This is a satirical article and is not meant to be serious. No IRS agents were hurt in the writing of this article.
Brewers fever is rampant in Milwaukee. If you have been in my office before, you know how big of a Brewers fan that I am. As I am writing this, I am getting excited to head to Miller Park tonight to watch Game 1 of the National League Championship Series. I like to take any opportunity that I can to try and clash the sports world into the tax world. So, here’s my hot take….The Dodgers are the IRS and the Brewers are Hammernik & Associates.
The Dodgers have one of the highest payrolls in baseball. They bring in money and toss it around like it’s nothing. Remind you of someone? Ah yes, the IRS. The big market Dodgers think they can push the small market around with their buying power and authority, just like the IRS does with Milwaukee taxpayers.
The Brewers’ postseason slogan is, “Defend MKE”. Hammernik & Associates defends the taxpayers of Milwaukee against the IRS anytime that they receive a letter or audited by the IRS. Hammernik & Associates does everything that we can to use the deductions and credits available by IRS law to reduce the money that taxpayers pay the IRS. The best way to combat the big dog is to be knowledgeable and creative with tax law. General Manager, David Stearns, is one of the smartest men in baseball, and used his resources to put together a competitive roster. In addition, Manager, Craig Counsell, uses his creativity to do some out of the box thinking i.e. moving 3rd basemen Travis Shaw to 2nd base, bullpen game in the playoffs.
Dodgers= IRS, Brewers Management=Hammernik & Associates. Baseball games cannot be won without the players, and tax cannot be reduced without strategies. Let’s match some of the Brewers’ roster with tax deductions and credits!
Lorenzo Cain: Educator Expense Deduction – Lorenzo Cain is the smartest player on the field at all times. He not only is a leader, but he teaches the younger guys the right way to play the game.
Christian Yelich: Section 199-A Deduction – Chrisitan Yelich is new to the team just like the 199-A is new to the 2018 tax code. The 199-A deduction is a big-time deduction that is going to provide a huge tax break to small businesses. You see where I’m going here? Christian Yelich has been the main force behind the “small business” that is the Milwaukee Brewers.
Ryan Braun: Child Tax Credit – The child tax credit has been a consistent credit helping families out for years. As of 2018, the child tax credit went from $1,000 up to $2,000. Ryan Braun has been the one consistent on the Brewers over the past decade. This year he has brought his level of play close to the level we had grown accustomed to over the years.
Jesus Aguilar: American Opportunity Credit – The AOTC is one of the biggest credits available, as it offers up to a $2,500 credit. Jesus Aguilar (JESUS BOMBS) is the biggest human being on the roster and packs a big punch at the plate. The play on words here is very fitting as well. Jesus Aguilar was once a bench player, but took full advantage of his OPPORTUNITY to take over an everyday role.
Travis Shaw: Refundable Tax Credits – Refundable tax credits are the most versatile types of tax credits, because they can be used to both reduce tax and get a straight refund. Travis Shaw was forced to become versatile when he was moved to 2B, and he has done a great job with the transition.
Mike Moustakas: Rental Property Deductions – There is a chance Moose comes back to the Brew Crew next year, but for the most part, he is a rental player for the year. Rental properties can be a very good investment….just like Moustakas.
Orlando Arcia: Entertainment Expense Deduction – Watch Arcia snag balls at shortstop….Are you not entertained?!
Erik Kratz: The Senior Tax Credit – He may be only 38, but Kratz Daddy is a senior citizen based on MLB standards.
Manny Pina: Theft & Casualty Loss Deduction – Don’t even try swiping 2nd base on Manny…otherwise, you to will need to take a theft loss deduction.
Jonathan Schoop: Gambling Loss Deduction – This is the only negative one on the list. Almost every gamble David Stearns has taken in free agency and the trade market has paid off, but not this one (so far). With all the gambling winnings Stearns has made, he will need to take this loss to reduce the tax on those winnings.
