Category Archives: tax strategy

Update from Sean Core CPA regarding Tax News and Impact from the Coronavirus (COVID-19) April 2020

As the world is now aware, we are amid a global pandemic regarding the COVID-19 virus.  At Sean Core CPA PLLC, we understand that there is no portion of society that has not been touched by this event.  Due to the ongoing and ever-changing aspects of this healthcare crisis, our practice is making changes in accordance with both government-mandated and common-sense procedures.  As always, our number one concern is servicing our clients to the best of our abilities.  As soon as possible we will return to our normal in-office operations, but until such time, we put the health and well-being of our customers and practice members at the forefront.

Here is how we will be proceeding over the next few weeks and possibly months:

  • All essential functions will be conducted to the fullest extent possible.
  • Communications and meetings will be done via phone or video conference
  • Documents can still be sent by mail as well as email, fax or uploaded to a secure portal such as google docs or dropbox.
  • Appointments are still to be scheduled but will be conducted over the phone.

We take neither this global health crisis nor the changes we must make to our normal processes lightly.  The COVID-19 pandemic has caused an almost immediate financial crisis across all industry sectors and we understand the effect on everyone’s fiscal well-being. With this in mind, we will continue to ensure that your tax and accountancy needs are met in line with the high standards you’ve come to expect from our practice.  Overall, we do not expect an interruption in our normal business services.  We sincerely appreciate your business and your continued confidence in our ability to satisfy your needs, especially during this trying time.

Quarter 1 2020 Tax Update

We apologize for this long list of updates but important revisions have occurred (see https://www.irs.gov/newsroom for the details). Many of our clients will be impacted by these new rules (sometimes positively) so we want to make sure you get the necessary information.

Tax Deadline

In addition to the filing deadline for tax returns being extended from April 15th to July 15th, several other government mandates have been put into place.  Please read the following carefully.  This is especially true if you are a business owner.  Digesting all the information may take several read-throughs.  Take your time and please feel free to call or email us with any questions.

The President has signed the Families First Coronavirus Act intended to ease the economic consequences stemming from the Coronavirus outbreak.  The Act provides for family and medical leave as well as sick leave, to employees and provides tax credits to employers and self-employed providing the leave. The Act also affects employer-sponsored health plans. Here are the details:

BUSINESS EMPLOYER 2020 TAX UPDATES

Family and medical leave:

The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA), which requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees through December 31, 2020. The emergency leave generally is available when an employee who has been employed for at least 30 days is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency concerning COVID-19 that is declared by a federal, state, or local authority. The first 10 days of leave may be unpaid and then paid leave is required, calculated based on an amount not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate. Certain exemptions and special rules apply, and a tax credit may be available (see below).

Emergency paid sick time:

Under the Emergency Paid Sick Leave Act (EPSLA) (Division E of the Act), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (or telework) for specified virus-related reasons. Part-time employees are entitled to sick time based on their average hours worked over 2 weeks. This amount is immediately available regardless of the employee’s length of employment.

The maximum amounts payable vary based on the reason for absence. Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking a diagnosis, must be compensated at their regular rate, up to a maximum of $511 per day ($5,110 total). Employees caring for an individual described in category (1), (2), or (3), caring for a son or daughter whose school is closed or child care provider is unavailable or experiencing a “substantially similar condition” specified by the government must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total).

Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. Employers may exclude health care providers and emergency responders, and the DOL can issue regulations exempting businesses with fewer than 50 employees. The sick leave mandate takes effect not later than 15 days after March 18, 2020 (the date of the Act’s enactment) and expires December 31, 2020. 

Employer tax credits:

The Act provides tax credits to employers to cover wages paid to employees while they are taking time off under the EPSLA and EMFLEA. (Act Sec. 7001; Act Sec. 7003) The credits have several factor::

  1. The EPSLA credit for each employee is equal to the lesser of the amount of his leave payor either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days per employee: the excess of 10 days over the aggregate number of days taken into account for all preceding calendar quarters. (Act Sec. 7001(b)) The EMFLEA credit for each employee is the amount of his leave pay limited to $200 per day with a maximum of $10,000. (Act Sec. 7003(b)(1))
  1. The amount of the EPSLA and EMFLEA credits are increased by the portion of the employer’s “qualified health plan expenses” that are properly allocable to qualified sick leave wages or qualified family and medical leave wages. Qualified health plan expenses mean amounts paid or incurred by the employer to provide and maintain a group health plan (as defined in Code Sec. 5000(b)(1) ), but only to the extent that such amounts are excluded from the gross income of employees because of Code Sec. 106(a). (Act Sec. 7001(d); Act Sec. 7003(d))
  1. Also, the credits allowed to employers for wages paid under the EPSLA and EFMFLEA are increased by the amount of the tax imposed by Code Sec. 3111(b) (the 1.45% hospital insurance portion of FICA) on qualified sick leave wages, or qualified family leave wages, for which credit is allowed under Act Sec. 7001 or Act Sec. 7003. (Act Sec. 7005(b)) The credits are refundable to the extent they exceed the employer’s payroll tax. Businesses don’t receive the credit if they’re also receiving the credit for paid family and medical leave in Code Sec. 45S .
  1. The EPSLA and EMFLEA credits may also be taken against the employer’s railroad retirement tax. These rules apply only to wages paid concerning the period beginning on a date selected by the Secretary of the Treasury which is during the 15 days beginning on the date of the enactment of the Act (March 18, 2020), and ending on December 31, 2020.

