In the past few days, the Virginia Society of CPAs, of which I am a longstanding member, issued a white paper allegedly stating the position of its members regarding tax reform in Virginia. The purpose of this post is to provide "the rest of the story".
In December 2017, Congress passed the Federal Tax Cuts and Jobs Act. As you are aware, this is a complex bill - much of which still has not been fully vetted by the IRS. However, at the state level, if Virginia chooses to conform to this bill without enacting some tax reform measures, the state is projected to collect additional revenues of approximately $600 million annually.
There are many impacts to Virginia taxpayers as a result of the TCJA, but the most obvious is the issue regarding the standard deduction. Now that the standard deduction is higher at the federal level ($24,000 for married couples), many taxpayers will use the standard deduction. This will force them to use the state standard deduction which is only $6,000. So, if your itemized deductions would have been $20,000 without using the higher federal amount, you are essentially being taxed at the state level on an additional $14,000. This equals an annual tax increase of $460. There are other examples of increases, but this is the most obvious and the one that will hit the majority of people earning less than $100,000 annually.
The VSCPA white paper does not represent our position on this issue. The white paper suggests that the state should conform to the Federal changes without enacting tax reform and suggests that the state could enact tax reform in future years. Well, we all know what happens when you kick the can down the road...it just keeps rolling along.
The Commonwealth had a surplus of $550 million for the year that recently ended. The state does not need additional taxpayer dollars.
We believe that Virginia legislators must do what the rest of us taxpayers (and CPAs) are foced to do: deal with it. This is an ideal time to have meaningful discussions in the General Assembly to improve and simplify the tax collection process. It is not a time for a back door tax increase.
In 2015, Congress enacted significant changes to partnership audit and adjustment rules that will become effective in just a few months. These changes were enacted with the expectation of increasing federal tax revenues from audits of LLCs and partnerships.
The new rules generally apply to entities that will file partnership returns for the 2018 and subsequent years. Most of these entities will need to revise their operating agreement to comply with the new requirements.
Important new provisions that may impact you
- The IRS may collect any additional tax, interest, and penalty directly from the partnership rather than from the partners (the tax will generally be assessed at the highest individual tax rate).
- Current partners could be responsible for tax liabilities of prior or deceased partners.
- New elections and opt-outs will be available for certain entities - your agreement will need revision to specify who makes these decisions.
- There are new tax terms and concepts that need to be incorporated in the partnership’s operating agreement.
Particularly, the new term “partnership representative” replaces the prior “tax matters partner.” The partnership representative is critical; they will act at the single point of contact between the IRS and the partnership and will have full authority to bind the partnership and the partners during an audit.
The current Manager or General Partner of the entity should contact their business attorney to discuss these new requirements. The operating agreement revisions should be in place prior to December 2018.
If your existing agreements have been recently prepared, you may be able to simply arrange for an amendment to the existing documents. For those entities with older documents, this is an ideal time to have a thorough review and revision to be certain that your agreements meet all current requirements.
While the document changes must be prepared by your business attorney, we can assist you in understanding the implications of these new requirements for your particular situation. It is likely that most of these entities will qualify for the “opt-out” rules, but the operating agreement must be properly revised to meet this requirement. Please do not hesitate to contact us to discuss these issues.
The new Form 1040 is the size of a postcard - but, there's a catch - most people will have to complete lots of new schedules. There are SIX new schedules that will replace the remainder of the traditional Form 1040.
The new form will require lots of work for the IRS, tax software companies and tax preparers to prepare for next year's tax filing season. IRS has been busy since the new tax law passed redesigning tax forms and then preparing the necessary instructions and regulations that accompany the new forms. The next step is for tax software companies to update their programs - the sweeping changes this year will require many updates! And then the tax preparers must follow in getting familiar with all the new forms and instructions.
Many ask - why such a drastic change? Quite simply, the tax code has outgrown the traditional two-page Form 1040. While Congress has touted the new tax bill as simplification, we all know better.
Our firm is looking forward to exploring these new changes and continuing to provide quality tax services for our clients.
One important feature that distinguishes CPAs from other tax preparers is the strict requirement to meet licensing standards and complete annual education requirements. Our learning process is ongoing with the constantly changing regulatory requirements, technology improvements and security protection.