Jeremy Jeffress: Wisconsin Subtractions From Income – It’s no secret that JJ thrives when he is pitching in Milwaukee, and has struggled during his tenure with other teams. Jeffress has his most success when living in Wisconsin.
There you have it. The Milwaukee Tax Deduction roster. Let me know if you have any good comparisons of your own.
Let’s Go Crew!
Nicholas Hammernik, EA, CTC
Christmas has come early for Wisconsin residents with qualified dependent children. Beginning tomorrow, May 15th, Wisconsin residents can apply for a $100 per child tax rebate online. The purpose of the rebate is to repay sales tax for expenses associated with raising a child. The rebate will return an estimated $122 million to qualified Wisconsin taxpayers. Wisconsin taxpayers have until July 2nd to claim the rebate.
Claim the rebate here —> https://childtaxrebate.wi.gov/_/
Who is qualified to receive the rebate?
Taxpayers with dependent children may qualify, if:
Child must be:
- Under age 18 on December 31, 2017
- A dependent* of the claimant for tax year 2017
- A Wisconsin resident on December 31, 2017
- A United States citizen
If you DID NOT claim your child as a dependent on your tax return for 2017, you are not eligible to claim the rebate.
What You Need to File Your Claim
- Your Social Security number and Wisconsin residency for tax year 2017
- Your qualified child’s Social Security number and date of birth
- If you wish to direct deposit, we’ll need your bank routing number and account number
- If you are a nonresident or part-year resident that moved out of Wisconsin in 2017, you must submit receipts showing at least $100 of Wisconsin sales/use tax paid in 2017 for each child and proof each child was a Wisconsin resident on December 31, 2017
Spread the word about the credit to your friends and family. It is a use it or lose it credit that must be claimed by the July 2nd deadline. If you have any questions regarding the credit, please feel free to contact our office.
Almost two weeks into the 2017 tax filing season, and we get this news bomb laid on us….This morning, in order to avoid another Government shutdown, President Trump signed a budget bill which retroactively extends a few tax laws that had expired for 2017. If you have already filed your tax return, you might need to file an amended tax return to claim some of these deductions.
The most notable changes include:
Exclusion for discharge of indebtedness on a principal residence
The provision extends the exclusion from gross income of a discharge of qualified principal residence indebtedness through 2017. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.
Premiums for mortgage insurance (PMI) deductible as mortgage interest
The provision extends the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction through 2017. This deduction phases out ratably for taxpayers with adjusted gross income of $100,000 to $110,000.
Above-the-line deduction for qualified tuition and related expenses
The provision extends the above-the-line deduction for qualified tuition and related expenses for higher education through 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
Three-year depreciation for race horses 2-years-old or younger
The provision extends the 3-year recovery period for race horses to property placed in service during 2017.
Also incorporated into the bill is a series of additional provisions that will go into effect for the 2018 tax year. The following are noteworthy:
Requirement for new Form 1040SR for seniors
The provision requires that the IRS publish a simplified income tax return form, designated a Form 1040SR, for use by persons who are age 65 or older by the close of the taxable year. The form is to be as similar as possible to the Form 1040EZ. The use of Form 1040SR is not to be restricted based on the amount of taxable income to be shown on the return, or the fact that the income to be reported for the taxable year includes social security benefits, distributions from qualified retirement plans, annuities or other such deferred payment arrangements, interest and dividends, or capital gains and losses taken into account in determining adjusted net capital gain. This provision is effective for taxable years beginning after the date of enactment.
Prohibition of modifying user fee requirements for installment agreements
The provision prohibits increases in the amount of user fees charged by the IRS for installment agreements. In addition, the IRS is required to waive the fees imposed for installment agreements for taxpayers whose income falls below 250 percent of the poverty line and have agreed to make the payments by electronic means through a debit account. Further, for those taxpayers whose income falls below 250 percent of the poverty line, are unbanked, and successfully complete an installment agreement, the fee would be reimbursed at the end of the installment agreement period.
