Thanks to the passage of the Tax Cuts and Jobs Act last year, there’s a new tax benefit for employers: the employer credit for paid family and medical leave. As the name implies, employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.

Here are seven facts about this credit and how it benefits employers:

1. To claim the credit, employers must have a written policy that meets certain requirements such as:

• Providing at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part-time.
• Providing paid leave that is not less than 50 percent of the wages normally paid to the employee.

2. A qualifying employee is any employee who has been employed for one year or more, and for the preceding year, had compensation that did not exceed a certain amount. To be a qualifying employee in 2019, an employee must have earned no more than $72,000 in compensation in the preceding year. Looking ahead, to be a qualifying employee in 2020, an employee must have earned no more than $75,000 in compensation in the preceding year.

3. “Family and medical leave” as defined for this particular credit, is leave that is taken for one or more of the following reasons:

• Birth of an employee’s child and to care for the child.
• Placement of a child with the employee for adoption or foster care.
• To care for the employee’s spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.

4. The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.

5. To be eligible for the credit, an employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Any wages taken into account in determining any other general business credit may not be used toward this credit.

6. The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019, i.e., starting January 1, 2020.

7. To claim the credit, employers file two forms with their tax return: Form 8994, Credit for Paid Family and Medical Leave and Form 3800, General Business Credit.

For more information about the employer credit for family and medical leave, please contact the office.

While September and October are prime time for Atlantic hurricanes, natural disasters of any kind can strike at any time. As such, it’s a good idea for taxpayers to think about – and plan ahead for – what they can do to be prepared.

Here are four tips to help taxpayers be prepared:

1. Update emergency plans. Because a disaster can strike any time, taxpayers should review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly. They should also tell employees about the changes. Individuals and businesses should make plans ahead of time and be sure to practice them.

2. Create electronic copies of key documents. Taxpayers should keep a duplicate set of key documents in a safe place, such as in a waterproof container and away from the original set. Key documents include bank statements, tax returns, identification documents, and insurance policies.

Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into a computer. This way, the taxpayer can download them to a storage device like an external hard drive or USB flash drive.

3. Document valuables and equipment. It’s a good idea for a taxpayer to photograph or videotape the contents of their home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes.

4. Payroll service providers should check fiduciary bonds. Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider. The IRS also encourages employers to create an EFTPS.gov account where they can monitor their payroll tax deposits and sign up for email alerts.

If you don’t want any problem in the future and you want to avoid financial consequences, then you should be aware of all the tax deadlines that is relevant for you and your business to avoid filing or paying late penalties and interest.

There are a number of distinctions between the penalties of failure to file and failure to pay.  Both has a number of penalties, but failing to file will definitely cost more problems than failing to pay. This emphasizes the fact that, while both are important to accomplish on time, filing your taxes should never be delayed. In case you are sure that you need extra time for filing, you can request for an extension to file. However, you cannot request for an extension to pay, so make sure you have enough finances before the deadline.

Below is an overview of the penalties you can get if you fail to file or fail to pay on time:

• Failure to File Penalty

            If there is failure to file your tax return on time, the IRS will penalize you for late filing fee. For this year the fee is 5% of the taxes owe for each past month up to a maximum of 25% of the taxes you owe.

However, if your return was not filed for over 60 days, there’s a minimum penalty for late filing; it is the lesser of $210 (for tax returns required to be file in 2019) or 100% of the tax owed.  Source: https://www.irs.gov/taxtopics/tc653

• Failure to Pay Penalty

If you file a return but you don’t pay all the tax owed on time, you’ll generally have to pay a late payment penalty. For each month past the payment date you will be assessed 0.5% of your total tax bill as a penalty up to a maximum of 25% of the taxes you owe.

However, interest accrues on any unpaid tax from the day of due date until the date of payment in full. The interest rate charged is the Federal short-term interest rate that set every quarter plus the 3%. Meaning, if you the short-term rate goes up before you pay in full, your interest rate goes up, too.

• Continuous Negligence of Tax Filing

If you think you have enough finances to cover up all the late filing and paying penalties, you are still not out of trouble. More penalties will come your way in different forms if you continually ignore your responsibility of filing and paying your taxes.

Your penalty fees will definitely increase by time and the IRS could:

The best thing you can do to avoid the penalties above is make sure you file and pay your taxes on time.

If you need an Enrolled agent to assist you with your taxes, contact us today at admin@fas-accountingsolutions.com or 832-437-0385.

Divorce is a painful reality for many people both emotionally and financially, and quite often, the last thing on anyone’s mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not take into account the effects divorce or separation has on your tax situation, which is why it’s always a good idea to speak to an accounting professional before anything is finalized.

