments for an oil and gas working interest. In order to avoid a penalty, copies of the 1099s also need to be sent to the IRS by January 31, 2017*. The 1099s must be submitted on optically scan-able (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. Please call this office for preparation assistance.

    *This due date for the IRS’ copy is one or two months earlier than in prior years and applies when you have paid non-employee compensation that is being reported in box 7 of the 1099-MISC.

    January 31 – Form 1098 and Other 1099s Due to Recipients – 

    Form 1098 (Mortgage Interest Statement) and Forms 1099, other than 1099-MISC, are also due to recipients by January 31. The IRS’ copy is not due until February 28, 2017, or March 31, 2017 if electronically filed. These 1099s may be reporting the following types of income:

    • Dividends and other corporate distributions
    • Interest
    • Amounts paid in real estate transactions
    • Rent
    • Royalties
    • Amounts paid in broker and barter exchange transactions
    • Payments to attorneys
    • Payments of Indian gaming profits to tribal members
    • Profit-sharing distributions
    • Retirement plan distributions
    • Original issue discount
    • Prizes and awards
    • Medical and health care payments
    • Debt cancellation (treated as payment to debtor)

     

    January 31 – Employers – W-2s Due to All Employees & the Government –

    All employers need to give copies of the W-2 form for 2016 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting. NEW DATE: W-2 Copy A and Transmittal Form W-3, whether filed electronically or by paper, are due January 31 to the Social Security Administration. This is a month earlier than in the past.

    January 31 –  File Form 941 and Deposit Any Un-Deposited Tax –

    File Form 941 for the fourth quarter of 2016. Deposit any un-deposited Social Security, Medicare and withheld income tax. (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 10 to file the return.

    January 31 – File Form 943 – 

    All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2016. Deposit any un-deposited tax. (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 10 to file the return.

    January 31 – W-2G Due from Payers of Gambling Winnings –

    If you paid either reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of the W-2G form for 2016.

    January 31 – File 2016 Return to Avoid Penalty for Not Making 4th Quarter Estimated Payment –

    If you file your prior year’s return and pay any tax due by this date, you need not make the 4th Quarter Estimated Tax Payment that was otherwise due earlier in January.

    January 31 – File Form 940 – Federal Unemployment Tax – 

    File Form 940 (or 940-EZ) for 2016. If your un-deposited tax is $500 or less, you can either pay it with your return or deposit it. If it is 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 10 to file the return.

    January 31 – File Form 945 –

    File Form 945 to report income tax withheld for 20152016 on all non-payroll items, including back-up withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any un-deposited tax. (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 10 to file the return.

     

    As always, if you have any questions about the due dates above, please give Dagley & Co. a call at (202) 417-6640.

     

     

     

     

     

     

     

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  • January 2017 Individual Due Dates

    3 January 2017
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    JANUARY 2017 INDIVIDUAL DUE DATES

    January 3 – Call for Your Tax Appointment –

    It’s the beginning of tax season. If you have not made an appointment to have your taxes prepared, we encourage you do so ASAP.

    January 10 – Report Tips to Employer –

    If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 10.

    January 17 – Individual Estimated Tax Payment Due –

    It’s time to make your fourth quarter estimated tax installment payment for the 2016 tax year.

    January 17 – Farmers & Fishermen Estimated Tax Payment Due – If you are a farmer or fisherman whose gross income for 2015 or 2016 is two-thirds from farming or fishing, it is time to pay your estimated tax for 2016 using Form 1040-ES. You have until April 18, 2017 to file your 2016 income tax return (Form 1040). If you do not pay your estimated tax by January 17, you must file your 2016 return and pay any tax due by March 1, 2017 to avoid an estimated tax penalty.

     

    Contact Dagley & Co. with any questions, or concerns about January’s due dates.

     

     

     

     

     

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