Series. Part 3 of 3. Self-employed Plans: SEP IRA and SIMPLE. From The Offices Of Carol McAtee & Associates, CPAS, St Petersburg, Florida

Posted on October 17, 2018 by Carol

We have talked about retirement vehicles: Traditional & Roth IRAs.  Last week we talked about a garage they can be parked in:  Employer-provided retirement plans.  In this last part of three we talk about another garage: Self-employed plans. In self-employed plans, self-employed people (sole proprietorships and partnerships), small business owners, independent contractors and gig workers park their vehicles:  SEP IRAs, and SIMPLE.  We hope that you #SetItUp & #MaxItOut.

REINFORCING THE BASICS

What is a SEP IRA?  Simplified Employee Pension. SEPs are traditional IRAs for self-employed or small business owners who set up individual accounts for themselves and their employees. Contributions are tax-deductible and grow tax-deferred until distributed.  There are a couple of simple criteria for plan participation:  a defined minimum compensation for the last two years; worked for the company any three of the last five years, and must be 21-years old.

What is a SIMPLE?  Savings Incentive Match Plan for Employees. This vehicle is for small businesses with 100 employees at most and offering no other retirement savings vehicle.  For employees to be eligible there must have been expected compensation of $5,000.

SEPs and SIMPLEs are in addition to Traditional and Roth IRAs.

HOW LONG HAVE THESE BEEN AROUND?

The SEP debuted in 1978.  Remember, the 401K first appeared that year too.  Disco was the rage and Elton John had no Billboard hits that year.

The SIMPLE’s first public appearance was 1997.  Millennials were growing up. Elton John had the number one Billboard hit that year and the Spice Girls ruled the world.

HOW MUCH CAN BE CONTRIBUTED IN 2018?

SEP IRA. SEPs are not salary-deferred and there is no catch-up, meaning employees contribute $0 through work.  Only the employer contributes, making this a profit-sharing plan.  But keep in mind an employee may be able to make traditional contributions in 2018 of $5,500/$6,500 on their own to the SEP or open up their own IRA in addition to the SEP established on their behalf by their employer.  If you are self-employed total contributions are limited to $55,000 in 2018.

Now, if you have a 401K and a SEP from your employer OR an employer 401K and a self-employed SEP #CallCarolFirst!

SIMPLE.  The employee #MaxItOut amount is $12,500 plus the catch-up amount of $3,000.   Like the SEP, if you want to save even more for retirement you can also open a separate Traditional or Roth IRA so #SetItUp & #MaxItOut. We’ll be sure to let you know the employee #MaxItOut 2019 amounts.

IS THERE AN INCOME LIMIT FOR CONTRIBUTING?

 SEP IRAs. Employers can contribute 25% of employee compensation and 20% of self-employed net income up to a 2018 maximum of $55,000.  Minimum compensation is $600 and maximum is $275,000 in 2018.  We’ll be sure to let you know the 2019 amounts.

SIMPLE.  The income limit is $275,000 in 2018 and we’ll be sure to update you with the 2019 amount.

HOW MUCH OF MY 2018 CONTRIBUTION IS TAX DEDUCTIBLE?

SEP IRAs.   Remember employees cannot contribute to a SEP through salary deferral or pretax contributions.

SIMPLE. Employee contributions are salary reductions and therefore considered pre-tax and not technically tax-deductible.

HOW MUCH IS THAT MATCHING AMOUNT IN 2018?

SEP IRAs.  No matching amount.

SIMPLE.  The employer typically must match the salary reduction $ for $ up to 3% of entire calendar-year compensation, not limited by annual compensation of $275,000 in 2018 OR make non-elective contributions of 2% of employee compensation up to the annual compensation.  These non-elective contributions MUST be given to ALL eligible employees whether they contribute or not.

CAN I CONTRIBUTE AFTER I RETIRE?

SEP IRAs.  No.  But as long as an employee is an eligible participant by meeting the criteria, the employer must keep contributing, even after 70 ½ and while the employee is taking RMDs.    

SIMPLE.  No.

WHEN CAN I GET MY MONEY?

SEPs & SIMPLEs.  After age 59 ½: If you were hoping to hang onto it and leave it untouched for a while, you can. Until you are 70 ½.  SEP AND SIMPLE IRAs are subject to RMD, the government makes you start taking your money out annually as a Required Minimum Distribution (RMD).  You can take out more than the RMD but not less.  And if you don’t take out the minimum, the punishment can be pretty hefty as that RMD amount not withdrawn is taxed at a whopping 50%.  You have to take it out but you don’t have to spend it, you can put in into a Roth IRA or even a bank certificate of deposit.  RMDs come into play with ALL pre-tax retirement accounts.

Just like being responsible for the accuracy of your tax returns, you are responsible for the accuracy of the RMD. There are folks who will help you though, namely the IRA custodian or plan administrator.

WHAT IF I NEED SOME CASH BEFORE I’M 59 1/2?

If you only need a few bucks for a month or two you can take it out of any of these plans but you MUST put it back in 60 days.  And be sure to tell whomever to not withhold taxes or else that check could be 20% light.  But if you have no intent to pay it back then the answer to this is mostly the same as last week too.

