Do You Live or Work in Kansas?

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If so, the recent changes WILL AFFECT YOU!

WHAT YOU NEED TO KNOW:

  • These changes are retroactive and apply starting January 1, 2017.
  • Business and rental income (Sole Proprietors, S Corporation and Partnership owners) which was previously exempt from Kansas tax is once again taxable.
  • Increase in tax rates for 2017.  The highest rate will be 5.2% for those with Kansas income in excess of $60,000.  These rates will increase again in 2018 to a high of 5.7%.
  • No taxpayer penalties or interest will be charged for underpayment of taxes due to this change in law as long as the underpayment is paid by April 17, 2018.
  • Limitations on itemized deductions will ease but not in 2017.  Starting in 2018 a portion of medical expense will be allowed and mortgage interest and property tax deductions will phase back in.
  • For W-2 employees, Kansas withholding tax rates were updated on July 1, 2017.  These rates have been updated for the remainder of 2017 at the higher 2018 rates to compensate for the first 6 months of withholding at lower rates.   However, some employees may still not have enough tax withheld for the year.

WHAT STEPS TO TAKE:

  • Consider making higher KS estimated tax payments to avoid a large Kansas tax bill at April 17, 2018.
  • Consider having extra Kansas tax withheld from your paycheck.
  • Contact us to prepare a projection of the Kansas tax you may owe for 2017.

Please contact us if you have any questions or concerns about these changes!

Avoid Hiring Mistakes in Your Start-Up

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Staffing errors can spell disaster for your start-up. Here are three to watch out for.

  1. Staffing the firm with friends and family. While this strategy may work in some circumstances, hiring pals and relatives often spells trouble. For one thing, friends and family members often expect – even subconsciously – to be treated differently from other employees. A double standard, whether real or perceived, can hurt morale and productivity. As a general rule, focus hiring decisions solely on the needs of your firm and applicant qualifications.
  2. Trusting in a handshake. Spell out employee arrangements in writing. This can be as simple as drafting employee offer letters that cover compensation, rights to intellectual property, and bonus arrangements. Employee handbooks are also a good way to spell out the responsibilities of your firm and staff.
  3. Bringing in a partner for the wrong reasons. Downside risks of bringing in a partner include surrendering a portion of your company and control over important management decisions to someone else. Before selling part of your company, ask yourself what the partner will contribute besides money. Can you find other ways to fill gaps in your team? Choosing wisely can help you avoid ending up in the business equivalent of divorce court.

For assistance with issues facing your start-up business, give us a call.

Your Business, Your Salary

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As the owner of your business, you are the decider of salaries for your staff. That’s true for your own salary too. While there is no one-size-fits-all formula for determining how much to pay yourself, here are two factors to consider.

  • Regularly review and update your firm’s cash flow projections to determine the salary level you can sustain while keeping the business profitable. Your compensation may be minimal as you start up your business. However, beware of going too long without paying yourself a salary, and be sure to document that you’re in business to make a profit. Why? Otherwise the IRS may view your perpetually unprofitable business as a hobby – a sham enterprise aimed at avoiding taxes. That can lead to unfavorable tax consequences.
  • The market. If you were working for someone else, what would they pay for your skills and knowledge? When you’ve answered that question, discuss salary levels with small business groups and colleagues in your geographic area and industry. Check out the Department of Labor and Small Business Administration websites for salary information and national compensation surveys. In the early stages of your business, you may not be able to afford to pay yourself a salary commensurate with the higher ranges, but you’ll learn what’s reasonable.

For assistance with payroll issues or salary concerns, contact our office.

Accountable Plans Are a Win-Win Business Idea

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Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Consider an accountable plan. These arrangements let you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or office supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return, yet the payments are not considered income to your employees.

How can you make sure your plan qualifies? Here are three requirements.

  • The reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.
  • Your employees need to keep records of the expenses, and provide those records to you.
  • If you pay or advance your employees more than the actual amounts spent on business items, the excess must be returned to you. Amounts not returned are income to your employee, and are subject to payroll taxes.

Contact us to discuss your policies for repaying employees’ business expenses. We’ll help you make your plan accountable.

Start Preparing Now for New Overtime Rules

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In May, the U.S. Department of Labor updated the rules for paying overtime.

Under the new rules, salaried employees who earn less than $913 per week ($47,476 per year) will be eligible for overtime pay. That’s double the annual exempt amount of $23,660 under current rules.

The changes take effect December 1, 2016, which means you need to begin reviewing your payroll now, as penalties and fines can be assessed for noncompliance.

One important step is to begin tracking hours for your salaried employees.

Contact us if you need assistance in this area.

Form 1099 Filing Requirements – What You Need to Know

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Forms 1099 are “information returns” that businesses are required to file annually with the IRS. The forms are used to report amounts a business paid out that should be reported by the recipients as income.