This year, our professionals are busy attending seminars to decipher the Tax Cuts and Jobs Act passed in December, brushing up on the latest improvements in QuickBooks and other software applications, and reviewing the latest issues in preparing financial statements. Our requirements also include an annual course in Ethics required by the Virginia Board of Accountancy.
That's right...the Tax Cuts and Jobs Act of 2017 eliminated the deductions for all client entertainment and modified many of the deductions for meals. While these are legitimate expenses for many businesses, they have long been a target of IRS audits.
What is still deductible? The occasional office holiday party or summer picnic that includes all employees is still fully deductible. The quiet client business meal that includes the client and a taxpayer while discussing business matters continues to be a 50 percent deductible expense. And meals provided for the convenience of the employer or during business travel is now a 50 percent deductible expense.
Gone are all expenses incurred at sporting events, theaters, country clubs and such. However, many professionals are expecting Congress and the IRS to revisit these policies before year end...so stay tuned!
Businesses should review their accounting policies as soon as possible to verify that these expenses are properly recorded and available for review for tax reporting. Please contact our office for suggestions on how to ease into these new reporting requirements.
It's the time of year for the barrage of advertisements for free or "inexpensive" tax preparation services. A few years ago, the ads claimed "that it doesn't take a genius to prepare your taxes". This year, the ad includes IBM Watson, indicating that perhaps some degree of genius might be required.
Preparing basic tax returns does not require either a genius or Watson. It requires real people that listen to your concerns. It is usually by listening to our clients that we learn of new deductions or new situations that need to be addressed.
If your long term planning includes a goal to develop a strong household financial base and develop a good financial acumen, it's time to consider the services of a CPA. Whether you are starting your own business, trying to structure your investment or retirement plans, or just need to talk through your financial situation, you will find that a CPA has the skills that you will need.
No, we're probably not all geniuses - but all CPAs are required to pass the rigorous Uniform CPA exam, after completing many years of undergraduate and usually graduate level coursework. On an ongoing basis, we are required to meet certain experience requirements, licensing, and annual continuing education requirements.
We are here to listen to your concerns when your spouse passes away or your child is going through a difficult divorce. We enjoy hearing about your your new job, your new grandchild or your latest business dream - because all of that has an impact on your financial goals.
Come in...we're open for business...all year.
January is a great time to clean out the closets and the desks. Elsewhere on on our site, you will find our record retention guidelines for tax and financial documents. This is a good starting point.
Have you considered creating an organized electronic filing system? It's really quite easy and will free you of the burden of organizing, filing and storing paper documents.
To start with, think about how you would organize a filing cabinet if you were using paper files. Perhaps you would have a file drawer for each year, and within that drawer, you would have a folder for each company, bank or other type of document. The same theory holds true for filing electronically. Start by creating the folders that will hold the documents that you will be filing. And then, create one additional folder that will temporarily hold the scanned documents.
The next step is to invest in a good scanner (which can also serve as a printer/copier). Ideally, you will want one that has both a flatbed scanner and a document feeder. Be sure to set up your scanner to scan as a pdf type document rather than a picture file. Then, ready, set, scan. An easy enough task to do while watching an afternoon movie or game. As the documents are scanned into your temporary scan folder, name them appropriately. Once you have a bunch of documents scanned, simply "file" them into their appropriate folders that you have set up.
The next step is to download the documents that you normally receive electronically. Remember, if you ever choose to close a bank or brokerage account, your access will be permanent lost! Again, file these into the appropriate folders that you ahve set up.
Once the new system becomes a habit, you will realize how easy this is to maintain. Another advantage is that if you need to refer to a document, it is so easy to find! And, be sure your discarded documents that contain sensitive financial information are shredded before they make their way to the recycle bin.
January is a busy month for small businesses - it's housekeeping time! And, it's time to prepare and file Forms 1099 for vendors and subcontractors.
Vendors and subcontractors that you pay $600 or more in a calendar year must receive a Form 1099. There are two exemptions - payments to corporations and payments made by credit card.
The starting point is to obtain a completed Form W-9 from the vendor or subcontractor. This form collects the necessary information to prepare the Forms 1099. A writeable pdf copy of this form is available at the IRS website - https://www.irs.gov/pub/irs-pdf/fw9.pdf.