 Employer FICA exclusion:

Wages paid under the EPSLA and EFMFLEA are not considered wages under Code Sec. 3111(a) (employer tax – old age, survivors and disability insurance portion of FICA; 6.2%) or under Code Sec. 3221(a) (employer’s railroad retirement tax). (Act Sec. 7005(a))

April 15 payment extension. Income tax payments due April 15, 2020, can be made by July 15, 2020. ( Notice 2020-17, IRB 2020-15) For more information and details see IRS provides an extension for federal income tax payments due April 15 .

SELF EMPLOYED BUSINESSES 2020 TAX CHANGES 

Comparable credits for self-employed:

 The Act also provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual’s sick-leave equivalent amount, or 67% of the individual’s sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child’s school closing for up to 10 days. The sick-leave equivalent amount is the lesser of average daily self-employment income or either (1) $511/day to care for the self-employed individual or (2) $200/day to care for a sick family member or child following a school closing, paid under the EPSLA. (Act Sec. 7002)

Self-employed individuals can also receive credit for as many as 50 days multiplied by the lesser of $200 or 67% of their average self-employment income paid under the EMFLEA. (Act Sec. 7004)

These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15 days beginning on the date of the enactment of this Act (March 18, 2020), and ending on December 31, 2020. (Act Sec. 7002 and Act Sec. 7004)

From our office to you:

We understand that the next few months may be filled with doubt, no matter whether you are directly or indirectly affected by the COVID-19 crisis.  As always, we at Sean Core Tax & Business Services will work tirelessly to ensure you have peace of mind.  Our top-notch professionals are at your disposal.  Together we know that as a national and global community we will get past all the hurdles put in front of us by this terrible pandemic.  Thank you once again for your patience and again, please contact us with any questions you may have at any time.

IRS Audits– Audit Triggers & Important FAQs to Know

IRS Audits are not fun! How does the IRS decide who to audit, and who not to? The IRS is increasing automated ways to trigger audit suggestions. Discover here the 4 triggers and FAQ about IRS audits to pay attention to in 2019

You may feel triumph or relief when you send in your taxes. However, make sure to file your work papers and documentation with care. Not only will you want to be able to refer to them next year, there is always the possibility of an IRS audit.

Less than 1% of tax payers gets audits, however we do receive new clients every year because of this painful problem.Here are several things to know about IRS audits.

How the IRS decides which tax returns to audit

The IRS checks all tax returns against other data it receives. For example, if you are employed, your employer files a W2 with the IRS. If you have interest or dividend income, your financial institution will file a 1099 with the IRS. If you neglect to include the information from these forms in your tax return, the IRS will notice and will probably contact you.

The IRS also runs automatic statistical checks to look for outliers. If what you claim looks very different from what others in similar situations claim, then your tax return is more likely to be pulled out and reviewed. Even this does not mean that you will definitely be audited. The IRS employee may look through your return, compare it to other information, and decide everything is fine. However, if the rest of the tax return is not satisfactory, then you’re more likely to receive an audit.

Sometimes your tax return is not the main target in an audit. If you do business with another person, and that person is being audited, your taxes may be checked as well in order to make sure everything is in order.

“Do You Know the Safe Harbor Conditions of the IRC Section 199A Deduction? If not, you can know about it only by clicking on the following image.

IRC Section 199A Deduction

Flags for IRS audits

Here are situations that make your tax return more likely to receive an audit:

•   Earning a lot of money. The greater your income is, the greater is the probability that you will receive an audit.

•   Filing a Schedule C. A Schedule C means that you’re self-employed. If you show losses from year to year, the IRS may want to know if you are pretending that a hobby is really a business.

•   Not reporting all taxable income. Remember the IRS gets all those W2s and 1099s and several other pieces of information as well.

•   Not reporting all foreign bank accounts. Because of pressure that the United States has put on other countries, there’s a good chance that your foreign bank is also communicating with the IRS.

How the IRS will contact you

The IRS has a policy of contacting US taxpayers by mail, at least for starting an audit So, if you receive a phone call pretending to be from the IRS, this is almost always a scam. Do not fall for it; it could cost you seriously. Of course, after you have a genuine relationship with someone working at the IRS, they may arrange to call you.