Sure, you can withdraw from the SEP & SIMPLE IRAs.  Remember the withdrawn amount will increase your income and possibly put you in a higher tax bracket AND THEN there is the punishment.  There are times when you can take your money out without being punished (the 10% penalty).

These are times of:

  1. Paying for health insurance premiums when unemployed for at least 12 consecutive weeks;
  2. Paying for medical expenses which total more than 7.5% of your adjusted gross income;
  3. Paying for college for yourself, your spouse, your kids, and even your grandkids;
  4. Disability as defined by the IRS and backed up by a doctor’s verification;
  5. Inheriting an IRA from your spouse and even folks you aren’t or were never married to;
  6. Buying, building, or rebuilding a house for the first time for yourself, your spouse, both sets of parents and grandparents and all the kids and grandkids BUT only up to $10,000;
  7. Serving your Country (Reserve and National Guard) for more than 179 days;
  8. Withdrawing on a specific schedule (SEPP – Substantially Equal Periodic Payments); and,
  9. Levying by the IRS themselves.

If you think you qualify for an exception #CallCarolFirst!

WHAT OTHER THINGS SHOULD I KNOW ABOUT SELF-EMPLOYED PLANS?

  1. There are time frames and deadlines in which these retirement accounts must be established.  So, #CallCarolFirst!
  2. When compared to “qualified” employer-provided plans, qualified meaning complex and complicated, these plans are easier and cheaper to set up.
  3. You can rollover other retirement accounts into a SEP IRA.  SIMPLE IRAs can be rolled over but not rolled into (except by another SIMPLE).
  4. With SIMPLEs there is no employed-on December 31st rule meaning employer contributes as long as employee is eligible whether they quit or kick the bucket.
  5. Also, with SIMPLEs if you withdraw before age 59 1/2 and within the first two years of the SIMPLE, the penalty is not 10% BUT 25%

There are exceptions to most rules and more than one way to cook an egg so if you are considering establishing a self-employed plan for yourself and/or employees, contributing or withdrawing funds, changing your contribution strategy, rolling over or transferring, converting or recharacterizing existing retirement accounts, or have recently inherited an IRA it is super important to reach out to McAtee and Associates for answers and guidance.  #CallCarolFirst!

info@accpas.com  OR   727-327-1999.

Be sure to check back here next week for some info on the TCJA and its effect on individual taxpayers.  And like us on  FaceBook  and follow us on Twitter ; for whatever it is we’ll be posting.  And remember # SetItUp! & #MaxItOut!

 

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Series. Part 2 of 3. Employer-provided Plans: 401Ks, 403Bs, and 457Bs.

Posted on October 10, 2018 by Carol

In this second part of three, we are talking about various tax advantageous retirement and savings vehicles and their maximum contribution amounts. We hope that you check on your progress towards #MaxItOut.

Last week we talked about the vehicles: Traditional & Roth IRAs. This week we continue with a garage they can be parked in: Employer-provided retirement plans: The 401K, 403B, and 457B. An employer-provided plan is the big parking garage that you and all your co-workers park your cars in.

REINFORCING THE BASICS!

What is a 401K? A 401K is a retirement plan offered by private employers. Some employers might even pitch in towards your golden years as well by matching, basically giving you some money that you can spend decades from now. Putting money in IS ALWAYS tax deductible. Taking money out IS ALWAYS taxable as ordinary income and unless you have an IRS approved good excuse there is a whopping punishment if you take it out before you are 59 ½ years old. Remember from last week the whopping punishment is a 10% penalty blasted onto your tax return.

What is a 403B? A 403B is a 401K for public schools, not for profit hospitals, charities, (mostly the ones you would donate to) and clergy that work for themselves.

457Bs are 401Ks for state and local government workers. That would be the DMV employee who took that not so attractive picture of you and the police officer you hope didn’t clock you on the way to work this morning.

HOW LONG HAVE THESE BEEN AROUND?

The 401K’s first public appearance was way back in 1978 when disco was popular and the initial #MaxItOut employee contribution was $45,475.

The 403B’s first public appearance was way, way back in 1957 when Elvis Presley was All Shook Up and the initial #MaxItOut contribution was who can remember?

Let’s just say the 457B has been around for a minute.

Congress invented the catchup contribution for people over 50 back in 2001. In practice, when you get a snail mail postcard promising you a free tote bag when you sign up for AARP, you will know you can now play catch up in your retirement accounts if you so desire.

HOW MUCH CAN I CONTRIBUTE IN 2018?

For 401Ks, 403Bs, and 457Bs, the employee #MaxItOut amount is the lower of your salary X the maximum percentage limit OR $ amount as spelled out in the employer plan OR $18,500 and add $6,000 if you’re over age 50 and want to catch-up. This is the tax deductible, pre-tax, tax-free contribution amount. The Employer #MaxItOut is $36,500.

If employer-offered, these plans also have an after-tax contribution feature that allows for up to $55,000 in contributions and works like this: $55,000 – $18,500 – Employer contributions = can be contributed by you after-tax.