Steep penalties are imposed for failure to timely file Forms 1099. The penalty depends upon the business situation and the delay in filing, but can be as high as $530 per vendor. In addition, when filing your annual income tax return for the business, the business owner is required to note if they filed all required Forms 1099. Failure to respond to this question correctly is a red flag issue for the IRS.
Filing Forms 1099 is one of the regulatory burdens imposed upon small businesses, but it is a process that is here to stay. Call our office today if you need assistance!
Do you really know where your charity dollars go? Some charitable organizations do a great job of efficiently getting the dollars to the need. Others have high overhead, big executive salaries and fancy office space.
Before you write that check, check the facts at a reliable source such as www.charitynavigator.org. If you wish to deduct your contribution, you should also check their IRS status at https://www.irs.gov/charities-non-profits/search-for-charities.
For many of us, 2017 has been a prosperous year. However, there are many still in need - for that consider your local food bank. If you are served by a volunteer rescue or fire group, don't overlook their needs - the cost of providing quality equipment and supplies is great. If you enjoy the art, theatre, or musical presentations, consider them as well - ticket prices are only a small portion of their revenue.
Happy Holidays and Best Wishes for 2018!
It's time for small business owners to tend to their housekeeping - financial housekeeping, that is. A little time spent now to clean up your financial records will have your business ready to timely file 2017 tax returns and reports. More importantly, you will start 2018 with a clean slate.
Small businesses that are succesful are usually those that invest time and effort into a good bookkeeping and reporting system. At Rogers & Associates, we can assist - all of our professionals are certified by QuickBooks as ProAdvisors.
Contact us today for your free "get acquainted" meeting!
Did you know that our professionals are Certified ProAdvisors? Each year, we complete the extensive training provided by QuickBooks so that we can provide support for our small business clients.
Many small business owners purchase an accounting package, but are at a loss in getting it properly set up. An accounting package, like QuickBooks, should be a time saver for you. It should also help you run your business more efficiently and provide reports that steer your business in the right direction. But it will become a huge source of frustration if you don't get started properly.
Our professionals can assist in getting your QuickBooks file set up properly to begin with and provide ongoing training and support. Call us today to see how you can get started!
Are you suffering from crazy P@s$w0rd rules? Hang in there...the NIST (that's the government agency in charge of telling us how to handle our passwords) is in the process of issuing new recommendations. Gone are the requirements to change your password every 90 days and to use crazy combinations of letters and characters. New recommendations suggest checking your password against an easy to hack list and using a long phrase, such as Ilovemykidsandmydogsnameis nellybecauseiliveinnellysford.
Let's hope the software folks catch up on these revisions soon. Now, if we could just get a standard user name protocal, so we wouldn't have to remember so many different user names!!
Your baby is off to college and you are patting yourself on the back for filling up her 529 education account. What do you do now?
First of all, this is an area that the IRS loves to audit - so, you must save the receipts for the expenses that will be covered by the 529 account withdrawals. That being said, the list of covered expenses is generous. In addition to tuition and fees, you may cover room and board, technology needs, and required books and supplies.
If your child is not using the institution's room and board plan, their expenses may still be covered within the budget for their school. You can generally find this in the financial aid section of the school's website.
Does your teen have a job this summer? Most teens can claim exempt status on their employee forms (IRS Form W-4 and VA Form VA-4). Claiming exempt status will put more money in their take home check and eliminate the need to file a tax return in the spring to claim a refund.
And, this is a great time to introduce your child to the banking system. If they are old enough to work, they are old enough to learn how to manage a bank account. These are important life skills.
I have fond memories of my Father proudly taking me to the bank on a regular basis when he would handle his weekly banking and visit with the bank manager, who was a family friend. And, occasionally, my Father would have reason to visit the bank president, who kept a parrot in his office. Allegedly, the parrot was in charge of loan approvals!
Once, while away at a summer teen camp far from home in Montana, I was short on funds. As I had always done, I went to the local bank to cash a check (yes, kids, this is before ATMs). When the bank teller politely explained that they didn't accept out of town checks from teenagers, I politely asked to see the bank manager. Again, the bank manager politely explained that they didn't accept out of town checks from teenagers. With full confidence, I simply explained that a phone call to the manager of my local bank would confirm that my check was indeed good. The surprised manager made the call on my behalf and the check was approved!
