Author: Eric Buechler

The tax status of a business meal with a client has been a perplexing problem for companies and their tax pros since last year’s Tax Cuts and Jobs Act took effect.

Deductible? Not allowed? Partially taxed?

It’s been clear that businesses no longer can deduct 50 per cent of entertainment expenses bought for clients – tickets to events, golf outings, fishing trips, night clubs, hotel stays, etc. – even if they are business-related. But, in the words of the Internal Revenue Service, “the Act does not specifically address the deductibility of expenses for business meals.”

Well, in October, the IRS finally filled in that blank. Yes, businesses still can write off half of the costs of meals and food/beverages connected to legitimate business dealings, the IRS clarified. That assumes the tab is not “lavish or extravagant under the circumstances,” and a company employee is involved, of course.

At the same time, the “how” is important.  Businesses must keep meal or other food billings separate.  An employee cannot lump entertainment and food expenses together, as might have happened in the past (Both were 50 percent deductible). He/she can’t take client to a basketball game or the theater and mix snack expenses along with ticket costs. For example, food included as part of a ticket package to a skybox at a stadium is not deductible.

The IRS says any food/ beverage costs must be stated on separate receipts.  So, while the admission ticket to a game is not deductible at all, the company can deduct 50 percent of a hot dog or drink at the stadium, if its employee obtains a receipt at the cash register.

For a more common meal – say, discussing business with a client over dinner at a local restaurant – the IRS guidance clearly allows the 50 percent deduction.

For a fuller discussion, check IRS Notice 2018-76, which delves deeper into definitions of “entertainment.” And, this isn’t the final word yet. The agency announced that it intends to issue more guidance in the future.

Of course, we at EricJohn Ltd. can provide more specific guidance tailored to your situation as you wrap up your 2018 tax year.

 

 

 

 

 

 

 

Amid the biggest tax code overhaul in 30 years comes this not-so-surprising warning:  The 2019 tax season might start later than normal.

The Internal Revenue Service itself might not agree. But the Treasury Department’s Inspector General for Tax Administration is not convinced that the IRS will be accepting filings of 2018 tax returns on the normal schedule. That skepticism came in a Sept. 25 report.  See it at: https://www.treasury.gov/tigta/auditreports/2018reports/201824064fr.pdf

Usually, taxpayers can count on the season starting by the last week of January.

The TIGTA is skeptical because of the large number of code changes made by Congress in last year’s Tax Cuts and Jobs Act and because of some internal deadlines already missed by IRS.  Most of the changes went into effect for the first time for 2018.

The IRS estimated it must rewrite or create about 450 forms and publications and, to process those returns, the tax agency will have to update about 140 computing systems, accounting industry newsletter Tax Pro Today highlighted in its coverage of the report. IRS also plans to reassign or hire and, of course, train hundreds of new workers.

The chief of IRS technology, S. Gina Garza,  chief of IRS information technology, debated some conclusions in the Treasury Department’s report but seemed optimistic about the upcoming tax season. “Internal Revenue Service Information Technology is committed to implementing the modifications required. . .and ultimately providing a successful filing season for the American Taxpayers,” she responded.

Congress did provide $320 million to the tax collectors to incorporate the new tax codes into the IRS systems, the Treasury’s report noted.  Included was about $291 million for computer systems and operations support.

Can early bird filers count on getting returns in and tax refunds sent by the end of January? EricJohn Ltd. will be ready to help with your personal return, whenever the next tax season starts.

 

We’ve talked before (July) about checking withholding rates from paychecks because of changes made by last year’s Tax Cuts and Jobs Act. They take effect for 2018. A check-up still a good idea, even if it only affects the final four months of the year. The Internal Revenue Service figures more than 7 out of 10 taxpayers had too much money withheld from their pay in 2016.

The IRS provides this calculator online as a quick way to figure whether you need a change: https://www.irs.gov/individuals/irs-withholding-calculator.

Here are some IRS guidelines. Check withholding if you:

• Have a double-income family (on the same return)
• Work two or more jobs at the same time or work only part of the year.
• Claim credits, such as the child tax credit.
• Have dependents who are 17 or older
• Itemized deductions on your 2017 return.
• Typically file a complex tax return or one with high income
• Received a large tax refund or paid a big tax bill for 2017.

If you do need to change your withholding rate, find the new Form W-4 for withholding at https://www.irs.gov/pub/irs-pdf/fw4.pdf

Now, how about those summer jobs? Well, some summer workers might avoid taxes altogether because they didn’t generate enough income to report. However, their employers often had to withhold Social Security and Medicare taxes. So, take a look at the pay stub for your personal situation.