Furthermore, tax rules regarding divorce and separation can and do change – as they recently did under tax reform and divorced and separated individuals should be aware of tax law changes that take effect in 2019 (and affect 2019 tax returns).

Who is Impacted

The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:

• Divorce decrees.
• Separate maintenance decrees.
• Written separation agreements.

Notes: Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.

Timing of Agreements

Agreements executed beginning January 1, 2019. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after December 31, 2018.

Agreements executed on or before December 31, 2018, and then modified. The new law applies if the modification does these two things:

• Changes the terms of the alimony or separate maintenance payments.
• Specifically states that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Agreements executed on or before December 31, 2018. Prior to tax reform, a taxpayer who made payments to a spouse or former spouse was able to deduct it on their tax return and the taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:

• Change the terms of the alimony or separate maintenance payments.
• Specifically state that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Tax reform made an already complicated situation even more so. If you have any questions about the tax rules surrounding divorce and separation, don’t hesitate to call.

As a small business owner, figuring out which form of business structure to use when you started was one of the most important decisions you had to make; however, it’s always a good idea to periodically revisit that decision as your business grows. For example, as a sole proprietor, you must pay a self-employment tax rate of 15% in addition to your individual tax rate; however, if you were to revise your business structure to become a corporation and elect S-Corporation status you could take advantage of a lower tax rate.

What is an S-Corporation?

An S-Corporation (or S-Corp) is a regular corporation whose owners elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax (and sometimes state) purposes. That is, an S-corporation is a corporation or a limited liability company that’s made a Subchapter S election (so named after a chapter of the tax code). Rather than a business entity per se, it is a type of tax classification. Shareholders then report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates, which allows S-corporations to avoid double taxation on corporate income. S-corporations are, however, responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S-corporation status, the corporation must submit a Form 2553, Election by a Small Business Corporation to the IRS, signed by all the shareholders, and meet the following requirements:

• Be a domestic corporation
• Have only allowable shareholders. Shareholders may be individuals, certain trusts, and estates but may not be partnerships, corporations or non-resident alien shareholders.
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

What are the Tax Advantages of an S-Corp?

Personal Income and Employment Tax Savings

S-corporation owners can choose to receive both a salary and dividend payments from the corporation (i.e., distributions from earnings and profits that pass through the corporation to you as an owner, not as an employee in compensation for your services). Dividends are taxed at a lower rate than self-employment income, which lowers taxable income. S-corp owners also save on Social Security and Medicare taxes because their salary is less than it would be if they were operating a sole proprietorship, for instance.

The split between salary and dividends must be “reasonable” in the eyes of the IRS, however, e.g., paying self-employment tax on 50% or less of profits or a salary that is in line with similar businesses. Furthermore, some S-corp owners may be able to take advantage of the 20% deductions for pass-through entities as well, thanks to tax reform.

Losses are Deductible

As a corporation, profits and losses are allocated between the owners based on the percentage of ownership or number of shares held. If the S-corporation loses money, these losses are deductible on the shareholder’s individual tax return. For example, if you and another person are the owners and the corporation’s losses amount to $20,000, each shareholder is able to take $10,000 as a deduction on their tax return.

No Corporate Income Tax

Although S-corps are corporations, there is no corporate income tax because business income is passed through to the owners instead of being taxed at the corporate rate, thereby avoiding the double taxation issue, which occurs when dividend income is taxed at both the corporate level and at the shareholder level.

Less Risk of Audit

In 2017, S-corps faced an audit risk of just 0.2% compared to Schedule C filers with gross receipts of $100,000 who faced an audit rate of 0.9% (2018 IRS Data Book). While still low, individuals filing Schedule C (Profit or Loss from Business) are at higher risk of being audited due to IRS concerns about small business owners underreporting income or taking deductions they shouldn’t be.

Help is just a phone call away.

Whether you keep your existing structure or decide to change it to a different one, keep in mind that your decision should always be based on the specific needs and practices of the business. If you have any questions about electing S-Corporation status or are wondering whether it’s time to choose a different business entity altogether, don’t hesitate to call.

A good tax advisor is someone who can not only do the taxes for you but also can help you with how can you improve and structure your business into a success. Here are the 3C’s that you should look for in a tax advisor:

• Competence

Look for a tax advisor who has experience with and clients in your particular artistic endeavor. Don’t hesitate to ask specific questions about your tax return, this allows you to know how competent your tax advisor is.

• Communication

It is very important to feel comfortable and free talking with your tax advisor, most especially when you have questions. A good conversation is a big help to get a best result on your tax return.

• Credentials/Certifications

When you know that your tax advisor is an enrolled agent, it gives you the feeling of assurance because they are specialized in tax issues such as preparation of taxes. Credentials and certifications are also evidence of their continuing education and experience in handling different form of tax.