The moral of this little story is that the many years of accompanying my Father to the bank gave me the confidence to handle this situation on my own at the young age of 16. The simple act of including your teen in your financial activities will help them to be confident and financially smart when they are on their own.
Are you building or remodeling? A little known tax credit is available for all Virginia residents - the residence does not have to include a person with special needs.
Tax credit funds are available in amounts up to $5,000 for various accessibility features. For more information, contact our office or visit the DHCD site at DHCD accessibility information.
According to IRS records, there are unclaimed refunds totaling 1 billion for people who failed to file their 2013 returns. If you haven't filed, you have until April 15, 2017 to file a claim to receive your potential 2013 refund.
Yes, filing season has begun. There has been some confusing information in the media regarding the filing season. Our firm has already filed several returns for 2016. This is the perfect time to file small business returns that do not need to wait for outside tax forms to arrive. The small business owner that files in January will be able to quickly close out their books for the past year and be ready to begin their accounting for the new year.
While most folks are getting ready for the holidays, we're busy getting ready for tax season!
If you are considering a change in your tax provider, this is the perfect time to contact us for your FREE consultation. If you decide to make a change, we'll have everything set up before we get into our busy tax season.
Have you been preparing your own returns? Perhaps you have this uneasy feeling that something isn't quite right or that you are missing out on deductions. It might be time to turn to a CPA.
Whatever your concern, we look forward to discussing your needs with you.
If your summer plans include a move, be sure to change your address with the IRS. If they send a notice to your old address and you don't respond, it could be a real problem!
As with any government interaction, there is a special form for this - Form 8822. Form 8822B is also available for business moves. You can access it at IRS Form 8822.
If you are receiving Social Security or Medicare benefits, you can make a change online at www.SSA.gov.
Sadly, this is no longer an elite group. Many clients are now asking what they can do - either after they have learned of a breach or proactively.
First of all, the IRS has some excellent resources. If you have been a victim or meet certain other criteria, you can consider getting an IP Pin for tax filings. They also provide a location now to include your driver's license number in the electronic data filed with your return to provide a secondary layer of identification. Find more on their website at : https://www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft.
Upon request, our firm provides clients with a portal for sending and receiving documents and tax returns. This is more secure and reliable than mail services. You should also consider using electronic account access for your banking and investment accounts. Be sure to save your monthly and annual account statements in pdf form - once the account is closed, the access is closed as well.
Finally, there is nothing better than common sense. Be as careful with your financial data as you would with a small child crossing a busy street. Use strong passwords and change them frequently. Scan and save all sensitive documents - shred the paper copies. Back up your computer data frequently and save a backup in your bank deposit box. Look out - a thief is coming your way!
Many cultures have a tradition of cleaning house before certain holidays. This is part of the penitential period that precedes many religous holidays. Of course, it's also a good excuse to clean house.
As we approach the holiday season and year end, its a good time to clean your financial "house". Do you have stocks that are in paper form or held in "drip" accounts? At one time, these were very popular. However, they are difficult for your executor or trustee to manage if you become incompacitated.
Contact your investment advisor or brokerage firm to arrange for these investments to be transferred to your existing investment account. Or, if you don't have one, arrange for a low cost account with an investment firm such as Schwab or E*Trade to hold these investments.
This is the time of year that many taxpayers receive what is called a CP2000 letter from our dear folks at the IRS. These letters are a bit scary - usually many pages long with calculations of proposed changes to your tax returns. I'm not sure of the actual statistics, but I would venture to say that at least 90 percent of these notices are inaccurate.
The notices are a result of the IRS computers matching the income and deductionsreported on the return with the information reported to them by payers on Forms 1099, W-2, etc. While taxpayers do occassionally overlook an item of income, the usual explanation is that the item was reported elsewhere on the return or in a different amount and the computers aren't smart enough to make the match.
The important thing to do with these notices is not to ignore them! They won't go away and tend to get pretty smelly with age. We generally recommend to our clients that they provide us with a limited power of attorney allowing us to communicate with the IRS on their behalf to resolve the issue.
To the extent adjustments to the return, a similar adjustment must be reported to the state. This is generally handled via an amended state return.
This matching process is now the primary enforcement tool of the IRS. The current audit rate is less than 1 percent of all taxpayers. Those taxpayers that are self-employed or have large incomes have a higher chance of audit than the general population.