Individuals held harmless on improper levy on retirement plans
The provision allows amounts, including interest, returned to an individual from the IRS pursuant to a levy to be contributed to the IRA, or employer-sponsored plan, without regard to normal contribution limits. In addition, the IRS is required to pay interest on an amount returned. The provision is effective for levied amounts, and interest thereon, returned to individuals in taxable years beginning after December 31, 2017.
Hammernik & Associates is here to keep up with the tax law changes to make sure you receive the proper deductions and credits. Please contact us if there was something extended that applies to you, and you need to amend a tax return.
One of the main focuses of the tax reform was to provide tax breaks to both small business and corporations. This includes sole proprietors whom file a Schedule C on their tax return. So, if you have been thinking of starting your own business, 2018 is the time to do it. The tax savings on pass through entities is going to greatly impact small business owners in Milwaukee, Waukesha, and all of Southeastern Wisconsin. It will be important to begin tax planning throughout the year to make sure you make adjustments based on the new laws. Let’s take a more in-depth look at the specifics of the deductions….
Tax Reform Provides New 20% Deduction
The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.
Rejoice if you operate your business as a sole proprietorship, partnership, or S corporation, because your 2018 income from these businesses can qualify for some or all of the new 20 percent deduction.
You also can qualify for the new 20 percent 2018 tax deduction on the income you receive from your real estate investments, publicly traded partnerships, real estate investment trusts (REITs), and qualified cooperatives.
When can you as a business owner qualify for this new 20 percent tax deduction with almost no complications?
To qualify for the 20 percent with almost no complications, you need two things: First, you need qualified business income from one of the sources above to which you can apply the 20 percent. Second, to avoid complications, you need “defined taxable income” of
- $315,000 or less if married filing a joint return, or
- $157,500 or less if filing as a single taxpayer.
Example. You are single and operate your business as a proprietorship. It produces $150,000 of qualified business income. Your other income and deductions result in defined taxable income of $153,000. You qualify for a deduction of $30,000 ($150,000 x 20 percent).
If you operate your business as a partnership or S corporation and you have the qualified business income and defined taxable income numbers above, you qualify for the same $30,000 deduction. The same is true if your income comes from a rental property, real estate investment trust, or limited partnership.
Some unfriendly rules apply to what Section 199A calls a specified service trade or business, such as operating as a law or accounting firm. But if the doctor, lawyer, actor, or accountant has defined taxable income less than the thresholds above, he or she qualifies for the full 20 percent deduction on his or her qualified business income.
In other words, if you are a lawyer with the same facts as in the example above, you would qualify for the $30,000 deduction.
Once you are above the thresholds and phaseouts ($50,000 single, $100,000 married filing jointly), you can qualify for the Section 199A deduction only when
- you are not in the out-of-favor group (accountant, doctor, lawyer, etc.), and
- your qualified business pays W-2 wages and/or has property.
Phaseout for New 20% Deduction
If your pass-through business is an in-favor business and it qualifies for tax reform’s new 20 percent tax deduction on qualified business income, you benefit at all times, including being above, below, or in the expanded wage and property phase-in range.
On the other hand, if your business is a specified service trade or business (doctors, lawyers, accountants, actors, athletes, traders, etc.), it is in the out-of-favor group and you benefit only when you are in or below the phaseout range.
Once your taxable income exceeds the threshold amounts above, you arrive in one of the four possible categories below:
- Phase-in range for a non-specified service trade or business
- Phaseout range for a specified service trade or business
- Above the phase-in range for an in-favor non-specified service trade or business
- Above the phaseout range for an out-of-favor specified service trade or business
If your taxable income is going to be above the threshold amounts that trigger the phase-in or phaseout issues, contact us so we can spend some time on your tax planning.
How the 20% Deduction Works for a Specified Service Provider
As discussed above, the 20 percent tax deduction under new 2018 tax code Section 199A is a very nice tax break for business owners, except for owners with high income who also fall into the out-of-favor group.
