Author: Eric Buechler

Yes, you’ve been filing the 1099 form for workers who aren’t directly on your payroll for years.  Well, make it quick this tax season – by Jan. 31. The Internal Revenue Service really wants to see your forms on time!

We’re talking about the 1099-MISC forms here and, specifically, the ones reporting $600 or more “nonemployee compensation” in Box 7. That applies to wages for independent contractors, commissions for independent sales representatives, professional fees, etc.

Here’s the big change. The deadline for making those 2016 reports to the IRS now is Jan. 31.  And it’s a firm Jan. 31. That’s earlier than in the past. The tax agency is promising penalties that start at $50 a day for each late form.

(We should point out that 1099-MISC forms that do not use Box 7 have until Feb. 28 for paper returns and March 31 for electronic returns before penalties kick in.)

Fortunately, businesses can get an automatic, 30-day extension by filing Form 8809 by paper or electronically by the end of the month.  You’ll be able to find the right place on that form; there’s a separate, boldfaced line just for “1099-MISC NEC” extensions.

If you’re thinking 1099s, you’re probably working on W-2 forms for company employees, too. They’re also due to the Social Security Administration on Jan. 31. But, this year the tax collectors are not allowing automatic extensions for filing W-2s beyond that date.  Businesses seeking extensions now must send in a “detailed explanation” – as the 8809 says — about why it’s going to take more time to submit their W-2s. The IRS also has boosted penalties for late W-2 filings. For more information on W-2s, check the “General Instructions for Forms W-2 and W-3“on the IRS website.

As tax firm Hawkins Ash CPAs wrote in discussing 1099s, the IRS actions trace back to the Protecting Americans from Tax Hikes Act of 2015 (nicknamed PATH).

The tax season opens on Monday, Jan. 23. We at EricJohn Ltd. are ready to guide small businesses and individuals through the ever-changing demands of their tax returns!

Yes, there’s still some good we Minnesotans can do for our 2016 tax returns — and for others —  before the famous crystal ball drops in Times Square this weekend.

MAKE a cash donation; CONTRIBUTE unneeded clothing, etc. to a favorite charity. After all, it is the season of giving!

Many probably know that charitable contributions can be deducted on federal tax returns, but that works only if Joe or Jane Taxpayer is able to itemize deductions. (That’s done on Schedule A of the IRS Form 1040, by the way.)

For Minnesotans, the federal return is not the only opportunity. Here, the state tax code allows a limited tax break for donations by taxpayers who did not itemize on the federal return. There’s no double-dipping allowed. In order to claim that tax break, Minnesota taxpayers must use the standard deduction on their federal 1040s instead of itemizing to figure their taxes.

Minnesota’s Department of Revenue calls it a “subtraction” instead of a deduction. Taxpayers can subtract half (50 percent) of their total contributions over $500. (The first $500 in donations cannot be subtracted.)

To take the subtraction, they file Minnesota Form M1M. It’s a dense form, with more than 30 additions and subtractions, so we’ll steer you to Line 18 for charitable contributions.

The $500 threshold applies to individual and married couples filing jointly. But married spouses filing separate returns each must reach $500 in donations before subtracting.

As far as donations themselves, the rules are the same as for federal returns. The key to deducting is fair market value, EricJohn Ltd. owner Eric Buechler notes.

Cash and credit card donations are obvious. The contribution is just the dollar amount given.

Clothing and other goods are valued in current condition – not at the price tag when purchased new. The Internal Revenue Service reminds us that household items and apparel must be in “good, used condition” to be acceptable.

Here are a few details about deducting charitable gifts:

• Eligible charities: The IRS maintains a database called “Select check” at https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check . In addition, churches and government agencies that are not shown also qualify.
• Money donations:  A cancelled check or credit card statement with the name of the charity proves smaller donations. IRS wants an acknowledgment from the charity from $250 up.
• Household items: The charity’s statement is required for donations starting at $250. It’s best to get some type of acknowledgment slip for any donation.  But, especially, if dropped at an unattended site, make sure to have a written record of the items and their estimated values. Also, Eric suggests taking a smart phone photo of them as a back-up. If the charity supplies a receipt, try to take the photo with it and the item together.

Here it is. The Internal Revenue Service says taxpayers can start sending in 2016 income tax returns on Jan. 23 – about five weeks from now. That’s when the tax agency will start processing an estimated 153 million returns

Four out of five of them will arrive electronically, the tabulators at IRS say. Now, in case you’re wondering, you really can’t rush a refund along faster by filing an early paper return.  The IRS says it will start working through all its 2016 returns on the 23^rd.

So, when is this year’s due date? Well, the way the calendar falls, taxpayers once again will have another three days beyond the traditional deadline of April 15 to finish up. The filing deadline is Tuesday, April 18. That’s because Emancipation Day  is being observed in the District of Columbia on Monday, the 17^th  and the deadline cannot fall on that local holiday under current federal law.

