Monthly Archives: December 2017
You would think the day after Christmas would be a pretty quiet day at the office…The phone has been ringing off the hook. It seems that the chatter around the Christmas tree was all about the new tax reform. It’s the old, “My neighbor said I could deduct this” theory that we often get. So, I am here to set the record straight….go tell your neighbor they are wrong 🙂
There are news articles out there encouraging taxpayers to prepay their 2018 property taxes now to save money in taxes. While this would be an effective strategy for some taxpayers due to the higher standard deduction in the tax reform, it is not going to work in Wisconsin. Some other states, mainly on the east coast, have a different way of billing for property taxes which may allow them to pay for 2018 now. However, based on Wisconsin state statutes you cannot do that if you own real estate here. Wisconsin is just billing out the 2017 real estate taxes now, your 2018 assessment will not be available until next year.
Here is what your local village or county will tell you:
The Village is not collecting 2018 property taxes which are due January 31, 2019. Per state statute, the Village may not accept prepayments on 2018 taxes in 2017.
State statute 74.13(1)(b)(3) reads “…General property taxes, special assessments, special charges and special taxes may be paid in advance of the levy during the period from August 1 until the 3rd Monday in December.” 2018 property tax amounts will not be available until December 2018.
While it may be a good idea for some to try and take advantage of the last year with the old rules of itemize deductions, unfortunately this is not an option. However, if you typically pay your real estate tax bill in installments, it may make more sense for you to pay your entire 2017 tax bill before the year ends.
As 2017 winds down, it is important for business owners to analyze how the year has went before it is too late. Taking a look at the situation now could present you the opportunity to save money in taxes when it comes time to prepare your tax return.
We hope you have achieved all the goals you set for 2017, and have 2018 goals ready to implement!
If you didn’t achieve or set goals for 2017…Why not? Without a game plan and goals you get what you set…NOTHING!
Things to do before year end & reminders
These are reminders to all Wisconsin small business owners to help stay compliant with IRS laws and also save money in tax.
Christmas Gifts/Bonus – Gifts and/or bonuses paid to employees in excess of $25.00 must be included in W-2 income as payroll.
- Gifts to customers and clients are also limited to the $25.00 limit(per customer/client)! Anything over that amount is not tax deductible!!
- A company party that involves employees can be 100% tax deductible, it is not subject to the 50% Meals & Entertainment rules.
- Document & notate this event (costs) as such.
W-2’s – Make sure all employee information is correct prior to filing W-2’s. This includes name, address, and social security number.
- Employers must deliver W-2s to employees by the last day of January. If statements are late or incorrect, employers will incur penalties.
There are a variety of 1099 forms that account for other sources of income. Issuers must mail out these 2017 forms to recipients by January 31, 2018. The most common form, Form 1099-MISC, must be provided to the non-employee and submitted to the IRS for everyone to whom you paid at least $600 or more during the tax year. It is important to note that this 1099-MISC deadline applies when reporting non-employee compensation (Box 7).
- $50 per Form 1099-MISC if late for 30 days or less.
- The penalty increases to $100 per form if late more than 30 days.
- If you know you will not file on time, businesses can acquire a 30-day extension to file 1099s by filing IRS Form 8809: Extension of Time to File Information Returns. The form must be filed by February 28 and the extension is not granted automatically.
The rate for 2017 is 53.5 cents per mile. 2018 rate has yet to be released, but usually it is calculated based on cost to maintain a vehicle on the road ( Gas prices are a big variable).
Keep track of:
- Odometer Readings recorded
- Mileage Logs maintained
- Expense reports
Charity or Advertising?
Why does it matter? There are limitations for how much you can deduct of charity deductions. When helping out a cause, is there a way to promote your business? If so, document this and it will move the deduction to advertising.
You cannot have a bad debt if you are on a cash basis unless it’s a NSF check that’s noncollectable!
- Review your Accounts Receivable for any bad debts (noncollectable). You can write off your bad debts if:
- In order to have a Bad Debt, you must have recorded it in your sales!
- You must have made every reasonable attempt possible to collect –(document your attempts).
- List or submit your Bad Debts.
- Why do you have a bad debt? It may be a tax deduction but it is lost profits!
- Verify before doing business
- Change terms/conditions of sale
- In order to have a Bad Debt, you must have recorded it in your sales!
Is there a piece of equipment your business needs (not wants)?
- If put into service before 12/31/17 it could be fully written off, thus saving tax dollars now!
- Make sure the equipment is needed & necessary! Spending money just to save tax dollars is a losing financial transaction. It must make you money (Investment).
- We have posted on our website the guidelines for how long you are required to keep your various business records. Please check out our website!
- Remember to properly dispose of these records
- We do offer the use of our shred service (limited) for a MDA donation- (Ask our office)
- Is your corporation up to date? Shareholder meetings, minutes?
- Should you file an election to avoid having to do this?