Also, be sure whether you were hired as an independent contractor or a payroll employee. Independent contractors must pay those Social Security/Medicare taxes and income taxes themselves. They typically will do that on their 2018 tax returns.

Parents, did you send your children to day camps this summer?  Those costs count toward the Child and Dependent Care tax credit. The children must be younger than age 13.  Note that expenses for overnight camps do not qualify.

Did you volunteer during the summer? You can’t get a tax break for your time, but you can deduct 14 cents for each mile driven in your personal car while doing service with a recognized charity.  Here’s a catch, though You’ll have to itemize mileage for all charitable deductions, and the new tax law affected the thresholds for itemizing expenses.

By the way, even workers with too little income for a tax return should file one, if an employer withheld income taxes. They’ll often be able to get a refund.

For deeper details on taxes from summertime activities, feel free to phone Eric Buechler, of EricJohn Ltd.

 

 

Southeastern Minnesota small business operators, here is a close-by opportunity to hear the latest about state employment taxes and other worker-related rules.

The Minnesota Business Tax Education Partnership is offering a free, half-day briefing on Aug. 16 at Rochester Community and Technical College. It’s scheduled from 8:30 a.m. to noon in Room HA102 in the Heintz Center at the college, 1926 College View Road East.

There’s no charge, but advance registration is required. Reserve a seat online at https://www.eventbrite.com/e/employer-seminar-state-tax-withholding-and-unemployment-insurance-8162018-rochester-registration-44772387416

Experts from the state Department of Revenue and the Unemployment Insurance Program will take on topics ranging from the nuts and bolts of withholding to unemployment benefits. Also, if you’ve wondered about worker status – for example, the differences between independent contractors and payroll employees – this briefing can answer some questions.

The seminars are held occasionally in job centers around the state, but this one in Rochester is particularly convenient for many EricJohn Ltd. clients. If you can’t make this date, another is scheduled n Sept. 11 in Owatonna.

Of course, you’ll want to contact owner Eric Buechler for the most specific tax and payroll guidance for your small business.

Your old W-4 form, which determines how much federal and state tax is withheld from your paycheck, might be yesterday’s news now.

Federal tax reform is taking effect this year, and it promises to revamp tax returns with higher standard deductions, new tax brackets, boosts in Child Tax Credits and cuts in deductions, among other alterations.

That could bring good or bad news for individual returns, depending on your circumstances. Clearly, some taxpayers will want to tweak their W-4s to avoid withholding too much – or, worse, too little – of their income for Uncle Sam before Tax Time.

Do you need to take a second look? The Internal Revenue Service says taxpayers with relatively simple returns should not have to adjust. That’s because the agency adapted its 2018 withholding guidelines to fit the new tax atmosphere. The IRS says a simple situation might be a single person or married couple with one job, no children, no itemized deductions and no tax credits.

On the other hand, many taxpayers with more complex returns probably could use a W-4 checkup. They might be families with two or more paychecks, with high incomes or with children eligible for the Child Tax Credit, the IRS suggests. Likewise, taxpayers who received large refunds or who itemized deductions on their 2017 returns might be wise to review their W-4s.

The IRS also is helping taxpayers crunch their numbers with an updated Withholding Calculator. It’s available online at https://www.irs.gov/individuals/irs-withholding-calculator People with the more complicated situations might have to dig into Publication 505, called “Tax Withholding and Estimated Tax,” the IRS says. Think about returns with capital gains, self-employment income, part-year jobs and the alternative minimum tax, to name a few scenarios.

Withholding too much from paycheck can lead to a hefty refund, which amounts to a loan to the government. A large refund — let’s say in thousands of dollars — also might take longer to process because of IRS anti-fraud reviews.  On the other hand, withholding too little can expose taxpayers to penalties, the IRS warns. EricJohn Ltd. proprietor Eric Buechler can help you figure out the right balance point for withholding as the Tax Cuts and Jobs Act takes effect.

Soon taxpayers will be able to work ahead, too. The IRS is rewriting the Form W-4 and its instructions for the 2019 tax year. The agency has released an early draft online at https://www.irs.gov/pub/irs-dft/fw4–dft.pdf

More radically, the Form 1040 also is back at the drawing boards. The IRS Is overhauling it for 2019, saying the latest version will be about half the size of the current 1040. The feds’ idea is one 1040 to be used by all 150 million taxpayers instead of the current three versions.

The Badger State is expecting a budget bonanza of almost $400 million, and the government now is returning a chunk of it to the state’s families!

Taxpayers can claim a rebate of $100 for each dependent child, but they’ll have to act fast. Claims must be filed on or before July 2.

The give-back, which is called the “Child Sales Tax Rebate,” is meant to offset state sales and use taxes on purchases made in 2017 for raising a child, the Wisconsin Department of Revenue announced.