The amounts increase for inflation every couple of years, usually by $500 or so. We’ll be sure to let you know the employee #MaxItOut 2019 amounts.

IS THERE AN INCOME LIMIT FOR CONTRIBUTING?

It depends if your 401K, 403B, or 457B is Traditional or Roth. There is no limit if it’s Traditional. Roth IRA contributions are limited by Modified Adjusted Gross Income (MAGI). If you are single: you can #MaxItOut if MAGI is less than $120,000; contribute some if between $120,000 and $135,000; and, NO contributions at all if MAGI is more than $135,000. For married folks those amounts are: $189,000 and $199,000. We’ll be sure to let you know the 2019 amounts.

HOW MUCH OF MY 2018 CONTRIBUTION IS TAX DEDUCTIBLE?

Traditional 401Ks, 403Bs, and 457Bs are the same as Traditional IRAs and we blogged that last week: Series. Part 1 of 3. Individual Retirement Accounts: Traditional & Roth.

Roth 401K, 403B, and 457B contributions are never tax deductible.

HOW MUCH IS THAT MATCHING AMOUNT IN 2018?

For 401Ks, 403Bs, and 457Bs, most employers will generally match 3% to 6% of what you contribute with a #MaxItOut amount of $36,500.

CAN I CONTRIBUTE AFTER I RETIRE?

You are no longer working for this employer, so…no. But if you have a Traditional IRA you can contribute until you turn 70 ½. And if you have a Roth IRA you can contribute no matter how old you become, so #MaxItOut.

WHEN CAN I GET MY MONEY?

Short answer is 59 ½. If this next part sounds familiar, it is because you read it last week. Proceed to next section.

After age 59 ½: Traditional AND Roth. If you were hoping to hang onto it and leave it untouched for a while you can. Until you are 70 ½, then if you have Traditional IRAs the government makes you start taking your money out annually as a Required Minimum Distribution (RMD). You can take out more than the RMD but not less. And if you don’t take out the minimum, the punishment can be HUUUGE!, as that RMD amount not withdrawn is taxed at a whopping 50%. Take it out and spend it or not spend it, or put it in a Roth IRA. Take it out it even if it means sacrificing more earnings. Just Do It.

Just like being responsible for the accuracy of your tax returns, you are responsible for the accuracy of the RMD. There are folks who will help you though, namely the IRA custodian or plan administrator.

There is no RMD with a Roth IRA. You are not forced to start withdrawing, not at 70 ½, not at 80 ½, not at 90 ½, not even after you die because there is no RMD for your beneficiary either.

WHAT IF I NEED SOME CASH BEFORE I’M 59 1/2?

The answer to this is the same as last week too – You can skip this part.

Sure, you can withdraw from the Traditional IRA. Remember the withdrawn amount will increase your income and possibly put you in a higher tax bracket AND THEN there is the punishment. There are times when you can take your money out of Traditional IRAs without being punished.

These are times of:

 ⇒ Paying for health insurance premiums when unemployed for at least 12 consecutive weeks;
 ⇒ Paying for medical expenses which total more than 7.5% of your adjusted gross income;
 ⇒ Paying for college for yourself, your spouse, your kids, and even your grandkids;
 ⇒ Disability as defined by the IRS and backed up by a doctor’s verification;
 ⇒ Inheriting an IRA from your spouse and even folks you aren’t or were never married to;
 ⇒ Buying, building, or rebuilding a house for the first time for yourself, your spouse, both sets of parents and grandparents and all the kids and grandkids;
 ⇒ Serving your Country (Reserve and National Guard) for more than 179 days; and,
 ⇒ Withdrawing on a specific schedule (SEPP – Substantially Equal Periodic Payments).

There are two kinds of money in Roth IRAs. 1. Principal – The money you put in/contributions and 2. Earnings – Interest, dividends, capital gains, and the like. Remember withdrawals are tax-free but if the money taken out is earnings, a 10% penalty will be blasted on your tax return.

WHAT OTHER THINGS SHOULD I KNOW ABOUT EMPLOYER-PROVIDED PLANS?

 ⇒ If your employer offers a 401K/403B and a 457B plan you can contribute to both. #MaxItOut.
 ⇒ Some 457Bs offer a turbo catch-up three years before retirement age, turbo being twice the annual pre-tax contribution limit. In 2018 the turbo amount is $37,000.
 ⇒ Even if you have a 401K at work, if you can swing it, start an IRA. Potentially tax deductible and potentially better return than interest earned on a savings account.
 ⇒ Starting 1/1/2018 new tax code has eliminated the do-over of IRAs – recharacterization. You used to have to the tax-filing deadline plus six months to change your mind. So, no more switching up contributions, rollovers, or conversions. There is, however, the proverbial grace period. Roth IRAs converted in 2017 can be switched to a Traditional IRA BEFORE 10/15/18.

There are exceptions to most rules and more than one way to cook an egg. So, if you are considering contributing or withdrawing funds, changing your contribution strategy, rolling over or transferring, converting or recharacterizing existing retirement accounts, or recently inherited an IRA it is super important to reach out to McAtee and Associates for answers and guidance. #CallCarolFirst!

info@accpas.com OR 727-327-1999.

