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You might work alongside your small business’s directors or shareholders every day. But when was the last time you sat down formally to talk business?

Entities such as corporations, limited liability companies, etc., are required to bring their boards of directors together once a year. Even legal entities with just one or two directors or shareholders often must hold the well-known “annual meeting.” Unfortunately, the required session is overlooked by some small business owners, EricJohn Ltd. owner Eric Buechler reminds us.

We’ll leave the legal requirements to your attorneys. But you should be aware that decisions made at annual meetings can have tax implications. For example, corporate boards typically set policies about business issues ranging from reimbursement rates for expenses to employee retirement benefits. Boards and/or shareholders also approve executive salaries, loans to company officers and stock offerings, among other actions.

Documenting those decisions is evidence to the Internal Revenue Service and other tax authorities that your corporation is active. The decisions also may become important in case of a tax audit.

You probably don’t need to hold your business’s annual meeting near tax time. But it can be convenient for a small business to accomplish the meeting while dealing with a tax return, especially if it is a family business with few officers and shareholders.

EricJohn Ltd. can witness and assist in recording your company’s annual meeting. Phone or email Eric to schedule a brief annual shareholder meeting.

The Internal Revenue Service is getting peeved over bogus claims for tax credits on fuel purchases. The IRS is so annoyed right now that it lists them among its “Dirty Dozen” tax scams for the 2015 filing season – alongside offshore tax cheating, fake charities and false documents.

Fuel tax credits probably are an obscure issue for most taxpayers. That’s because individual taxpayers typically can’t claim the credit on their personal income taxes.

But the federal government does allow credits for federal taxes paid on gasoline and other fuels for certain business uses. (They are declared on Form 4136.) A key requirement is that the fuel must be used for off-highway or off-road driving. One large exception is for school buses and transit buses.

For example, the IRS will give fuel tax credits for gasoline, diesel and kerosene used to power farming vehicles. However it will reject claims for all-terrain vehicles or boats that are used for sports or recreation.

We at EricJohn Ltd. have been able to apply for fuel tax credits for off-road, heavy machinery and for commercial lawnmowers. Fuel tax credits also scale up into operations of aircraft and train locomotives.

Nonetheless, the IRS says it computerized filters blocked $33 million worth of faulty credit claims in 2013 alone.

So, if the rumor mill or a tax avoidance company suggests using the fuel for your personal ATV for a tax credit, think twice. It might be a good time to seek some advice from EricJohn Ltd. or a reputable tax preparer.

Minnesota’s Department of Revenue once again is taking in state income tax returns filed through TurboTax online software.

The state tax agency put the brakes on TurboTax filings on Thursday (2/5), citing “potentially fraudulent activity.” At least two taxpayers had reported that cyber-thieves filed bogus returns in their names using the online software program.

The software’s publisher, Intuit, also shut down TurboTax filings to investigate, but, by Friday evening, had resumed transmitting them to state agencies. Intuit said its security systems had not been breached. The company also boosted its protections against identity theft.

Minnesota Revenue began accepting TurboTax-generated returns again at 3 p.m. Saturday, citing Intuit’s “new, targeted, security measures.” The state agency also said taxpayers who had previously filed TurboTax returns do not need to take any further action.

Federal tax returns were not involved in the security scare.

Minnesota Revenue continued to process Intuit’s software programs for professional tax preparers. With 2014 tax filings underway, EricJohn Ltd. is ready to file your federal and state returns securely and conveniently.

If you run a business (even a very small one), you’ll want to get familiar with that number “1099.”

The Internal Revenue Service wants to know about many types of payments made in the course of doing business; so do some businesses or individuals that received payments. The IRS solution is Form 1099, which it calls an “information return.” There’s a large, extended family of 1099s and related forms.

Small businesses typically send Form 1099-MISC, which is short for “Miscellaneous Income,” for many types of payments. The forms go to both the IRS and the recipients of the money.

Fortunately, the businesses don’t have to declare payments made to corporations. A 1099 also is not required for buying physical goods, or for spending less than $600 during the year with a person/business. Those three exceptions cover a lot of territory.