Let’s talk refunds. For this tax season, we taxpayers generally can look forward to receiving refunds within 21 days, the agency says. But, as we told you last week, refunds from returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit will not be available until at least Feb. 15.  As a practical matter, with the President’s Day weekend intervening, the week of Feb. 27 might be a better guideline for those refunds, even if they are sent by direct deposit, the IRS suggests.

Finally, one urgent note for any taxpayers using an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number. Check on its expiration date. If it hasn’t been used on a tax return at least one time in the past three years, it expires on Jan. 1, 2017.  If so, move quickly to get it re-issued. Having an outdated number can delay processing and even interfere temporarily with some tax benefits, the IRS says.

Will you be well-prepared for the coming tax season?  We at EricJohn Ltd. are ready to prepare federal and state tax returns for individual taxpayers or small businesses. As an IRS-approved enrolled agent, owner Eric Buechler also can troubleshoot unforeseen problems.

Stay tuned, too. We’ll be talking more about tax issues in the coming months.

The Internal Revenue Service calls it “wrongful incarceration,” and the government may owe you a refund if you ever – any time in the past – paid federal income tax on payments that came out of it.

Until Dec. 19, anyone who had a conviction reversed and won damages is entitled to a complete refund of federal income taxes they paid on those awards. They could be from subsequent lawsuits, restitution or many other financial payments, as long as they relate to the “incarceration.”

Until last year, the people who had gotten out of jail still had to pay federal income taxes on those damages. But Congress ended that obligation last December.

Since then, IRS has allowed a wide-open window for claiming refunds. In short it hasn’t mattered when the taxes were paid in the past. But the year-long window closes on Dec. 19.

After then, people affected still will be able to claim refunds, but the normal deadlines will apply. (Normally, refund claims for tax years 2012 and earlier would not be allowed.)

There are some details to know.  For example, people claiming must have actually been convicted of a crime and then released, whether by court order, new trial or even by a pardon from a governor or the President.

The tax break might be small comfort for spending time in the slammer. But, this exclusion for wrongful incarceration also could mean a hefty chunk of refunds plus interest for those who paid taxes on this very unusual income!

Contact us at EricJohn Ltd. for this and other little-known niches of codes involving federal and state tax return.

Just before Thanksgiving, the Internal Revenue Service took time to talk turkey about one major tax break for low and moderate-income families. On Nov. 22, IRS warned that taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit on their upcoming returns for 2016 can’t expect to receive a refund before Feb. 15.

That date really doesn’t have anything to do with how soon a taxpayer can send in a return. It’s now the law; the IRS simply is not allowed to pay out any quicker. Congress itself ordered the agency to hold back all refunds with those types of credits until mid-February. In its announcement, the IRS said the hold-up in early refunds will give it more time “to help detect and prevent fraud.”

While the delay in refunds was publicly disclosed, there’s also a lot going on behind the scenes to combat identity theft and other frauds. “These increased security screenings are invisible to most taxpayers,” IRS Commissioner John Koskinen said.

Some of those precautions behind the scenes involve tax preparers. Among them, paperwork has increased and the IRS has stiffened penalties for “reckless preparation” of forms applying for the Earned Income ax Credit and other related credits, EricJohn Ltd. owner Eric Buechler said.

Beginning with the 2016 tax return, taxpayers filing for the earned income and child tax credits should be prepared to document how household bills might be paid during a financial emergency, Eric said.  Specifically, that might require documents such as a  welfare or housing assistance statement or a court order for child support.

Despite the delay in early refunds for some taxpayers, most can still expect a refund check from Uncle Sam in their mailboxes within the normal time frame of about 21 days after the return is accepted for processing, the IRS said

As tax season approaches, we at EricJohn Ltd. can help with specialized tax credits or with tax planning.

A group of government agencies is bringing a wide-ranging seminar about business taxes and employment issues to a Stewartville golf course next month. Participants probably won’t hear much about long drives and putting, though.

The Minnesota Business Tax Education Partnership does promise in-depth information about topics important for Minnesota employers. Small businesses, which often can’t afford to have full-time personnel departments and tax advisors, especially can benefit.

Topics include:
• Independent contractor/company employee status
• Workings and requirements of state employment taxes
• New rules for hiring workers.
• Reporting about new employees to Homeland Security
• Labor standards
• Unemployment insurance and workers comp insurance

The educational meeting is from 8:30 a.m. to 4:30 p.m. on Tuesday, Nov. 22, at the Riverview Greens Golf Course, 1800 Clubhouse Drive N.E. in Stewartville.
Cost of $39 per person includes lunch and refreshments during breaks between sessions.

For reservations and questions about the Stewartville seminar, check online at www.uimn.org/uimn/employers/help-and-support/educational-seminars/seminar-schedule.jsp

The Minnesota Business Tax Education Partnership draws on experts from the Internal Revenue Service, state Department of Revenue, state Unemployment Insurance Program, U.S. Department of Labor, Internal Revenue Service, and Minnesota Workers Compensation Insurers Association.

