End of Year Tax Checklist for Small Business Owners

If you are like most small business owners in California, you dread January because that means you have to start thinking about year-end administration.  To help you, we have prepared this list of common tasks a small business owner needs to do in January.  This list is daunting and complex but you do not have to go it alone!  Many local business owners use Cromwell Tax & Bookkeeping to perform one or all of these tasks for them.  They find the price affordable, are not stressed out in January, and can spend their time growing their business and becoming more profitable.

1. Complete your Bookkeeping for the year
• Post all transactions and reconcile all Bank Accounts, Credit Card Accounts and PayPal accounts
• Store your receipts for at least 3 years (paper or electronically)
2. Look at your Profit & Loss and Balance Sheet reports
• Run a year-over-year comparison report of your financials and investigate any variances you were not expecting
3. Pay your Estimated Taxes on-time
• Sole Proprietors: Q4 2015 Estimated Tax is due January 15 2016
• S Corps: The 2015 CA tax was due December 15, 2015
• LLC Fee: The 2015 LLC fee was due June 15th 2015 (that is not a typo)
• Be sure to include your Taxpayer ID # and the year/quarter you want the payment applied
4. Issue 1099s to all eligible vendors
• The basic rules are, if the vendor provided a service to you, they are not corporations and you paid them more than $600, you will need to issue a 1099
• See our blog from December 2nd (below) for more information
5. Calculate your FUTA Credit -- Federal Unemployment taxes
• California employers have more FUTA tax due than employers in other states since we are a "credit reduction state".  We will not go into the details here, but you will need to calculate this extra tax and get this sent in with your Form 940 filing
6. File Payroll Reports
• File all your quarterly payroll reports for Fed and State (941, DE9, DE9C)
• File your annual payroll reports (W2s/W3s and Form 940)
7. File and Pay Sales Tax
• Quarterly and Annual Calendar-Year Sales Tax is due at the end of the month (Fiscal Year filers may have different dates)
8. Update your Payroll Rates before you run the first paychecks for 2016
• UI and ETT - Each employer has a different UI and ETT rate and it can change with the turn of the year.  You will receive a letter from the EDD or you can look online at the EDD E-Services website
• SDI rates - For 2016, the rate is unchanged at 0.9%

Let us help you! Contact us today!

It's almost time to send out 1099s....What every business owner needs to know.


The 1099 rules are confusing and each year we get a number of questions about them.  This Q&A provides you the basic rules you need to know for your business.

Q: Do I really need to issue 1099s to my vendors?  I don't have subcontractors. My vendors are people who clean my windows or fix my computer.

A: Yes, you probably have to issue these vendors a 1099-MISC.  The basic rules are, if they provided a service to you, they are not corporations and you paid them more than $600, you will need to issue a 1099 by February 1, 2016. (There are some exceptions for attorneys and rents paid to real estate agents).


Q: I need to get my vendor's name, address and social security number?  That seems a bit intrusive,  no?

A: Most business owners know about the 1099 requirement and should be prepared to provide you this information.  To make it more official, you can ask your vendors to complete a Form W9 which has all the required information for the 1099.  If, as a vendor, you do not want to provide your Social Security Number (SSN), then we recommend you apply for an EIN (Employer Identification Number) number from the IRS.


Q: One of my vendors refuses to give me his EIN or his Social Security Number.  How do I avoid this problem in the future?

A: We recommend that you trade a vendor's first payment of the year for a completed W9 form.  This way, you have the information in your system if you go over the $600 threshold and you don't have to be chasing down people at the end of the year.  (I promise you that they want to get paid, so they'll gladly complete the W9 for you).


Q: What's the big deal about issuing a 1099.  I have a copy of the check so I can still deduct that expense, can't I?

A: Per California Revenue and Taxation Code (17299.8), the Franchise Tax Board can disallow a deduction if the 1099 was not filed.  The IRS does not have the same codified statute, but they do ask on the tax return if you filed all 1099s and if you did not, you could get a call from the auditor. (If you do get contacted by an auditor, be sure to call an Enrolled Agent to properly represent you).  Even if the auditor does not disallow the expense, you could get a penalty for not filing the 1099s.


Q:  What happens if I file the 1099s late?