Check back here next week when we visit another garage: self-employed retirement plans and be sure to check us out on and ; for whatever it is we’ll be posting. And remember #MaxItOut.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

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Meals & Entertainment – 2018 & Beyond: From The Offices Of Carol McAtee & Associates, CPAS, St Petersburg, Florida

Posted on September 26, 2018 by Carol

This week we are talking about two of our favorite things:  Meals and Entertainment.  Who doesn’t love good food and good fun?  We certainly do!                                                             

The new tax law, Tax Cuts & Jobs Act (TCJA) has made a few changes to how we are used to accounting for various types of meals and entertainment and the deductibility of the money we spend.

Starting in 2018, it is absolutely necessary to account for meals, entertainment, and travel separately.  It will go a long way towards better expense analysis, easier tax prep, and reaching the most allowed, favorable tax outcome.  

REINFORCING THE BASICS!

Recordkeeping.  There are two parts to recordkeeping: establishing the cost and proving the expense.  We’ll soon have a #Carol’sBlog for you on recordkeeping that will provide much more insight and specifics.  In the meantime: receipts, canceled checks/bank statements and bills/invoices/statements work to establish cost – but not prove the expense.  Proving the expense additionally requires who was present, to include yourself or an employee, and business purpose.  And the expense must be BOTH ordinary and necessary.  And no showing off:  The IRS does not allow you to be lavish OR extravagant.  Lavishness and extravagance will be “disallowed”.

It is crucial for 2018 and beyond to separate Meals and Entertainment. One Account “Meals” and one account “Entertainment”.  If you have Travel, separate it as well. Good descriptions and memo lines are extremely helpful to determine proper classification.  Proper classification generates relevant financial statements you can use to successfully manage and grow your business and profits.  Good description and proper classification when used together go a long way towards reaching the most allowed, favorable tax outcome.  Well-documented receipts are still required so the IRS doesn’t disallow (take away) deductions.

MEALS.

Within meals it would beneficial from a tax perspective to distinguish between 100% deductible, 50% deductible, and 0% deductible or from a management perspective have an account for each of these meal types:

⇒ 100% deductible.    Office parties (holidays, birthdays, and the like).  #FillTheFridge. No change. 

⇒ 100% deductible.  Meals included in employee W-2 as compensation. No change.

⇒ 50% deductible.  Meals provided for employer convenience: company cafeteria, catered lunch, food at staff meetings, or food for overtime work.  And office snacks and beverages: this even includes water and coffee.  This is dismal!  Down from 100%.

⇒ 50% deductible.  Business and employee travel meals.  Travel means overnight and outside city limits or outside the general area your business is located.  No change. 

⇒ 50% deductible.  Meals with clients.  No change.

⇒ 0% deductible.  Meals having nothing to do with business nor employees.  Taking your significant other out for a nice dinner, Chuck-E-Cheese for a birthday party, or that drive through burger on your way home from the office.  No change.

ENTERTAINMENT.

Think of entertainment as Events and Experiences you pay for.  Entertainment of current clients, prospective clients, suppliers, and vendors is no longer deductible.  Goodbye to writing off half of it.  No theater, no museums, no club dues, and no more -Comic-Con.  No more football games or baseball games.  No hockey, no basketball, no soccer.  This includes season tickets, skyboxes and stadium and box seats.  No tennis, cricket, or polo.  And no more writing off golf afternoons – so many people are saddened by this.

To sum this up, no more tax-deductible fun with people who don’t work for or with you.  But you can still have tax deductible fun with employees and independent contractors – So take them out to the ballgame!

And if you think you can take clients or business associates to a fundraiser – no, no, no!  Fundraisers are usually events, events are usually fun, and fun is no longer a write off.  Tickets to charitable events are no longer deductible as entertainment.  No more (golf) tournaments, no more benefit concerts, no galas. So, put away the black tie and gorgeous gown for the next wedding.

Not all was taken away.  Entertaining employees recreationally or socially is still deductible. The annual Christmas/Holiday party, summer cookouts, and field trips.  Having fun with your employees and independent contractors is still tax deductible but be forewarned this is known as “Mandatory Fun” and in some cases can be made less mandatory with alcohol.

MEALS AND ENTERTAINMENT.

What about food and fun together?   The cost of meals before, during, or after an event or experience can be deductible provided:

⇒ The business owner or an employer is dining with the current or prospective client/customer, business associate;

⇒ There is no lavishness or extravagance; and,

⇒ You must reasonably expect that the meal will result in making money or gaining some specific benefit.

TRAVEL

⇒ 100%. Hotel rooms and conference rooms.  No change.

⇒ 100%. Travel to get the above, typically Planes, Trains, and Automobiles.  No change.

TRANSPORTATION.

⇒ 0% deductible. Providing commuting transportation to an employee – unless for safety.  So, no car service, taxi, Uber, or Lyft.

⇒ 0% deductible. Transportation fringe benefits. No longer deductible for employers but still tax free to employees are perks such as parking allowances and mass-transit passes.

WHAT OTHER THINGS SHOULD I KNOW?