In general, the out-of-favor group includes lawyers, doctors, accountants, tax professionals, consultants, athletes, authors, securities traders, actors, singers, musicians, entertainers, and others.
Getting just a little more technical, the out-of-favor “specified service trade or business” group includes any trade or business
- involving the performance of services in the fields of health, law, consulting, athletics, financial services, and brokerage services; or
- where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners; or
- that involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. For this purpose, a security and a commodity have the meanings provided in the rules for the mark-to-market accounting method for dealers in securities (Sections 475(c)(2) and 475(e)(2), respectively).
Notably, engineers and architects who had previously been in the out-of-favor professionals group somehow escaped the group with passage of this new law.
When you are a member of the out-of-favor group, your Section 199A deduction on your out-of-favor business is zero when you have taxable income of more than
- $415,000 if married filing a joint return, or
- $207,500 filing as a single taxpayer.
Preserve the Deduction with an S Corporation
Will your business operation create the 20 percent tax deduction for you?
If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of business entity may produce the tax savings you are looking for.
As mentioned above, to qualify for the full 20 percent deduction on your qualified business income under new tax code Section 199A, you need defined taxable income of less than $157,500 (single) or $315,000 (married).
If your taxable income is greater than $207,500 (single) or $415,000 (married), you don’t qualify for the Section 199A deduction unless you pay W-2 wages or have property.
Example. Sam is single, not in the out-of-favor specified service trade or business group (doctors, lawyers, consultants, etc.), operates a sole proprietorship that generates $400,000 of proprietorship net income, and has taxable income of $370,000. In this condition, Sam’s 20 percent Section 199A tax deduction is zero.
Here’s how the S corporation helps Sam. The S corporation pays Sam a reasonable salary, let’s say that’s $100,000. With this salary, Sam pockets
- $10,871 on his self-employment taxes, and
- $17,500 on his newfound 20 percent deduction under new tax code Section 199A.
Tax Reform Destroys Entertainment Deductions for Businesses
First, lawmakers reduced the directly related and associated entertainment deductions to 80 percent with the 1986 Tax Reform Act. Later, in 1993, they reduced that 80 percent to 50 percent.
And now, with the newest tax reform, lawmakers simply killed business deductions for directly related and associated entertainment effective January 1, 2018.
For example, during 2017, you could take a prospect or client to a business dinner followed by the theater or a ballgame and deduct 50 percent of all the monies spent, providing you passed some tax law tests on business discussion and associated entertainment.
Now, in what you and I thought was a business-friendly tax reform package, you find that lawmakers exterminated a big chunk of business entertainment. You can no longer deduct entertainment that has as its mission the generation of business income or other specific business benefit.
The 2018 tax reform prohibition against deductible entertainment is true regardless of your business discussion, negotiation, business meeting, or other bona fide transaction.
Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:
- Business meals with clients or prospects
- Tickets to sports games—football, baseball, basketball, soccer, etc.
Entertainment That Survived Tax Reform
As just discussed above, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.
Common forms of directly related and associated entertainment that are no longer deductible include business meals with clients or prospects, golf, football games, and similar business-building activities.
That’s the bad news. The good news is that tax code Section 274(e) pretty much survived the entertainment bloodletting. Under this section, you continue to deduct
- entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes;
- expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are highly compensated employees);
- expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent);
- expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law also limits expenses for food and beverages to 50 percent);
- expenses for goods, services, and facilities you or your business makes available to the general public;
- expenses for entertainment goods, services, and facilities that you sell to customers; and
- expenses paid on behalf of nonemployees that are includable in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award.
When you are considering using the above survivors of tax reform’s entertainment cuts, you will find good strategies in the following:
- Renting your home to your corporation.
- Taking your employees on an employee party trip.
- Partying with your employees.
- Making your vacation home a deductible entertainment facility.