A:  There are penalties that range from $50-$100 depending how late you are.  If you intentionally disregard the requirement the minimum penalty is $500.


Q: Ugh.  This seems complicated.  Can I hire you to do my 1099s?

A: Yes!  Cromwell Tax & Bookkeeping can help you with all your information reporting needs including 1099-MISC, 1099-INT, 1099-DIV, 1098, and W2s.

Are you single and own an expensive house?  You may want to stay that way!

Last week, the US Circuit of Appeals changed the way we treat the mortgage interest deduction for co-borrowers of expensive houses.

The mortgage interest deduction is a key tax deduction for Americans.  The rules around the mortgage interest deduction are:

• You can deduct interest on up to $1.1million of loans
• The home has to be a qualified residence (i.e. your home)

In 2012, the US Tax Court had ruled that the $1.1million limit was per residence.  Meaning, if you had two unmarried people go in together on a really expensive house, you could only deduct interest on the first $1.1million of loans and the rest was non-deductible.  (Even at low interest rates, that could equate to $50k or more of deductions that just get thrown away!)

But last week, the 9th Circuit of Appeals reversed* the Tax Court decision and has ruled that the $1.1mm limit is per taxpayer and not per residence.  Thus for a house owned by two unmarried people, each person could take an interest deduction for $1.1mm of loans (so, combined, they could deduct the interest on a home that had $2.2 million of mortgages on it).  Note: People filing Married Filing Jointly are considered one taxpayer and thus the $1.1million limit still applies to those returns.

Who does this help?

• Unmarried co-borrowers of expensive homes who had previously lost a large tax deduction

Who does this hurt?

• The coffers of the U.S. Treasury
• Possibly wedding planners for the rich?!

As always, before you ditch those wedding plans, please speak to your Enrolled Agent to see how this decision specifically impacts you.

* BRUCE VOSS V. CIR, 12-73257

New Filing Deadlines starting for Tax Year 2016 - Congress did something right!

Do you have to file an Extension each year because your K1 doesn't come until May?  Do you get confused because you have to file your Foreign Account Form in June but your Extension is good until October?

It is rare that this blog applauds Congress, but last week they passed HR 3236 which makes some sensible changes to return filing deadlines and information returns.

Key Filing Date Changes*

• Partnership Returns due on March 15th - this due date is moved up by a month, so hopefully the K1s will be in the mail no later than March 16th (if the Partnership files on time) which means YOU can file on time!
• C Corporation Returns due on April 15th - you get an extra month to file these returns because there isn't much generated from a C Corp return that is going to impact another's income tax return.
• S Corporation Returns due on March 15th - no change here because the S Corp generates a K1 that the individual needs to file their tax return.
• FBAR (Form 114) - now due on April 15th AND you are now allowed a six-month extension (so if your personal return is extended until October 15th you can file your FBAR at that time too).

Note: California does not automatically conform to these dates, so they will have to pass separate legislation to conform.

Key Form Changes

• Your Mortgage Interest statement (Form 1098) will now show the amount of outstanding principal, the  loan origination date, and the property address. (The individual taxpayer may not see much value in these figures, but your tax preparer is going to be thrilled to have this additional information!)

These changes don't start until 2017 (for Tax Year 2016) but this is good news for taxpayers and hopefully a harbinger of more good tax news to come from Congress!

* Note: these dates are for calendar year filers only.  Fiscal year filers have different filing dates and there is a special rule for C-Corps with a June 30th fiscal year end who have to continue to file within 3.5 months of their year end until 2025 (that is not a typo).

Everyone in California Gets Sick Leave

If you get sick after July 1st, you will likely be eligible for paid sick leave.  Thanks to the Healthy Families Act of 2014, virtually every employer in California must provide paid sick leave to their employees. 
Many non-benefited employees are excited that getting the flu won't impact their wallet. But many employers, especially small employers, are concerned about the cost of the new law because employers have to pay employees to not be at work, and there is a lot of administrative overhead around this new (and confusing) law.

WHO is Eligible to Receive Paid Sick Leave?

• Any employee who works for 30 days or more after 1/1/15 is eligible for paid sick leave.  This includes full-time, part-time and seasonal employees.

HOW Much Paid Sick Leave can an Employee get?