⇒ Since the changes are for fun and food had AFTER December 31st, 2017, the corporate fiscal year-end is irrelevant. 

⇒ Reread your current sponsorship arrangements.  The cost of the seats and tickets are no longer deductible but that remaining amount is possibly a deductible advertising expense.

⇒ If you do attend charitable events:  Check the registration form.  The ticket cost may be separated into (non-deductible) event cost and (deductible) charitable contribution.  If not, ask the organization to do so.

⇒ Charitable contributions made by your business may wind up itemizable on the Form 1040; you may consider bunching business donations.

⇒ If you provide food for events that are offered to the community or have a charitable cause, the cost of the meals could be considered advertising which is – you guessed it – 100% deductible. 

⇒ Be sure that mandatory fun cannot be interpreted as primarily for the fun of the highly paid employees, company officers, or shareholders. 

⇒ Keep in mind that business expenses not reimbursed by employers are NO LONGER deductible by employees as unreimbursed employee expenses.

There are exceptions to most rules and more than one way to cook an egg. So, if you are considering bunching donations, establishing an accountable plan, determining what is “highly paid” and especially if you offer employees meals more often than not or have any questions about this topic it is super important to reach out to McAtee and Associates for answers and guidance.  #CallCarolFirst!

info@accpas.com  OR   727-327-1999.

Be sure to check back here next week for anther fun-filled and jam-packed blog and check us out on   and   ; for whatever it is we’ll be posting.  And remember #FillTheFridge!

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

 

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Reporting Virtual Currency Transactions: From The Offices of Carol McAtee & Associates, CPAs, St Petersburg, Florida

Posted on June 21, 2018 by Carol

Reporting Virtual Currency Transactions

With the price of Bitcoin hitting record highs in 2017, many Bitcoin holders cashed out not realizing the impact it could have on their tax bill. Many people, for example, did not understand that it was a reportable transaction and found themselves with a hefty tax bill–money they may have been hard-pressed to come up with at tax time. Others may have been unaware that they needed to report their transactions at all or failed to do so because it seemed too complicated.

The good news is that if you failed to report income from virtual currency transactions on your income tax return, it’s not too late. Even though the due date for filing your income tax return has passed, taxpayers can still report income by filing Form 1040X, Amended U.S. Individual Income Tax Return.

Taxpayers should also be aware that forgetting, not knowing, or generally pleading ignorance about reporting income from these types of transactions on your tax return is not viewed favorably by the IRS. Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.

In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.

Virtual Currency Taxed as Property

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.

Virtual currency is treated as property for U.S. federal tax purposes. The same general tax principles that apply to property transactions also apply to transactions using virtual currency such as:

-A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

-Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC.

-Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.

-Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third-Party Network Transactions.

-The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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It’s Time for a Premium Tax Credit Checkup: From The Offices of Carol McAtee & Associates, CPAs, St Petersburg, Florida

Posted on November 13, 2017 by Carol

It’s Time for a Premium Tax Credit Checkup
If you or anyone in your family receive advance payments of the premium tax credit, now is a good time to check on whether you need to adjust your premium assistance.

Because advance payments are paid directly to your insurance company (thereby lowering out-of-pocket cost for your health insurance premiums), changes to your income or family size may affect your credit. Therefore, you should report changes that have occurred since the time that you signed up for your health insurance plan.

Changes in circumstances include any of the following and should be reported to your Marketplace when they happen:

Increases or decreases in your household income including, lump sum payments; for example, lump sum payment of Social Security benefits
Marriage
Divorce
Birth or adoption of a child
Other changes affecting the composition of your tax family
Gaining or losing eligibility for government sponsored or employer-sponsored health care coverage
Moving to a different address

Reporting the changes when they happen helps you to avoid getting too much or too little advance payment of the premium tax credit. Getting too much may mean that you owe additional money or receive a smaller refund when you file your taxes. Getting too little could mean missing out on premium assistance that reduces your out-of-pocket monthly premiums.

Changes in circumstances also may qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you generally have 60 days to enroll following the change in circumstances. Information about special enrollment can be found by visiting HealthCare.gov.

You can use the Premium Tax Credit Change Estimator to help you estimate how your premium tax credit will change if your income or family size changes during the year; however, this estimator tool does not report changes in circumstances to your Marketplace. To report changes and to adjust the amount of your advance payments of the premium tax credit you must contact your Health Insurance Marketplace.

Please call if you have any questions about the Premium Tax Credit.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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What you need to know about the Equifax Data Breach: From The Offices Of Carol McAtee & Associates, CPAs, St Petersburg, Florida

Posted on October 25, 2017 by Carol

What you need to know about the Equifax Data Breach

Background: What is Equifax?

Equifax is one of three major U.S. credit reporting bureaus. The other two are TransUnion and Experian. There is also a smaller, less well-known credit-reporting agency called Innovis (aka CBCInnovis) that operates slightly different in that its main purpose is to provide mortgage credit reporting services to the financial services industry.

Equifax, like TransUnion and Experian, track the financial histories of consumers and use this information to analyze whether a person is “credit-worthy” by issuing them a credit score. The credit score is based on the credit history contained in the credit report, a record of consumers’ financial histories. Credit reports are comprised of information about your bill payment history, loans, current debt, and other financial information. Credit reports also contain information about where you work and live and whether you’ve been sued, arrested, or filed for bankruptcy.