We at EricJohn Ltd. also are ready to assist with tax advice or year-end business counseling.

The year 2012 probably is a distant memory for Minnesota soldiers, sailors, marines and other military who were serving in combat zones then.   But the state of Minnesota is reminding those veterans and active duty military to claim a substantial write-down of state taxes before it expires.

The deadline for applying for Minnesota’s Credit for Military Service in a Combat Zone is the middle of this month, Oct 15.

The Minnesota Department of Revenue figures that 2,400 veterans and active duty members of the armed forces are eligible, but have not yet applied for the “refundable” tax credit. It is set at $120 per month, or part of a month, served in the combat area.  A refundable credit is a direct subtraction from taxes.  A taxpayer can apply for the credit even if he or she had no state income in 2012 or didn’t file a tax return that year.

To claim the credit, fill in Form M99, entitled “Credit for Military Service in a Combat Zone.”

Minnesota Revenue also is accepting applications for the tax credits from Minnesotans who served in combat or hazardous duty areas from years 2013 through 2015. Look for more information on the tax agency’s Web site, www.revenue.state.mn.us.

EricJohn Ltd. of Rochester offers full tax preparation and tax consultation services.

Is your 2015 Minnesota tax return merely a distant memory now?

If you own or rent a home, you may want to spend a few more minutes with Minnesota Department of Revenue paperwork before mid-August. The state might have a property tax refund waiting for the asking!

Aug. 15 is the official due date for 2015 applications for the Homestead Credit Refund for Homeowners and the Renter’s Property Tax Refund. We say “official,” because Minnesota Revenue actually accepts 2015 applications for another year — until Aug. 15, 2017.

That makes Aug. 15 the final deadline for 2014 applications, and that probably is a distant memory!

Nonetheless, the refunds can mount up to serious cash. For 2015, a renter can receive as much as $2,050 and a homeowner as much as $2,640.at the highest level.

At the same time, not every Minnesota taxpayer will be able to snap up the refund. Those who own homes must have incomes less than $107,930, and renters must have made less than $58,490.  The house also must be the owner’s “homestead,” or primary residence. Vacation and second houses aren’t eligible.

To apply, use Form M1PR, which is available online and can be filed electronically. Renters, this is where you use the CRP, or Certificate for Rent Paid, which your landlord gave you months ago in January. Homeowners, you can find necessary figures on the Statement of Property Taxes Payable in 2016, which came from your county government in March.

In the instructions for the M1PR, you’ll find a detailed discussion of typical issues for both homeowners and renters. For example, the application uses “Household income,” which includes some types of income that typically are not shown on state tax returns.

Not only is there the regular homestead property tax refund, but Minnesota Revenue also offers a second, “special” refund for homeowners who got clobbered with a sudden property tax increase in 2015. If property taxes jumped at least 12% (and at least $100) from 2015 to 2016, homeowners can apply for that payout.

Feel free to call on us at EricJohn Ltd. for the expertise you need in filing for Minnesota’s property tax refunds.

 

This new tax promise ought to help float your boat, if you are running a small business!

The Internal Revenue Service just made a 5-fold increase in the property expenses that business taxpayers can deduct against their income. The agency now has enlarged its “safe harbor” amount to $2,500 per item (or invoice), meaning small businesses can count on the IRS accepting that level of deduction without challenge.

The rule gives more direction in handling minor purchases of property used by small businesses in their work. For example, tools such as smart phones, tablet computers and even parts for office equipment, are considered tangible property and, according to tax codes, they had to be depreciated over their lifetimes instead of being written off right away.

Even the IRS thought that level of detail was burdensome. So, for tax year 2014, the agency opened a safe harbor– one source calls it a “loophole” – for property expenses of $500 or less.  In short, the feds promised to treat them like ordinary business costs and not to quibble over deductions taken in the same tax year,

Well, that promise, which the IRS calls a “de minimus safe harbor,” now will float larger boatloads of expenses. Beginning Jan. 1, the IRS raised the amount to $2,500 per purchase from the prior $500.  “De minimus” is a Latin term translating to “negligible” or “trivial” and it seems $500 was too small to ease the recordkeeping burden for many businesses.  (For the full rationale, look at IRS Notice 2015-82.)

To get that favorable treatment, the biz taxpayer must claim it explicitly on its tax return every year.  As you might guess, there also are some accounting details, including reliable records of   those safe harbor expenses.

But don’t make this a knee-jerk practice. The expanded safe harbor may or may not fit well into the big picture for tax planning.  For example, in years of large losses, a business taxpayer may not want to invoke the IRS “de minimus” rule, Eric notes. Those small purchases of tangible business property might create a bigger tax benefit over the next 2 to 5 years if they are  depreciated instead of being written off in one year, he says. Your accountant should be willing to run some scenarios and investigate the possibilities,

At the same time, for many small businesses, it’s clear the new safe harbor will ease recordkeeping and deliver quicker returns in tax deductions.

We at EricJohn Ltd. can help small businesses choose and use the larger safe harbor!