For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

IR-2015-133, Nov. 24, 2015

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.

The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

Further details on this change can be found in Notice 2015-82, posted today on IRS.gov.

Don’t get caught by a phishing attempt

Scammers are very creative – don’t be sucked in. If you think something is wrong or doesn’t feel right, trust your instincts.

If you get contacted by someone you know add the email seems off, don’t be afraid to send a clean email (a new email with the address taken from your address book, don’t reply) and ask the person if they really sent it.

Here is a phishing attempt that just came through on one of my California, CPA Yahoo! Groups

“The Nigerians are at it again. I received an email inquiry from a potential new client claiming to be a business with messy books and needing tax help. I emailed back and asked him to call me at a specific date & time. No call. The next day I got another email saying that he had tired to call but there was no answer. He was sending details of what he needed in a document on Google Drive.
It seemed odd, but I stupidly attempted to access the document.

Got message that the document had been moved. Approximately 1 hour later, I got an email from Google saying that they had blocked an attempt to log into my Google account and they recommended changing the password and other security steps. This message showed up at my business email and another email that I use frequently and had listed as a back-up email account. Google located the “device” as a windows computer in Nigeria. The whole thing was a pure phishing attempt. Luckily Google blocked the attempted log in, and I got the warning and changed passwords right away.”

College Students Need an Estate Plan Too

Your child is going away to college and you want to make sure you have care of everything for them. You’ve gotten them the basic supplies they will need and figured out a way to quickly get them money when they need it (notice I say when, not if) using an ATM card or a low credit line credit card. But have you covered all of your bases???

Here is an article from the business associate which talks about some important documents you should have for your students who are in college (and maybe children not in college). Article by DeEtte L. Loeffler, J.D., L.LM

#collegeStudents #HealthCareDirective

Can you be an independent contractor in California?

The more I work with the EDD and see the court cases, the more I think the answer the question is – NO, you cannot be an independent contractor in California!

The IRS has a 20 point test to figure out whether you are an independent contractor or an employee. Some of the things it looks at is control, whether you have other clients and advertise yourself as a business, whether you set your own hours and your skill level.

California, it seems, has thrown this out the window and is focusing on two issues:

First, are the services you are providing integral to the business.

And, are you paid by the business.

The CA courts just ruled that the individuals working for Uber are employees because they are integral to the business. And to talk from personal experience, I just had a case where the EDD ruled that music teachers were employees of a music studio because they were integral to the music studio and they were paid by the music studio (not by the students directly). They ignored lack of control, having another business which was advertised to the public, having outside students and the other factors in the 20 point IRS test.

To make it even worse, I asked the EDD auditor “what about the following situation?” – I assisted another CPA during tax season a few years ago. I have my own CPA license and prepare over 200 tax returns annually. I went into his office whenever I add extra time and prepared tax returns without any supervision whatsoever. I asked her if I would be considered an employee and she said probably, because I was integral to the business and I was paid by the CPA not his clients!

So what do you do about this? Setting yourself up as a Corporation or other legal entity other than a sole proprietorship would probably solve the problem, but that creates other issues. And it creates the interesting scenario that two consultants  could be doing exactly the same thing but the sole proprietor would be considered an employee and the other consultant, operating as a Corporation, would be a contractor.

The other thing I recommend to everyone is to get a business license from anyone you are thinking of hiring as an independent contractor. This isn’t written in any of the books, but in my mind if someone does not have a business license, which is required by most cities, then you cannot treat them as an independent contractor. If they hove a license, then you can start looking at the other tests.

Taxpayers with Foreign Assets May Have FBAR and FATCA Filing Requirements in June

IR-2015-86, June 10, 2015

WASHINGTON—The Internal Revenue Service today reminded all taxpayers with an FBAR filing requirement to report their foreign assets by the June 30 deadline. FBAR filings have risen dramatically in recent years as FATCA phases in and other international compliance efforts have raised awareness among taxpayers with offshore assets.