Audits themselves can be conducted entirely by mail, in which the auditor may pose certain questions, for example about deductions or expenses, for which you supply answers your answers by mail along with copies of documentation. You may also experience an in-person audit. These audits may either be “office audits” (at an IRS office) or “field audits” (such as your home, your business, or somewhere else).

The IRS tries to conduct audits within three years

The IRS keeps tax returns for six years. You may be audited on any of those years, so you should retain your documents and tax returns for at least six years. If your more recent taxes are intertwined with earlier years – for example, when you bought or sold stocks – you will want to keep those years and the supporting documents for the earlier years as well.

However, the IRS usually tries to audit taxes within three years of their being filed, so the probability of being audited on earlier years is very low.

The IRS is seriously understaffed

The Trump administration has not been replacing staff when they leave the IRS, and that means that this part of the government has experienced a reduction in personnel of about 25 percent. That translates into fewer audits being conducted.

Although this may be good for each individual taxpayer and business, the under-staffing at the IRS is not good for the revenue supplying the government. Fewer workers at the IRS means that fewer cheaters are being caught, and that means that less money is flowing in.

Even if you do get audited, you may not have to pay more

If you have followed the tax code and can document your decisions, you may not have to pay more after being audited. Unfortunately for auditees, most taxpayers have to pay extra more after they are auditedas well as penalties and fees.

Being audited is something few people anticipate with pleasure. If you follow the rules, the likelihood of your being audited is very low. If you keep your files and documents in order, being audited should be only a minor inconvenience.

If you are looking for a CPA with experience, and are located, or have property in the Phoenix area, we are accepting a few new clients. Please contact us by phone at 480-626-5043 or visit our Mesa office to set up an appointment to meet with one of our accountants! 

Do You Know the Safe Harbor Conditions of the IRC Section 199A Deduction?

The IRS issued a notice on January 18, 2019 about specific conditions under which your rental real estate enterprise may be treated as a trade or business.

This safe harbor is available to taxpayers who want to claim the section 199A deduction with respect to a rental real estate enterprise. If you can meet the safe harbor requirements, your real estate enterprise will be treated as a trade or business.

To qualify for this safe harbor your enterprise must satisfy several requirements, as follows.

Qualifiers for the IRC Section 199A Deduction

1. You must maintain separate books and records showing income and expenses for each rental real estate enterprise.

2. You (or your staff or contractors) must perform at least 250 hours of rental services during the tax year for each rental real estate enterprise. You may not combine commercial and residential rentals within the same real estate enterprise. Rental services that qualify include:

  • Advertising to rent or lease the real estate
  • Verifying information on the tenant applications
  • Negotiating and executing leases
  • Maintenance and repair of the property
  • Collecting rent
  • Daily operation, maintenance and repair of the property, including:
    • Management
    • Purchase of materials for repairs
    • Supervision of employees and independent contractors

As the property owner, you may perform these services yourself or have your employees, agents or independent contractors do so.

3. You must maintain contemporaneous records to document these hours of services, including time reports, logs or a similar description of the services performed, the dates on which they took place and who performed them. This means you must track everything, including your personal time and the time of those you employ. Maintaining a log book and invoice file scrupulously will satisfy these requirements. Your records should be available for inspection at the request of the IRS. The records requirement does not apply to taxable years beginning prior to January 1, 2019.

IRC Section 199A Deduction

See also: Changes to Arizona Department of Revenue’s Electronic Filing and Tax Payment are In Effect as of January 1, 2019

If you cannot satisfy these requirements, your rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in § 1.199A-1(b)(14).

The tax experts at Sean Core CPA can help you determine if your enterprise meets the requirements for the safe harbor IRC section 199A deduction. Call us today at 480 626-5043 or contact us online.

Get Ready for Year-end Taxes – What You Need to Know about 2018 Tax Law Changes

The Tax Cuts and Jobs Act (TCJA) was signed into law in late December 2017, and this major tax reform will affect both business and individuals. The tax preparation experts at Sean Core CPA can help you understand these reforms and get ready for the upcoming tax season.

Learn How 2018 Tax Reforms Will Impact Your Taxes

2018 Tax ReformsThe Internal Revenue Service has just published new information about how the TJCA will affect individuals and families, detailing what’s changed in the federal tax return you will be filing in 2019. You can read this IRS publication here.

The tax reforms are quite substantial, requiring the creation or revision of over 400 tax forms, instructions and publications for the upcoming tax season, which is more than twice the number of forms usually needing attention. It may be difficult for you to absorb these many changes, but our tax team can help!

Will You Pay Less Tax in 2018?