Credit reports, which are also called credit records, credit files, and credit histories, help lenders decide whether or not to extend you credit or approve a loan, and determine what interest rate they will charge you. Prospective employers, insurers, and rental property owners may also look at your credit report. Typically, the information collected on consumers is sold by the credit bureau (e.g., Equifax, Experian, or TransUnion) to credit card companies and other financial institutions.

What Happened?

The hackers had access to data from May 2017 to July 2017, including names, birth dates, Social Security numbers, driver’s license numbers and credit card numbers.

Who is Affected?

As many as 145.5 million people in the United States were affected, as well as 400,000 in the United Kingdom and 8,000 consumers in Canada. Credit card numbers for approximately 209,000 U.S. consumers and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers were accessed, according to Equifax.

What to do if it is likely that you were impacted by the Equifax data breach

The first thing you should do (if you haven’t already) is to obtain and review your credit report(s) and determine whether there’s been any unusual activity. Next, check whether your data has been hacked using the special website Equifax set up for data breach victims (www.equifaxsecurity2017.com). You will need to provide your last name and the last six numbers of your Social Security number. From there you can sign up for their free credit monitoring service. You won’t be able to enroll immediately; however, but will be given a date when you can return to the site to enroll. Keep in mind that Equifax will not send you a reminder to enroll so you should mark the date on your calendar so that you can start monitoring your credit as soon as possible.

Note: Equifax removed the arbitration clause from the website that was set up for data breach victims. The arbitration clause stated that by signing up for the free I.D. theft protection and monitoring from its TrustedID service a consumer could not take legal action against the company–including participating in any class-action lawsuits that might arise from the breach.

Freeze your credit report accounts at each of the credit bureaus. Freezing your credit reports (make sure to freeze your account at each of the credit bureaus) prevents anyone (including new creditors) from accessing your account. Equifax has waived the fee until November 21, 2017) and has agreed to refund fees to those who have paid since September 7, which is the date that the data breach was announced.

If you do not want to freeze your credit account, you can place a fraud alert on the account. A fraud alert warns creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you.

Note: Unfortunately, a freeze on your credit report does not necessarily mean that your bank accounts and other identity-related information is safe. Furthermore, if you do need access to your credit report, you will need to pay a fee to “unfreeze” it.

Get in the habit of periodically check your bank, credit card, retirement, and other financial accounts that could potentially be impacted now or down the road and make sure your Internet security (antivirus, firewall, malware detector, etc.) is working properly.

Finally, filing your taxes earlier, rather than later (i.e., at the last minute) helps prevent a hacker from filing a tax return using your stolen identifying information.

Precautions to take if it appears that you were not impacted by the Equifax data breach

Even if the Equifax data breach website states that you were not affected, it’s a good idea to keep an eye on your credit reports, bank accounts, credit card accounts and other financial information. You can freeze your credit accounts as well (see above) and sign up for fraud protection.

Watch out for Equifax-related Scams

If you receive a phone call and the person on the other end says, “This is Equifax calling to verify your account information.” Hang up immediately. It’s a scam because Equifax will not call you out of the blue.

Every year, thousands of people lose money to telephone scams from a few dollars to their life savings. Scammers will say anything to cheat people out of money. Some seem very friendly– calling you by your first name, making small talk, and asking about your family. They may claim to work for a company you trust, or they may send email or place ads to convince you to call them.

If you get a call from someone you don’t know who is trying to sell you something you hadn’t planned to buy, say “No thanks.” And, if they pressure you about giving up personal information–like your credit card or Social Security number–don’t give in. Simply hang up.

Tips for recognizing and preventing phone scams and imposter scams:

  • Don’t give out personal information. Don’t provide any personal or financial information unless you’ve initiated the call and it’s to a phone number that you know is correct.
  • Don’t trust caller ID either. Scammers can spoof their numbers, so it looks like they are calling from a particular company, even when they’re not.
  • If you get a robocall, hang up. Don’t press 1 to speak to a live operator or any other key to take your number off the list. If you respond by pressing any number, it will probably just lead to more robocalls.

If you’ve already received a call that you think is fake, report it to the FTC. If you gave your personal information to an imposter, change any compromised passwords, account numbers or security questions immediately. If you’re concerned about identity theft, visit IdentityTheft.gov to learn how you can protect yourself.

Stay safe and take steps to protect your data. If you have any questions or concerns about the Equifax data breach and your taxes help is just a phone call away.

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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Business Entertainment Expenses: From The Offices Of Carol McAtee & Associates, CPAs, St Petersburg, Florida

Posted on August 15, 2017 by Carol

Business Entertainment Expenses

As a business owner, you are entitled to deduct certain expenses on your tax return such as those relating to entertaining clients. Entertainment is considered any activity that provides entertainment, amusement, or recreation. It may also include meeting the personal, living, or family needs of individuals including providing meals, a hotel suite, or a car to customers or their families.