• Employees will accrue 1 hour of paid sick leave for every 30 hours worked.  If sick leave is accrued, then it must carry over year-to-year, but the employer can cap it at 48 hours.
• Alternatively, the employer can award 24 hours of paid sick leave at the beginning of each year.  In this case, sick leave does not have to accrue or be carried over.

 How do employees USE it?

• Once your employee has worked for 90 days or more, they can use their accrued paid sick leave.
• The employer can limit the use of paid sick leave to 24 hours per year.
• The employee can use the paid sick leave for their own health condition or for the health condition of a family member.

What do EMPLOYERS have to do?

• Display a Sick Leave Poster at their place of work
• Provide an Individualized Notice to each employee by 7/8/15 or earlier
• Show the amount of paid sick leave available to the employee on their paystub (or other written form) on each payday
• Keep records of sick leave for 3 years
• Employers do NOT have to pay out accrued sick leave when their employee terminates their employment
• If the employer operates in a location that already has a sick leave policy then they have to follow the more generous plan

What can Cromwell Tax & Bookkeeping do to help Employers with this?

• Payroll is very complicated and the penalties associated with mistakes are very high.  Payroll is one job that you do not want to do yourself.  Cromwell Tax & Bookkeeping offers full service payroll support that is affordable for small companies.

For more information go to the California DIR FAQ

 

Add "Tax Talk" to your Wedding Checklist

Congratulations.. you are getting married!  You and your fiancé were wise to take a few years to get to know each other better.  You know their sleeping habits, their favorite food, and their friends.  But do you know about their tax habits?

Here are the things you should know before getting married:

1. If you are married on the last day of the year, you are considered married for the entire year and you must file a return as Married (either Married Filing Jointly or Married Filing Separately).

2.  For some couples, marriage means paying more in taxes and for some it means paying less.  Your Enrolled Agent can help you estimate your tax liability as a married couple so you are not surprised next April 15th.

3. Don't change your W4 withholding to Married just because you said "I do".  Be sure you understand your joint tax liability before making changes. (This applies to self-employed folks and their quarterly payments, too).

4. Does your betrothed have an outstanding tax liability you don't know about?  While you may not be liable for that tax debt, it will impact your lifestyle if your beloved has to make large payments to the IRS for the next 5 years.

5. Look at optimizing your benefits at work.  If your beloved has a fabulous medical plan, it may be worth getting on her benefits.   Is life more affordable with two incomes?  Then it may be worth maxing out your 401(k) plan.  Many of these work related benefits are tax friendly.

As always, each individual's experience is different.  So, please be sure to contact your Enrolled Agent to understand how marriage will impact you.

Get Paid to Save Water

My neighbors in Northern California have done an excellent job of being drought-aware and reducing water consumption -- we have buckets in our showers, our plants are on a drip system, and the lawns are brown.   But, when I walk through my neighborhood, I have mixed emotions about all the brown lawns.  While I am pleased to see them saving water, I am disappointed that they have lost some curb appeal.  But that can change!  Many cities now have incentive programs and rebates and they will pay YOU to replace your lawn with attractive but drought resistant landscaping.

This morning I attended an excellent presentation by Elise Howard and Deb Lane of the City of Santa Rosa and learned of the plethora of ways they will pay me to save water!

As a Residential Customer in Santa Rosa, you can receive a rebate for:

• Removing turf or improving the efficiency of your irrigation system
• Implementing a graywater system
• Implementing a rainwater harvesting system
• Implementing a recirculating hot water pump
• Installing a High-efficiency clothes washer
• Proving you have a sustained reduction of water

As a Business Customer in Santa Rosa, you can receive a rebate for many of the same items above as well as:

• Rebate for high-efficiency toilet or urinal
• Rebate for a dedicated irrigation account or a separate meter for irrigation
• Reduced sewer fees when implement available technologies

Don't get surprised at tax time

• Unfortunately your rebates are taxable to the Feds and water agencies may issue you a 1099 if your rebate was more than $600. Ugh!
• The GOOD NEWS is that California does NOT tax the turf-removal rebate.  Hooray!  Thanks to AB 2434, your turf-removal rebate is tax-free to CA from 2014 through 2018.