The child must be age 18 or younger on Dec. 31, 2017. Taxpayers just submit each child’s Social Security number and date of birth to apply. More than 500,000 rebate claims already have been received.

Taxpayers can make a claim online at childtaxrebate.wi.gov or, of course, give EricJohn Ltd. owner Eric Buechler a call – quickly. The Wisconsin tax agency said it is holding fast to its July 2 deadline.

Gov. Scott Walker and the State Legislature decided on the rebate after hearing about a projected budget surplus of close to $400 million. The Department of Revenue credited “sound fiscal management and a strong economy” for the windfall.

Employees who drive their own cars on the job for their companies no longer can expect Uncle Sam to pick up the tab for those miles. Their employers — maybe. But not the federal government.

The new Tax Cuts and Jobs Act put the brakes on unreimbursed business mileage.

Let’s be clear about this. The IRS still allows deductions for driving on business. In fact, the IRS raised the mileage rate for 2018 by a penny from last year; it’s now 54.5 cents a mile.  But, although employers and proprietors can claim mileage as a normal business expense, their employees cannot.

It’s more than mileage. The new law “suspended” a range of unreimbursed employee expenses for the next eight years. For example, studious workers can no longer write off their spending for educational courses needed to keep their jobs or current salaries.  Personal spending for items such as uniforms, union dues, business-related meals and entertainment, and others also is involved.

Previously, the IRS and Congress had allowed those types of expenses to be deducted from income if they amounted to more than 2 percent of adjusted gross income.

In practice, many employees have been accepting whatever mileage rate their companies offered and then claiming the difference up to the official IRS rate (53.5 cents last year) on their tax returns. The mileage was claimed on Schedule A.

Now, those employees lose that deduction, EricJohn Ltd. owner Eric Buechler says. They’ll have to depend entirely on their company mileage rates for any reimbursement.

The new law also suspended another common deduction involving miles on the road. It took out the tax break for job-related moving expenses, which would have allowed 18 cents a mile in 2018. The main exception is for military being transferred to new posts.

In the big picture, Congress undoubtedly had a trade-off in mind. The disappearance of those write-offs will be offset in many cases by a much larger standard deduction. In this tax year, it has risen to $24,000 for a married couple, almost double the past allowance, and to $12,000 for a single taxpayer. A lot fewer people will be itemizing expenses in 2018 than in prior years, the Kiplinger Tax Letter notes.

If you’re really curious and want to wade through the details, you’ll find them under IRS Notice 2018-42.

A last word about vehicles and business mileage. Beyond the unreimbursed issue, some business owners also need to know about new limits in the Tax Cuts and Jobs Act involving depreciation and numbers of vehicles in service.

Of course, we at EricJohn Ltd. can keep you up to date with a phone call or email.

Has time slipped away too quickly this tax season? Are you still sorting receipts and furiously figuring out the numbers for your 2017 tax return?

The Internal Revenue Service doesn’t accept “I’m too busy” as an excuse for procrastinating on a tax return. But the government does give taxpayers six more months to file the paperwork. An extension can be filed online or by mail. Better yet, it’s automatically approved.

The IRS won’t ask you why you need it. BUT – and it can be a big “but” – the IRS still expects you to estimate income and pay any taxes due by the deadline.

This year’s filing deadline actually is a couple of days later than normal. The Internal Revenue Service will accept 2017 returns filed electronically or postmarked in the mail through the end of the day on Tuesday, April 17. (The extra time has to do with the weekend and a holiday in Washington, D.C. on Monday.)

If you still can’t make that deadline, it’s time to join the multitudes of taxpayers asking the Internal Revenue Service some extra days on Form 4868, named or “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” For a copy of the form, see https://www.irs.gov/pub/irs-pdf/f4868.pdf

The IRS suggests using its online service called Free File. But the agency also notes that tax preparation software typically provides the form. It’s still legit to mail in a paper Form 4868 and a check – postmarked on or before April 17, of course.

The tax collectors also offer other online ways to pay One is IRS Direct Pay, which is available online and on the IRS2Go app. In fact, if you make an electronic payment and label it for an extension, you don’t need to file the extension form. The IRS automatically counts it as an extension. One important note: Although the IRS won’t charge any fees for paying with a credit or debit card, the card processor does charge a fee.

Finally, remember any state taxes you owe. In Minnesota, you don’t have to file an extension form. BUT – just as with the federal return – you must pay an estimate of taxes due to avoid penalties. Minnesota Department of Revenue accepts tax payments through its Web site.

Don’t hesitate to take an extension.  It does not flag a taxpayer for  audit, Eric assures. The IRS considers an extension normal and permissible.

We at EricJohn Ltd. wish you easy and accurate filings for your 2017 tax return!