A meal that you provide to a customer or client may also be considered a form of entertainment. The meal may be part of other entertainment or stand alone. Meal expenses are defined as the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided, and you cannot deduct a meal as both a travel and entertainment expense.

Limits and Restrictions

Entertainment expenses are generally deductible at 50 percent. Entertainment costs, taxes, tips, cover charges, room rentals, maids, and waiters are all subject to the 50 percent limit on entertainment deductions.

Entertainment expenses are also subject to certain limits and restrictions such as whether they qualify as “ordinary and necessary” and not “lavish or extravagant.” They must also be directly related to or associated with, your business and you must keep detailed records substantiating your expenses (more on this below). Furthermore, the person you entertained must be a business associate; that is, someone who could reasonably be expected to be a customer or conduct business with you such as an employee, client, or professional advisor.

If it is customary to entertain a business associate with his or her spouse and your spouse also attends, entertainment expenses for both spouses are deductible, thanks to something called the “closely connected rule.” For more information about this topic, please contact the office.

Note: If you are an employee who is reimbursed in full by your employer different tax rules apply (e.g. you are not subject to the deduction limits).

Location must be Conducive to Business

Your Home

Entertainment expenses are only deductible when they take place in a location conducive to business. A nightclub or theater is not considered a place conducive to business, but your home is. For example, if you hold a small (less than 12 people) party for clients and business associates at your home during the summer it may be deductible as long as you discussed business with your guests. The amount of time that business was discussed is not significant.

Year-end parties for employees, as well as sales seminars and presentations held at your home, are generally 100 percent deductible provided costs for food and refreshments are reasonable and not lavish.

Entertainment Facilities

Out-of-pocket expenses for food and beverages, catering, gas, and fishing bait provided at facilities you own or are a member of such as a yacht, hunting lodge, fishing camp, swimming pool, and tennis court are deductible subject to entertainment expense limitation of 50 percent. However, you may not deduct expenses related to the depreciation and upkeep of the facility or for rent and utilities.

Note: Dues paid to country clubs, social, or golf and athletic clubs are not deductible.

Skybox

If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally can’t deduct more than the price of a nonluxury box seat ticket. You can, however, count each game as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit. If the cost of food and beverages are on a separate receipt, you are allowed to deduct those expenses (as long as they are reasonable) in addition to the amounts allowable for the skybox, subject of course, to the requirements and limits that apply.

Expenses must be “Directly Related” or “Associated With”

Expenses are directly related if you can show that there was more than a general expectation of gaining some business benefit, rather than simply goodwill. In addition, you must show that you conducted business during the entertainment and that the active conduct of business was your main purpose.

Even if you cannot show that the entertainment was “directly related” you may still be able to deduct the expenses as long as you can prove the entertainment was “associated with” your business. To meet this test, you must have had a clear business purpose when you took on the expense, and the entertainment must directly precede or come after a substantial business discussion.

Substantiating your Expenses

Tax law requires you to keep records that will prove the business purpose and amounts of your business entertainment as well as other business expenses. The most frequent reason that the IRS disallows entertainment expenses is the failure to show the place and business purpose of an item. Therefore it is paramount that you keep excellent records.

To substantiate entertainment expenses you must show the following:

  • The amount of each separate expense.
  • The date, time, place, and type of entertainment (e.g. dinner).
  • The business purpose and nature of any business discussion that took place.
  • The business relationship and the name, title, and occupation of the person or people you entertained.

Don’t Miss Out

Tax law is complicated, and this article only touches on a few of the deductions for entertainment expenses you might be entitled to. If you have any questions about entertainment expenses or need assistance setting up a recordkeeping system to document your business-related activities, don’t hesitate to call.

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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Identity Theft: What to Watch out for and What to do: UPDATE FROM THE OFFICES OF CAROL McATEE & ASSOCIATES, CPAS, St Petersburg, Florida

Posted on August 9, 2017 by Carol

Identity Theft: What to Watch out for and What to do

Tax-related identity theft typically occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Anyone can fall victim to identity theft. Here is an important reminder of how to protect yourself from identity theft, what to watch out for, and what do if your identity has been compromised:

1. Protect your Records. Do not carry your Social Security card with you, or any other documents with your Social Security Number (SSN) on them. Only provide your SSN if it is completely necessary and you know the person requesting it. Routinely change passwords for all of your Internet accounts and protect your personal information at home and protect your computers with anti-spam and anti-virus software.

2. Don’t Fall for Scams. Criminals often try to impersonate your bank, credit card company, and even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts.

3. Beware of Threatening Phone Calls. The IRS will never call you threatening a lawsuit or arrest, or to demand an immediate tax payment using a prepaid debit card, gift card, or wire transfer. Generally, if you owe taxes, the IRS will first mail a bill to the taxpayer. Furthermore, The IRS initiates most contacts through regular mail delivered by the United States Postal Service. While there are certain circumstances when the IRS will visit your home or business, taxpayers will generally first receive several letters (called “notices “) from the IRS in the mail beforehand. The IRS will also not:

  • Demand that you pay taxes without the opportunity to question or appeal the amount they say you owe. You should also be advised of your rights as a taxpayer.
  • Threaten to bring in local police, immigration officers or other law-enforcement to have you arrested for not paying. The IRS also cannot revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

4. Report ID Theft to Law Enforcement. If you discover that you cannot e-file your return because a tax return already was filed using your SSN, please call the office immediately for assistance. Next, you will generally need to take the following steps:

  • File your taxes by paper and pay any taxes owed.
  • File an IRS Form 14039, Identity Theft Affidavit.
  • Contact one of the three credit bureaus (Equifax, TransUnion, or Experian), to place a fraud alert or credit freeze on your account.