Form 1099-MISC, Miscellaneous Income, is probably the most familiar to business owners. But Form 1099-MISC is just one of a group of more than fifteen different forms used to report other types of income to the IRS.

To increase compliance of Form 1099 filing, business income tax forms include questions about whether the business made payments that require issuing the form and whether the business actually did issue it. This scrutiny, coupled with steep penalties, make it important for every business to check Form 1099 filing requirements each year.

Here’s what you need to know about Form 1099.

COMMON 1099s – A variety pack

Under current tax law, every person engaged in a trade or business, including nonprofit organizations, must file Forms 1099 for certain payments made during the year in the course of the payer’s trade or business. Here are some of the most common forms and filing requirements.

  • Form 1099-INT
    Used to report interest payments of $10 or more by financial entities; $600 or more by certain trades or businesses.
  • Form 1099-DIV
    Used to report dividend payments of $10 or more; $600 or more for liquidations.
  • Form 1099-B
    Used to report any proceeds from broker and barter transactions.
  • Form 1099-R
    Used to report distributions of $10 or more from retirement or profit-sharing plans, IRAs, SEPs, annuities, or insurance contracts.
  • Form 1099-S
    Used to report the sale or exchange of present or future ownership interests in real estate.
  • Form 1099-C
    Used to report cancellation of debt of $600 or more.
  • Form 1099-MISC
    Used to report miscellaneous payments generally of $600 or more; $10 or more for royalties; any amount for fishing crews.

1099-MISC – The major business form

Form 1099-MISC is used to report payments for services provided to your business by unincorporated vendors when those payments total $600 or more for the year. Typical payments include rents, royalties, and compensation to independent contractors, such as consultants, web designers, accountants, lawyers, and cleaning services.

Here are five conditions for payments that must be reported using Form 1099-MISC.

  1. The payment was made to a nonemployee.
  2. The payment was made for services (not goods) provided to the trade or business.
  3. The payment was made to an unincorporated entity (except for payments to attorneys and medical and health care payments).
  4. The payment or payments generally totaled $600 or more for the year.
  5. The payment was not made electronically (e.g., with a credit or debit card or with PayPal).

DEADLINES – When to file

January 31 – Give one copy of Form 1099 to the recipient of the payment by this date of the year following payment.

February 28 – Send one copy of Form 1099 to the IRS by this date of the year following payment unless the form is filed electronically.

March 31 – If Form 1099 is filed electronically, this is the deadline for providing a copy to the IRS.

NOTE: Electronic filing is required for businesses filing 250 or more information returns and optional, though encouraged, for businesses filing fewer than 250 information returns.

PENALTIES – A matter of intent

The penalties for failing to file Forms 1099 range from $50 to $250 per form, depending on how late your filing is and whether or not the failure to file was intentional. Total penalties can go as high as $1 million for businesses with gross receipts under $5 million or $3 million for those with gross receipts over $5 million.

To increase compliance of Form 1099 filing, federal income tax returns for businesses include the following questions:

  1. Did your business make any payments during the year that would require it to file Form(s) 1099?
  2. If “yes,” did or will the business file required Forms 1099?

MORE HELPFUL FACTS

  1. If you receive a Form 1099 with an incorrect dollar amount, request a corrected copy from the payer before tax filing time.
  2. Only trades and businesses are required to report payments made in the course of business on Form 1099. No reporting is required for personal payments. For example, a business owner who pays a dentist $1,500 for a child’s dental work does not need to report that payment on Form 1099.
  3. Payments of $600 or more to attorneys in the course of business must be reported on Form 1099-MISC, whether the attorney is incorporated or not. Medical and health care payments made to corporations must also be reported.
  4. Payments to vendors by credit or debit card, or by services like PayPal, should not be reported on Form 1099-MISC. The bank or third-party payment provider is required to report those transactions on Form 1099-K.
  5. Nonprofit organizations are subject to Form 1099 filing requirements because they are considered to be “engaged in a trade or business.”
  6. The fact that payments may not have to be reported on Form 1099 does not mean that the payments are exempt from income tax. All income must be reported on the income tax return of the recipient.
  7. To properly complete Forms 1099 and avoid penalties, a business needs the recipient’s name, taxpayer identification number, and a mailing address. Obtain this information by sending the recipient Form W-9, Request for Taxpayer Identification Number and Certification. If the recipient fails to provide the necessary information, the business may have to withhold taxes from payments and remit these amounts to the IRS.

AN ACTION LIST – Staying compliant

  1. Review accounts payable and cash disbursements to capture reportable payments.
  2. Verify that the information on Form W-9 is current for each vendor.
  3. Initiate a policy that no vendor will be paid unless Form W-9 is completed.

For additional information about the Form 1099 filing requirements that apply to your business, please contact our office.

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