The IRS encourages taxpayers with foreign assets, even relatively small amounts, to check if they have a filing requirement. Separately, certain taxpayers living abroad may also have to file the FATCA-related Form 8938 with their tax returns by the June 15 deadline. (Domestic filers may also be required to file Form 8938, which would have been due by April 15 with their tax returns.)

“The vast majority of taxpayers pay their fair share. The FBAR and FATCA filing requirements make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”

FBAR Requirements

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, that must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department. The form must be filed electronically and is only available online through the BSA E-Filing System website.

Who needs to file an FBAR? Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 generally must file. For more on filing requirements, see Current FBAR Guidance on IRS.gov. Also see the one-hour webinar explaining the FBAR requirement.

The FBAR filing requirement is not part of filing a tax return. The FBAR Form 114 is filed separately and directly with FinCEN.

FBAR filings have surged in recent years, according to data from FinCEN. FBAR filings exceeded 1 million for the first time in calendar year 2014 and rose nine of the last 10 years from about 280,000 back in 2005.

FATCA Requirements

FATCA refers to the Foreign Account Tax Compliance Act. The law addresses tax non-compliance by U.S. taxpayers with foreign accounts by focusing on reporting by U.S. taxpayers and foreign financial institutions.

In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938 Statement of Special Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions of this form for details.

The FATCA Form 8938 requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR Form 114.  A brief comparison of the two filing requirements is available on IRS.gov.

U.S. Income Tax Obligations

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, may have a U.S. tax liability and a filing requirement in 2015.

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their returns explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

More Information Available

Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers landing page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools assemble or group IRS forms, publications and web pages by subject and provide users with a single entry point to find tax information.

Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit the Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad page.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.

The IRS has launched new online videos and has expanded other online resources to help taxpayers, especially those living abroad, meet their U.S. tax obligations. For details see IR-2015-85 issued on June 4, 2015.

IRS CP-2100As for 2013 regarding backup withholding have been sent out

Many businesses have recently received a letter from the IRS notifying them about incorrect payee information and that they may need to begin backup withholding. Here is an explanation of what these notices mean.

The bottom line is this is a warning and a reminder to request correct Social Security numbers or federal EIN’s from the individuals and businesses listed in the notice and to start back-up withholding if you cannot obtain the correct information.

According to IRS regulations, you are required to withhold 28% of any amounts paid to an independent contractor if they have not given you their federal ID number or Social Security number. That’s why you are supposed to obtain a completed W-9 before you make any payments to an independent contractor.

If you have received one of these notices what has happened is you filed 1099’s for 2013 with either incorrect or missing numbers. Accordingly, the IRS is informing you that if you make any FUTURE payments to these individuals and companies, you are required to withhold the 28% and IF YOU DON’T the IRS will assess a penalty on us. You do not have to do anything about the prior year payments.

Fortunately, there is no penalty for first-time offenders. So as long as you correct the situation you will not be penalized.

If you need a W-9 to send to any of your independent contractors, you can download a copy on my Website Resource page

Phone calls coming from the IRS

Yesterday I got a phone call from a client indicating they had just been called by the IRS and they were threatening to send the sheriff to arrest him unless he made immediate payment. He asked to talk to their supervisor and supervisor told him the same thing.

I told him it was a scam and not to worry about it. He tried to discuss it with me and I told him there was nothing to discuss, that it is a scam.

On my Webinar today, the IRS confirmed that threatening phone calls pretending to be from the IRS are the biggest scam going. Their recommendation is to immediately hang up the phone and not engage in a conversation with them. If they call back hang up again. They will then probably move on to someone else.

Now having said that, if you have been talking with the IRS for an extended period of time about a specific issue then, yes, the IRS may tried to call you. But, they should not threatening in the phone call and they will not tell you they will be calling the sheriff.

Here is a link to the IRS page if you need to report a scam http://www.treasury.gov/tigta/contact_report_scam.shtml