Tax Laws Slowing Growth of Small Business

In a recent testimony before Congress, Troy Lewis, CPA, CGMA, and chair of the American Institute of CPAs’ (AICPA) Tax Executive Committee, claimed that that compliance with federal tax laws can act as a road block in the growth of small businesses, according to Seth Fineberg, writing in Accounting Web.

 “It is imperative that small businesses and their tax return preparers have the ability to communicate with the IRS when preparing their taxes and addressing compliance issues,” Lewis told committee members. “However, there has been increasingly limited access to the agency. Taxpayer service must remain a high priority in order for small businesses to receive the assistance they need on tax issues.”

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Inverting Companies Regain Contract Eligibility

In an article published in Bloomberg News, Zachary R. Mider reports that the Obama administration quietly handed a victory to U.S. companies that avoid taxes by claiming a foreign address, suggesting that virtually all of them are still eligible for government contracts.

The Department of Homeland Security last year endorsed a legal memorandum that argued in part that a 2002 law banning such companies from federal contracts was invalid, according to a copy of the memo obtained by Bloomberg News. Although President Barack Obama later began publicly criticizing the tax maneuvers known as inversions, there’s no sign that he has reversed the department’s decision.

The March 2013 memo was submitted to Homeland Security by one of the country’s largest inverted companies, the manufacturer Ingersoll-Rand Plc. The company argued in part that U.S. trade agreements with foreign governments invalidated the law that would prohibit it from winning federal contracts.

You can ask a real person what this means by calling Neikirk, Mahoney & Smith CPAs at 502-896-2999.

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State-based marketplaces lag behind federal exchange

Brian M. Kalish, writing in the Employment Benefit Advisor, reports that state-based health insurance marketplaces aren't performing up to the Obama Administration's expectations.

As they struggle to become financially stable, state-based marketplaces are lagging behind the federally-facilitated marketplace and are likely to continue to do so in the near future.

Despite improvement efforts, it is safe to “say that the experience for issuers on the public exchange has been challenging,” said Scott Rathke, vice president of government relations at Tampa, Fla.-based Health Plan Services, a third-party administrator which works in the FFM and eight state-based marketplaces.

“Pretty much from the get-go, while the marketplaces have been improving, you still have lots of nuances and problems.”

If you have questions about your company's employee benefit structure, contact Neikirk, Mahoney & Smith at 502-896-2999.

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Scam Phone Calls Continue; IRS Identifies Five Easy Ways to Spot Suspicious Calls

The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill..
   
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
   
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
   
4. Ask for credit or debit card numbers over the phone.
   
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

• If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
  
• If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or atwww.tigta.gov.
  
• You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams are available on IRS social media sites, including YouTube and Tumblr where people can search “scam” to find all the scam-related posts.

Tax Tips for Students with Summer Jobs from Neikirk, Mahoney & Smith

Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes:

• Withholding and Estimated Tax.  If you are an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated tax directly to the IRS on set dates during the year. This is how our pay-as-you-go tax system works.
• New Employees.  When you get a new job, you will need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
• Self-Employment.  Money you earn doing work for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction can cut taxes.
• Tip Income.  All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
• Payroll Taxes.  You may earn too little from your summer job to owe income tax. But your employer usually must withhold social security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
• Newspaper Carriers.  Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
• ROTC Pay.  If you’re in ROTC, active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.
• Use IRS Free File.  You can prepare and e-file your tax return for free using IRS Free File. It is only available on IRS.gov. 
• You may not earn enough money to be required to file a federal tax return. Even if that is true, you may still want to file. For example, if your employer withheld income tax from your pay, you will have to file a return to get a tax refund.

If you have more questions, or if you could use some advice, contact Neikirk, Mahoney & Smith PLLC, at (502) 896-2999.

Tax Tips From the IRS for Self-employed Folks

IRS recognizes Small Business Week May 4 – 8, 2015, by highlighting some of its most popular educational products, videos and webinars to help your small business thrive. If you are self-employed, be sure to view the IRS webinar “Business Taxes for the Self-Employed: The Basics.” 

Here are some topics included in the webinar or on IRS.gov that you should know:

Accounting Method.  An accounting method is a set of rules about when to report income and expenses. Many small businesses use the cash method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Find out more in IRS Publication 538, Accounting Periods and Methods.

Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. You may have to pay self-employment tax as well as income tax if you make a profit. Self-employment tax, or SE tax, includes Social Security and Medicare taxes. You may need to pay your taxes by making estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

Tax Forms.  There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. Use Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.

Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business. View the webinar “Small Business Owners: Get All the Tax Benefits You Deserve” to learn more.

Business Use of a Vehicle.  If you use your car or truck for your business, you may be able to deduct the costs to operate the vehicle for the business use. Refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses for details.

Follow the IRS on Twitter! The IRS has three key accounts: @IRSnews, @IRStaxpros and @IRSenEspanol. For all the IRS Small Business Week information, keep an eye on these IRS Twitter accounts and the key hashtags: #IRSsbw15 and #DreamSmallBiz.

The good news is your Derby betting losses are (probably) tax deductible!

But the bad news is that your winnings are taxable. According to the IRS, gambling winnings are fully taxable and you must report them on your tax return.

Gambling income includes but is not limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.

A payer is required to issue you a Form W-2G (PDF), Certain Gambling Winnings, if you receive certain gambling winnings or if you have any gambling winnings subject to federal income tax withholding. You must report all gambling winnings on your Form 1040 (PDF) as "Other Income" (line 21), including winnings that are not subject to withholding.

In addition, you may be required to pay an estimated tax on your gambling winnings. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax. If you are considered a nonresident alien - like a Martian or something - of the United States for income tax purposes and you have to file a tax return, you must use Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. Refer to Publication 519, U.S. Tax Guide for Aliens, and Publication 901, U.S. Tax Treaties, for more information.

You may deduct gambling losses only if you itemize deductions. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return. Claim your gambling losses on Form 1040, Schedule A (PDF) as an "Other Miscellaneous Deduction" (line 28) that is not subject to the 2% limit. A nonresident alien of the United States cannot deduct gambling losses.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Refer to Publication 529, Miscellaneous Deductions, for more information.

Just a quick reminder from Neikirk, Mahoney & Smith on the horsiest weekend of the year!