Here are some types of financial (non-goods) payments that do have to be declared to the IRS and to the person/business receiving them:
o Rent paid to a partnership or any non-corporate owner for business offices or buildings.
o Wages or fees paid to independent contractors for their services.
o Gross proceeds of $600 or more that are paid to attorneys or law firms, even if they are incorporated.
o Prizes or awards paid to winners.
o Proceeds from crop insurance.
o Fees/expenses paid to physicians or other vendors for health care.
o Royalties greater than $10 from copyrights, mineral rights, patents and other sources.

On the 1099-MISC, business have to disclose more than $5,000 in consumer products that go to a buyer for resale outside of a retail establishment. Some small businesses also may have to file other varieties of 1099s to declare financial distributions, such as interest payments.

The deadline for mailing paper 1099s to payment recipients is Feb. 2, and they must postmarked to the IRS by March 2. But forms also can be sent out and filed electronically with the IRS.

Small business taxpayers can learn more about requirements for 1099s at this link: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Am-I-Required-to-File-a-Form-1099-or-Other-Information-Return

EricJohn Ltd. also can dig deeper with you into the details. We won’t let you forget sending a 1099 to your business’s landlord!

Minnesota and U.S. tax laws are back in sync, clearing the way for 2014 income tax filings without costly discrepancies.

On Saturday (Jan. 24), the governor signed a “conformity” law. It basically brings state tax codes into line with a slew of federal tax breaks that were renewed for 2014 in December.

If state law hadn’t been updated, more than 200,000 Minnesotans – especially middle- income families, students, homeowners and school teachers – would pay about $20 million more in state taxes, Gov. Mark Dayton’s office announced.

There also could have been problems with previously designed tax forms, etc. Now that everything is on the same track again, the state Department of Revenue notes that there are just a couple of adjustments to 2014 Schedule M1M, which details additions and subtractions to income. Those changes are shown on the M1Ms available online.

We at EricJohn Ltd. are relieved that the Minnesota’s tax code is coexisting nicely with federal laws. Of course, we are ready to help individual or business taxpayers file their 2014 tax returns!

“Be prepared” is good advice for Boy Scouts AND taxpayers!

With the filing season for 2014 federal and Minnesota tax returns opening next week, let us offer some pre-season preparation that can make it easier when taxpayers or their preparers dig into those1040s and state forms.

Here are a few suggestions from the Indiana Department of Revenue that we’ve tweaked for Minnesota!

• Collect your 2014 receipts for tax-related items. Sort them by category of tax (wages, capital gains, etc.) or deduction.  Keep each year’s together in one place, such as a big envelope, a folder file, or even a shoebox. If you scan receipts and save them by computer, don’t neglect to back them up in separate storage, such as a portable hard drive or other safe site.
• Draw up a list of documents you’ll need to file your tax return. Some examples are: W-2 forms, 529 account statement, 1099 notices, etc. Also, for the first time, taxpayers who are insured by the new Health Insurance Market will receive Form 1095A. It reports health care costs in connection with a federal tax credit. Check off the documents from your list as they arrive.
• What changed last year? Marriage, having children, divorce, and moving for a job can affect both your filing status and withholding. You also might want to give an update to the human resources or personnel department of your employer, if you had a major life change.
• Here’s one that’s easily forgotten or ignored. Check your online, mail order and other out-of-state purchases to see if they included Minnesota’s state sales tax. If they don’t, you might owe “use tax” for items brought into and used in Minnesota. (This can get a bit complicated, because Minnesota has a threshold amount for reporting taxable, out-of-state purchases by individuals.)
• Do not use a year-end pay stub to file your federal or state tax return. Pay stubs do not contain the same details as the W-2 form. You should receive your W-2 statement from employers by the end of January.

What do you need for your 2014 tax return? You’ll get a good idea with some preparation before you start filling out forms or taking your records to EricJohn Ltd. or another tax preparer.

 

 

The Internal Revenue says it will begin accepting 2014 tax returns on Jan. 20 – despite extensions of dozens of federal tax breaks by Congress last month.

Those extensions were enacted on Dec. 19, less than a month ago. However, IRS Commissioner John Koskinen said the agency didn’t see a reason why the changes would interfere with a timely start-up to the new tax filing season.

Minnesota’s Department of Revenue quickly followed the fed’s lead, announcing that  state taxpayers also can send in their income tax returns on Jan. 20.

However, Revenue Commissioner Myron Frans wasn’t as confident about a smooth filing season.  He publicly asked the Legislature to square up state tax breaks with the new federal extensions right away. “If we do not conform quickly, Minnesotans may need to pay millions more in taxes and file additional forms with this year’s taxes,” he said.