Do you have your year-end inventory planned? The IRS requires that you must take a physical count of all inventories on hand as of December 31. This list would include a description of each inventory item, quantity on hand, unit price, and total cost. Work-in-progress inventory is valued at the cost of materials, labor, and other direct costs included in the unfinished inventory items as of December 31.
- If you feel that this is not important or do not have enough time, ask yourself, if this was your cash on the shelves, would you want to know all your money is there?
- An accurate inventory can reveal a lot of what is wrong with your business!
- Gross profit %
- Too much?
Wishing you and your family the best this holiday season!
Hammernik & Associates
Bitcoin mania is upon us. It has been widely publicized that the cryptocurrency, Bitcoin, has reached record highs in value over the past month. Investors are making nice profits with Bitcoin, and the IRS is trying to find a way to get their share of tax on those profits.
So, what is Bitcoin?
Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency – the system works without a central repository or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.Research produced by Cambridge University estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
The IRS Wants Their Cut
There is not a middle man, which would usually be a bank, when Bitcoin is bought or sold. Therefore, there is not a third party administrator to report these transactions to the IRS. The IRS has realized that there are billions of dollars being made, and they want their tax! In November 2016, they put in a request to the court system to obtain the data of users that have transferred Bitcoin. Their reasoning is this, “There has been an explosion of billions of dollars of wealth in just a few years from bitcoin, a significant amount of which has no doubt accrued to United States taxpayers, with virtually no third-party reporting to the IRS of that increase in income.”
On Wednesday, the Court awarded the IRS a small victory in the case. Although the IRS did not get everything they asked for, they were awarded the following information from the largest Bitcoin platform, coinbase.com.
The Court has ordered Coinbase to produce the following customer information:
- taxpayer ID number,
- birth date,
- records of account activity including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and
- all periodic statements of account or invoices (or the equivalent).
However, that information is limited to those accounts with at least $20,000 in any one transaction type (buy, sell, send, or receive) in any one year from 2013 to 2015.
These are the only records that Coinbase needs to provide at this time.
This determination likely means that many account holders are breathing a sigh of relief…for now. But as virtually currency growsin popularity, with Bitcoin blowing past $11,000 this week, I can guarantee that IRS won’t stop with this request. Those who are buying Bitcoin are currently making money – and the IRS wants a cut.
How Is Bitcoin Taxed?
The IRS has determined that US taxpayers should treat digital currency as capital assets, as long as they are convertible into cash. Capital assets are taxed in two different ways, long term and short term. Long term sales, which means that the taxpayer held the currency for at least 1 year before the sale, is taxed at long-term capital gains tax which is 0-20% depending on your tax bracket. However, if you decide to sell your cryptocurrency in less than one year, it will be taxed at your normal federal tax rate.
There is a large problem that exists in determining the sale of Bitcoin. As mentioned earlier, the currency can be used to pay for services. You can buy online services, retail services, and even food. Vendors have begun to accept Bitcoin as a form of payment, similar to credit cards or PayPal. The IRS’ position on this matter is that any time a purchase is made, that is considered a sale of Bitcoin. If there was any profit on the Bitcoin from the original date of purchase, that would be considered a gain.
Are taxpayers required to report income from Bitcoin? The answer is yes. Bitcoin is the same as trading stocks. Any profit that you make is income, and that income should be taxed. However, as previously mentioned, there is no third party to report this income to the IRS. For instance, when you sell stocks, your stock broker will report that trade on tax form 1099-B to the IRS. The reality is, very few Bitcoin transactions are being reported to the IRS. 2013: 807/150M tax returns reported Bitcoin transactions, 2014: 893/151M tax returns reported Bitcoin transactions, 2015: 802/153M tax returns reported Bitcoin transactions.
The bottom line is, the government is seeking better compliance with the buying and selling of cryptocurrency. The battle between the IRS and Coinbase will continue. If the IRS gets a hold of records that show you sold Bitcoin, and you did not report it as income on your tax return, expect a love letter from them in the future. Please note that the most recent Court resolution only releases data from 2013-2015 for transactions in excess of $20,000.
Should You Invest In Bitcoin?
The answer is different for everybody. You need to ask yourself, what kind of investor am I? If you consider yourself an aggressive investor, you might want to research Bitcoin. If you are conservative with your investing, it is probably best that you stay away. Bitcoin is very volatile. This means that the potential for a big profit is there, but you also have to be okay with losing all of your investment. Do your research first.
If you did not think that you needed to report Bitcoin sales in the past, you will want to consider going back and amending (changing) your tax return for the year of sale to report the transaction. If the IRS receives information that shows you made a sale, and did not report it, they will assess you the tax due plus interest and penalties. Please email me with any questions regarding Bitcoin.
Nicholas Hammernik, EA
Hammernik & Associates is located in West Allis, WI and helps taxpayers in the Milwaukee area with tax planning and tax preparation.