5. Complete an IRS Form 14039 Identity Theft Affidavit. File IRS Form 14039, Identity Theft Affidavit. Print out the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by filing on paper.

6. IRS Notices and Letters. If the IRS identifies a suspicious tax return with your social security number on it, they may send you a letter asking you to verify your identity and will provide instructions on how to do so. You may need to call a special phone number or visit a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.

7. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, he or she will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. Each year, you will receive an IRS letter with a new IP PIN.

8. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind that not every data breach results in identity theft. Furthermore, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

9. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can report it on the IRS.gov website.

10. IRS Website. Information about identity theft is available on the IRS website. There is also a special section devoted to identity theft with a phone number available for victims to obtain assistance.

If you have any questions about identity theft or have any reason to believe that you’ve been a victim of identity theft, please contact the office as soon as possible.

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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Tax Tips for Those Affected By Natural Disasters: UPDATE FROM THE OFFICES OF CAROL McATEE & ASSOCIATES, CPAS, St Petersburg, Florida

Posted on August 2, 2017 by Carol

Tax Tips for Those Affected By Natural Disasters

Every year, hurricanes, tornadoes, floods, wildfires, and other natural disasters affect people throughout the US. The bad news is that recovery efforts after natural disasters can be costly. For instance, when hurricanes strike they not only cause wind damage but can cause widespread flooding. Many homeowners are not covered for damage due to flooding because most standard insurance policies do not cover flood damage. Fortunately, tax relief is available–but only if you meet certain conditions. For business owners and self-employed individuals who may owe estimated taxes, for example, the IRS typically delays filing deadlines for taxpayers who reside or have a business in the disaster area.

Deducting Casualty Losses: Tips for Homeowners

Fortunately, personal casualty losses are deductible on your tax return as long as the property is located in a federally declared disaster zone (please call the office if you are not sure). You must also meet the following four conditions:

Note: Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

1. The loss was caused by a sudden, unexplained, or unusual event. 
Natural disasters such as flooding, hurricanes, tornadoes, and wildfires all qualify as sudden, unexplained, or unusual events.

2. The damages were not covered by insurance.

You can only claim a deduction for casualty losses that are not covered or reimbursed by your insurance company. Keep in mind that timing is important. If you submit a claim to your insurance company late in the year, then your claim might not be processed before it is time to prepare your taxes. One solution is to file for a 6-month extension on your taxes. If you have any questions about this, please call the office.

3. The dollar amount of you losses were greater than the reductions required by the IRS.

To claim casualty losses on your tax forms, the IRS requires several “reductions,” the first of which is referred to as the $100 loss limit and requires taxpayers to subtract $100 from the total loss amount.

Next, you need to reduce the loss amount by 10 percent of your adjusted gross income (AGI). Here is an example: Let’s say your AGI is $35,000 and your insurance company paid for all of the losses except $5,800 that you incurred as a result of tornado damage. First, you would first subtract $100 and then reduce that amount by $3500. The amount you could deduct as a loss would be $2,200.

4. You must itemize.

To claim a deduction for the loss, you must itemize your taxes. If you normally don’t itemize but have a large casualty loss, you can calculate your taxes both ways to figure out which method gives you the lowest tax bill. Please call if you need help figuring out which method is best for your particular circumstances.

Two options for deducting casualty losses on your tax returns.

You can deduct the losses in the year in which they occurred or claim them for the prior year’s return. For example, if you were affected by a natural disaster this year, you can claim your losses on your 2017 tax return or amend your 2016 tax return and deduct your losses. If you choose to deduct losses on your 2016 tax return, then you have one year from the date the tax return was due to file it.

Tip: Do not consider the loss of future profits or income due to the casualty as you figure your loss.

Figuring Amount of Loss

Figure the amount of your loss using the following steps:

  • Determine what your adjusted basis in the property was before the casualty occurred. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. Please call the office for more information.
  • Determine the decrease in fair market value (FMV) of the property as a result of the casualty. FMV is the price at which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
  • Subtract any insurance or other reimbursements that you received or expect to receive from the smaller of those two amounts.

Tax Relief for Small Business Owners

Individuals, as well as businesses affected by severe storms, tornadoes, straight-line winds, and flooding in Arkansas and Missouri with an estimated income tax payment originally due on or after April 26, 2017, and before Aug. 31, 2017, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Aug. 31, 2017.

If you have been affected by a natural disaster, please call the office immediately and receive assistance figuring out when your tax payments are due.

Have you been affected by a natural disaster this year? Are you wondering if you qualify for tax relief? Help is just a phone call away.

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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