- Creating an employee entertainment facility.
- Deducting the entertainment facility, because facility use creates compensation to users.
If you would like our help implementing any of the strategies above, please don’t hesitate to contact us.
Tax Reform Cuts Deductions for Employee Meals to 50 Percent
Tax reform (Public Law 115-97) includes winners and losers.
Employers who for their convenience provided business meals for their employees are losers—50 percent losers to start and then total losers later.
Meal costs that were 100 percent deductible for perhaps a half century or more are now limited to 50 percent, and that 50 percent becomes a big fat zero deduction beginning January 1, 2026.
Employee meals that were 100 percent deductible but are now 50 percent deductible beginning January 1, 2018, include
- meals served at required business meetings on your business premises;
- meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office;
- meals served to employees who are required to staff their positions during breakfast, lunch, and/or dinner times;
- meals served to employees at in-office cafeterias; and
- food and meal costs for employees who are required to live on premises for the convenience of the employer.
For 2018, you need an account in your chart of accounts that says something like “meals subject to 50 percent cut.” In this category, you can put travel meals and the meals above.
Tax Benefit for Business Vehicle Trade-In Eliminated
Beginning January 1, 2018, tax reform no longer allows Section 1031 exchanges on personal property such as your business vehicle.
The trade-in was the most common 1031 exchange of a business vehicle. Now, because of tax reform, the vehicle trade-in is simply the sale of the old vehicle to the dealer and the purchase of a new vehicle. The sale to the dealer creates gain or loss on the sale just as it would on an outright sale.
But having a taxable event does not necessarily mean that you are going to pay more taxes. There’s more than one nifty silver lining for many business taxpayers in this lost ability.
For example, if you pay self-employment taxes, you usually come out ahead if you use the “sell and buy” strategy rather than the trade-in strategy (Section 1031 exchange).
With the sell-and-buy strategy, you save self-employment taxes because
- you don’t pay self-employment taxes on the sale of your existing business vehicle, and
- you deduct depreciation and Section 179 expensing on your new vehicle (even when you use IRS mileage rates, you benefit).
Owners of S and C corporations don’t generate any self-employment tax savings on the sales and purchases of new vehicles. They just have gains and losses.
If you operate as a corporation and the sale or trade-in of your existing vehicle is going to produce a big taxable gain, why do it? Before tax reform, when you could avoid taxes with the trade-in, you could easily justify the newer vehicle. This isn’t the case with tax reform. More than ever, it’s important to calculate your tax result before you sell or trade in a vehicle or other personal property.
Tax Reform Creates Taxes on Employee Fringe Benefit for Bicycles
Tax reform created taxes on the employee fringe benefit for bicycles. You could (and can) deduct your costs for reimbursing employees for their qualified bicycle transportation costs. But tax reform now makes this bicycle transportation benefit a taxable event for your employees.
In what for this tax reform is an interesting twist, businesses may continue to pay the monthly $20 bicycle benefit, but they must add the benefit to the employee’s W-2 and subject it to withholding and payroll taxes. The employee continues to come out ahead with the bicycle reimbursement even though it’s taxable.
Example. Say the employee receives a $100 reimbursement and pays taxes at the 25 percent rate. The employee is $75 ahead ($100 – $25).
If you are an employer, you should consider continuing this fringe benefit because it does help your employee with his or her physical health and it costs you almost nothing. Because of tax reform, you’ll have to change your payroll for this fringe benefit, but that’s not likely to cause much trouble.
As everyone knows, the Government is currently shutdown. The IRS is part of the Government. So what does a shutdown mean for you when you file your tax return?
First, it is important to remember that the BEFORE the shutdown even happened, the IRS was not filing tax returns until January 29th. So, if the Government is back up and running by that time, business will go on as usual. However, if the Government is still shutdown a week from now, some things will be affected, while some may not.
Issues that would be put on hold:
- No tax refunds issued – Keep in mind that many refunds that involve certain credits will not be released until February 27th regardless.
