Wednesday, January 27, 2016

Good news for charitable donors!

Cathy Robinson, CPA
The IRS has withdrawn proposed regulations regarding the reporting of donor information.  The proposed regulations would have allowed charities to file information returns about donors instead of providing written acknowledgements to the donors.   The problem with filing of information returns would have required obtaining the social security number of donors.  Some charities felt that asking for a social security number would discourage potential donors.  In addition, other charities were worried about identity theft.
Therefore, you must obtain written acknowledgement from the charity for a donation over $250 and save it for your tax preparer.

The Research credit has been permanently extended.

Cathy Robinson, CPA
Research and development credits were originally implemented to create jobs and bolster the U.S. position as a leader in technological development. It is also important to note that the name can be misleading as the credit not only covers research and product development, but it also includes new processes, formulas, and software, etc. This effectively extends the industries commonly thought to benefit from the credit to also include industries such as software development and construction (i.e., designing electrical systems, mechanical systems, and testing new building materials, etc.). 
The PATH act retroactively and permanently extended this credit, which otherwise would have expired prior to 2015. The qualified research expenses encompass both in-house and contract expenses.  The credit is for 20% of current year qualified spending that exceeds a base amount related to gross receipts in earlier years and cannot exceed 10% of the total spending in the current year on qualified research.
The big impact of the research credit is its ability to be used by eligible small businesses for years beginning after December 31, 2015.  In addition, an eligible small business ($50 million or less in gross receipts) can claim the credit against its alternative minimum tax liability.
A second benefit added by the PATH Act allows a qualified small business ($5 million or less in gross receipts) the option to claim a portion of its research credit as a payroll tax credit against its employer FICA tax liability versus  its income tax liability.  If elected, the payroll credit can be claimed beginning with the first calendar quarter after the date on which the small business files its income tax or informational returns for the tax year.
With the start of the new year, it is a good time to have a conversation with your tax adviser to determine if you can qualify for this credit, as well as which option may be most beneficial.

Thursday, January 14, 2016

New Employee or Independent Contractor?

Cathy Robinson
As the new year begins, you may be contemplating an addition to your company.  The thought crosses your mind about not putting them on payroll, but paying them as an independent contractor.  
Be aware this is an area on the IRS radar.   A large amount of money is lost each year by the U.S. Treasury due to worker misclassification.
Therefore, you need to look at the factors the IRS considers when reclassifying workers as employees.  There are 20 common law factors in Revenue Ruling 87-41 reviewed by the IRS.  Instructions provided to workers, training, hours, and location are some of the factors to consider.  The main point to consider is who has control over employee behavior and the relationship between the parties. 
There are safe harbor rules to consider when making the decision.  Section 530 of the Revenue Act of 1978, P.L. 95-600 lists some rules.  An individual will not be considered an employee if the payer:
consistently treated other workers performing the similar task as nonemployees; had a reasonable basis for not treating as an employee; filed the Form 1099-MISC for all individuals.
Still not sure?  You can request a determination from the IRS.  Prepare and file Form SS-8 with the IRS.  It should be noted that most of the requests are filed by workers who think they are employees and entitled to benefits.
As with any business decision, it is always wise to check with your trusted advisor.

Thursday, January 7, 2016

Additional information on last week’s post on documentation needed for charitable deductions

Cathy Robinson
Last week, I covered documentation you will need to report charitable deductions you have taken during the year. This week, consider additional, accompanying documentation which if you receive it, you will need to hold on to it for completion of your income tax return.
If you are working, you will receive your Form W-2 from your employer by January 31st.  If you have a bank account, you may have received interest income during the year. If this is the case, you will receive a Form 1099-INT.   Furthermore, if you have a brokerage account or a mutual fund, you may have interest income, dividend income, or stock sales to report.  In this case, you should receive a consolidated Form 1099 and year end summary.  Another form you may receive is a 1099-G.  This form reports the amount of any tax refund you may have received in the prior year. 
If you were an independent contractor, you should receive a 1099 – MISC by January 31st.  Additionally, did you take a withdrawal from a retirement account in 2015; did you roll over money to another retirement account?  If either of these scenarios happened, you will receive a Form 1099-R.  Lastly, were you a winner at the casino or the lottery?  If so, you will receive a W-2G.
Be alert and on the lookout for these forms in your mailbox soon!