Processing actually was slowed last year, when state legislators failed to coordinate state deductions with federal tax breaks until March. The delay forced Minnesota Revenue to revise tax forms and to review 1.4 million tax returns that already had been filed with prior forms.

Should we call it” holiday spirit” or “political procrastination”?  Whichever you choose, the result will benefit many taxpayers.

On Dec. 19, Congress and the President reactivated more than 50 tax breaks that had expired about 50 weeks earlier on Jan. 1, 2014. That’s good news.

But the revival also is short-lived. The “Tax Increase Prevention Act of 2014” extended them only for one year, until Dec. 31, 2014. That means we taxpayers might have to hustle to capture them on 2014 returns. Of course, we’ll also be wondering again on Jan. 1, 2015, whether they’ll survive next year.

Here are some noteworthy tax provisions that are back from the brink, as selected by the National Association of Tax Professionals.

Individual taxpayers:

o  State and local sales tax deduction.

o  Deduction for tuition and fees for education.

o  Deduction for mortgage insurance premiums.

o  Tax credit for non-business energy property.

o  Tax credit for energy-efficient new homes.

o  Tax-free distributions from IRAs for charitable purposes

o  Real estate contributions for conservation purposes.

 Business taxpayers

o  Employer wage credit for employees on active duty in the military.

o  Expansion of Section 179 deduction to $500,000 for expenses of property, including machinery and off-the-shelf computer software. Also covers certain “qualified” real property to $250,000 within the cap.

o  50 percent bonus depreciation on new property (with specific caps for vehicles).

o  Work Opportunity tax credit.

o  Basis adjustment to stock of S corporations donating property to charities.

o   Enhanced deduction for food donations.

o   New markets tax credit.

The new Tax Increase Prevention Act (now Public Law 113-295)  also created a new, tax-exempt account to assist people with disabilities, including blindness. The account is called an ABLE account after the law that enabled it, the “Achieving a Better Life Experience Act.”

We at EricJohn Ltd. are ready to guide clients through the extensions and other intricacies of tax reporting.

Here’s a once-in-a-lifetime offer that’s been waiting in the federal tax codes for your right moment.

Retired workers can move money from their Individual Retirement Accounts to their Health Savings Accounts and the distribution is tax-free.  In fact, those taxpayers can transfer as much as an entire year’s contributions to an HSA.

What’s really happening is that you can use your traditional or Roth IRA to pay the normal contributions you would place in your HSA for that year.  Each dollar transferred from the IRA reduces the amount you can contribute from other sources. The Internal Revenue Service calls this tactic a “qualified HSA funding distribution.”

As handy as it might be, remember it’s a one-time move from a single IRA for each taxpayer. In fact, if you want to draw from multiple IRAs, you’ll have to collect the money into one IRA to make the shift.

There are some limits. This tax-free distribution works for traditional and Roth IRAs, but not for SEP IRAs or SIMPLE IRAs.

You also have to make sure it’s a direct transfer from the IRA custodian to the HSA’s trustee. Don’t take possession of the money – even briefly – along the way, or it becomes taxable.

Also, you must make the move before the end of the tax year involved. The special rule allowing contributions to HSAs up until the tax-filing deadline (normally April 15) does not apply, the IRS says.

There is a line for reporting this one-time-only transfer on IRS Form 8889, which deals with HSAs.

EricJohn Ltd. can guide you through those details, as well as any effects on your IRAs.  Let us know!

Our Indiana clients can jump into their pre-season tax planning right away, using the actual forms that will be filed with their upcoming tax returns.

The Indiana Department of Revenue announced its 2014 income tax forms and schedules for individual returns early this month.

Of course, the tax deadline still is four months away, as Indiana Revenue’s Tax Talk Blog noted with a smattering of humor. “Now we’re not saying you need to start thinking about filing your taxes when they aren’t even due until April 15, 2015,” the official blog said.

Revenue figured giving a preview might help the planners and number crunchers among Indiana taxpayers. Perhaps some might want to look at December investment shifts or to try a few tax-year scenarios. They’ve got the real forms now for brainstorming.

So, navigate to www.in.gov/dor/5174.htm to find all those individual forms and instruction booklets online.

Then, check in with us at EricJohn Ltd. to help you plan now and to fill out your forms in a month or so!