If you need help looking for a tax advisor with these 3 C’s, FAS Bookkeeping and Tax Services is at your service! Contact us today at admin@fas-accountignsolutions.com or (832)-437-0385.

Of all the retirement plans available to small business owners, the SIMPLE IRA plan (Savings Incentive Match PLan for Employees) is the easiest to set up and the least expensive to manage. The catch is that you’ll need to set it up by October 1st. Here’s what you need to know.

What is a SIMPLE IRA Plan?

SIMPLE IRA Plans are intended to encourage small business employers to offer retirement coverage to their employees. Self-employed business owners are able to contribute both as employee and employer, with both contributions made from self-employment earnings. In addition, if living expenses are covered by your day job (or your spouse’s job), you would be free to put all of your sideline earnings, up to the ceiling, into SIMPLE IRA plan retirement investments.

How does a SIMPLE IRA Plan Work?

A SIMPLE IRA plan is easier to set up and operate than most other plans in that contributions go into an IRA you set up. Requirements for reporting to the IRS and other agencies are minimal as well. Your plan’s custodian, typically an investment institution, has the reporting duties and the process for figuring the deductible contribution is a bit easier than with other plans.

SIMPLE IRA plans calculate contributions in two steps:

1. Employee out-of-salary contribution
The limit on this “elective deferral” is $13,000 in 2019, after which it can rise further with the cost of living. Owner-employees age 50 or older can make an additional $3,000 deductible “catch-up” contribution (for a total of $16,000) as an employee in 2019.

2. Employer “matching” contribution
The employer match equals a maximum of three percent of the employee’s earnings.

Note: An owner-employee age 50 or over in 2019 with self-employment earnings of $40,000 could contribute and deduct $13,000 as employee plus an additional $3,000 employee catch up contribution, plus a $1,200 (three percent of $40,000) employer match, for a total of $17,200.

Are there any Downsides to SIMPLE IRA Plans?

Because investments are through an IRA you must work through a financial institution acting, which acts as the trustee or custodian. As such, you are not in direct control and will generally have fewer investment options than if you were your own trustee, as is the case with a 401(k).

You also cannot set up the SIMPLE IRA plan after the calendar year ends and still be able to take advantage of the tax benefits on that year’s tax return, as is allowed with Simplified Employee Pension Plans, or SEPs. Generally, to make a SIMPLE IRA plan effective for a year, it must be set up by October 1 of that year. A later date is allowed only when the business is started after October 1 and the SIMPLE IRA plan must be set up as soon as it is administratively feasible.

Furthermore, once self-employment earnings become significant however, other retirement plans may be more advantageous than a SIMPLE IRA retirement plan.

Note: If you are under 50 with $50,000 of self-employment earnings in 2019, you could contribute $13,000 as employee to your SIMPLE IRA plan plus an additional three percent of $50,000 as an employer contribution, for a total of $14,500. In contrast, a Solo 401(k) plan would allow a $31,500 contribution. With $100,000 of earnings, the total for a SIMPLE IRA Plan would be $16,000 and $44,000 for a 401(k).

If the SIMPLE IRA plan is set up for a sideline business and you’re already vested in a 401(k) in another business or as an employee the total amount you can put into the SIMPLE IRA plan and the 401(k) combined (in 2019) can’t be more than $19,000 or $25,000 if catch-up contributions are made to the 401(k) by someone age 50 or over. So, someone under age 50 who puts $9,500 in her 401(k) can’t put more than $9,500 in her SIMPLE IRA plan for 2019. The same limit applies if you have a SIMPLE IRA plan while also contributing as an employee to a 403(b) annuity (typically for government employees and teachers in public and private schools).

How to Get Started Setting up a SIMPLE IRA Plan

You can set up a SIMPLE IRA plan account on your own; however, most people turn to financial institutions. SIMPLE IRA Plans are offered by the same financial institutions that offer any other IRAs and 401(k) plans.

You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement, you will choose an “effective date,” which is the start date for payments out of salary or business earnings. Again, that date can’t be later than October 1 of the year you adopt the plan, except for a business formed after October 1.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE IRA plan. You need such an agreement even if you pay yourself business profits rather than salary. Printed guidance on operating the SIMPLE IRA plan may also be provided. You will also be establishing a SIMPLE IRA plan account for yourself as participant.

Ready to Explore Retirement Plan Options for your Small Business?

SIMPLE IRA Plans are an excellent choice for home-based businesses and ideal for full-time employees or homemakers who make a modest income from a sideline business and work well for small business owners who don’t want to spend a lot of time and pay high administration fees associated with more complex retirement plans.

If you are a business owner interested in discussing retirement plan options for your small business, don’t hesitate to contact the office today.