- No processing of non-disaster relief transcripts
- No processing of forms 1040X, amended returns
- No non-automated collections
- No audit or examinations (some exceptions apply)
- No whistleblower office activity
Here’s a partial list of functions that directly impact taxpayers which will typically continue if the government shuts down:
- Processing of returns with payments
- Mailing tax forms
- Appeals (statutory deadlines will not be changed)
- Call centers (only during filing season)
- Civil and criminal tax cases
- Certain communications to taxpayers
- Active criminal investigations
To sum it up, the biggest issue here would be a delay in refunds being issued. However, you will still be able to file your tax return on 1/29/18. If you are typically an early filer, we would suggest you continue to do so. Filing early will reduce your chances of being a victim of ID theft. Please keep in mind this is the tentative plan and these plans can be changed. We will update with any changes as they happen.
As it does every year, the Internal Revenue Service has announced the inflation- adjusted 2018 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable or medical purposes.
Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (or a van, pickup or panel truck) are:
- 54.5 cents per mile for business miles driven (including a 25-cent-per-mile allocation for depreciation). This is up from 53.5 cents in 2017
- 18 cents per mile driven for medical purposes. This is up from 17 cents in 2017
- 14 cents per mile driven in service of charitable organizations.
The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by Congressional action) and has been 14 cents per mile for over 15 years.
Something to consider… The 2018 rates are based on 2017 fuel costs. Based on the potential for substantially higher gas prices in 2018, it may be appropriate to consider switching to the actual expense method for 2018, or at least keeping track of the actual expenses, including fuel costs, repairs, maintenance, etc., so that the option is available for 2018.
Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates, as long as standard mileage was used in the first year the vehicle was operated. However, the standard mileage rates cannot be used if you have used the actual expense method in previous years. This rule is applied on a vehicle-by-vehicle basis. The business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles simultaneously.
Employer Reimbursement – When employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.
The Tax Cuts and Jobs Act eliminated employee business expenses as an itemized deduction, effective for 2018 through 2025. Therefore, employees may no longer take a deduction on their federal returns for unreimbursed employment-related use of their cars.
If you have questions related to the best methods of deducting the business use of your vehicle or the documentation required, please give us a call or ask your tax consultant during your tax meeting.
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.
The best part of Black Friday for me, is waiting for videos to surface online of straight up WWE fights happening in stores over a $20 item. It is hilarious, but sometimes sad, to see the extent that some people will go to in order to say that they saved 50% on Black Friday. It reminds me of the holiday classic, Jingle All The Way. This is such a hidden gem of a Christmas movie, starring Arnold Schwarzenegger and Sinbad, who go to extreme lengths to get their hands on a Turbo Man toy for Christmas. Do not mess with someone that looks the way Arnold looks on Black Friday.
Nowadays, consumers have a much less stressful way to do their shopping….online. TAX GUY PSA: Remember that if you do not pay sales tax on your online purchases, you are to report these purchases on your Wisconsin tax return. Most online retailers now charge sales tax, however, there are still some purchases from sites such as Ebay or Amazon that do not charge you sales tax.
Tomorrow is the real day to do your shopping. Small Business Saturday. I promote Small Business Saturday every year for two reasons. 1) Our specialty is working with small business owners. I know how hard a small business owner works and the passion that they have for their business. 2) Small business success correlates with the success of your community. Keep your dollars inside of your own community instead of big box retailers in New York and California. The economic well being of your community is dependent on the success of the small businesses that occupy your community.
You won’t hear about all of the great deals that you can get on Small Business Saturday, because they don’t have millions of dollars to blow on advertisements like the retailers on Black Friday do. You can find local businesses in your area that are participating in Small Business Saturday here. Also, be on the lookout for your favorite local stores’ Facebook, Instagram, and Twitter pages to see what they are offering for Small Business Saturday. Avoid the stress today, shop small tomorrow.