The TJCA was designed to create new jobs and boost the economy and should mean a lower tax bill and easier filing for many. In fact, you may have already seen an increase in your paycheck as the IRS has recommended that companies adjust their withholding to reflect the new tax rates. With the doubling of the standard deduction (the preset amount you can take off your taxable income) and the increased child tax credit you may be looking at a substantially lower rate of taxation.

If you are self-employed the picture may be even rosier, with a new benefit that can cut your tax bill by up to 20% and other tax adjustments for small business owners. Ask our tax professionals about 2018 tax law changes affecting the self-employed.

The unprecedented number of tax law changes may make it difficult for you to file this year, or at least to file your return on time while incorporating this slew of updates. It just makes sense to get professional help – our tax experts have been helping people and businesses in Mesa, Chandler, Tempe, across Arizona and further since 2005. Our team has collectively over 45 years’ experience providing top quality accounting, bookkeeping and tax work.

If you are looking for a Phoenix area CPA who understands how these 2018 tax reforms will affect both individuals and small-to-medium sized businesses in Arizona, please contact Sean Core CPA.

Read More: How Will Tax Law Changes Affect the Self-Employed in 2018?

3 Tips for Filing Your Tax Extensions

 

Reminder: if you requested an extension earlier this year, your new filing deadline, October 15th, is fast approaching!. If you haven’t taken care of your 2017 taxes yet it’s time to get that task back on your radar.

In light of the looming deadline, we wanted to take a moment to share these tips for extension filers.

Just get something filed.

Many of our clients file extensions because they can’t get the paperwork they need quickly enough to file an accurate return by April 15th. If this is the boat you’re in wanting to wait seems intuitive, but you can’t always do it and meet the deadline as well. When you don’t file on time, you open yourself up to failure-to-file penalties.

When this happens, file a return, even if it’s not going to be 100% accurate. A new clock will start ticking. You’ll have 3 years to file amended returns, which will give you plenty of time to get the rest of the paperwork you need. Of course, we don’t recommend waiting all three years to get the amended returns handled.

Consider a last-minute SEP-IRA contribution.

Tax Deadlines2018 for Business TaxesSelf-employed? The good news about filing an extension is you get another chance to make a last-minute deduction. You have until October 15th to contribute just a little more to your SEP-IRA, the retirement savings account type designed just for freelancers and contractors.

Consult with us about the amount which will give you the biggest benefit, then get it done. Be sure to use a check so you can write the year the contribution should be credited under on the check, and keep a copy for your records.

See also: 7 Common Tax Problems the Self-Employed Business Owner Should Avoid.

Get our help now…not in October.

When you file for an extension you can take care of your taxes any time between April 15th and October 15th. In fact, we recommend it. The point is getting some additional time, not giving yourself another stressful day to scramble over. Waiting until the last minute makes it easy to make mistakes, too.

In fact, if you’re using our accounting services to get your returns filed (and, if you’re the type of taxpayer who needs an extension, you really should be using us)… the time is right now to do so!

Some of our clients have even tighter deadline to deal with, and/or hire us for bookkeeping and payroll, so by mid-September we’ll be up to our elbows in returns. If you’re a new client we might not even be able to squeeze you in if you wait too long. And if you’re an existing client, wouldn’t it feel better to know your taxes are taken care of?

How Will Tax Law Changes Affect the Self-Employed in 2018?

 

Chances are, if you’re self-employed, you’ve already heard about some major tax changes. While you’ve probably picked up on the buzz by way of the news or social media, there’s a lot of mystique around this recent upheaval.

The Tax Cuts and Jobs Act has certainly caused quite a bit of trepidation among business leaders of all sizes, particularly those who find themselves on the small business or self-employed side of the spectrum. You can still take certain tax deductions, but others are now out of the game.

So, how does all this change impact you as a self-employed business owner? Our Arizona business accountants  are on the case!

Major Changes Arising from the 2018 Tax Cuts and Jobs Act

Self-employed business owners have a lot to look forward to when tax time rolls around again. Whether you file monthly, quarterly, or yearly statements with the government, there are a couple major changes that will likely affect your income in a positive way:

  • Excluding Up to 20 Percent of Your Income from Taxes. As a self-employed business owner, you may be able to exclude up to 20 percent of your income from taxes. This idea is founded on the Qualified Business Income (QBI) Deduction, which was once only in place for the purpose of giving corporations tax breaks. As of the recent tax changes, you’re eligible for this deduction also, if you’re a sole proprietor, owner in a partnership, or investor in an S-corp. There are specific details related to this deduction, however, so it’s best to speak with a professional tax professional before you file.
  • Enjoying a Nearly-Doubled Standard Deduction. The standard deduction is now $12,000 for single filers and $24,000 for married filers. That means you have to do a whole lot less receipt-keeping if you’re spending less than $12,000 (or $24,000, respectively, on itemized personal expenses.

Deductions that Ring True to Self-Employed Business Owners

Amidst the confusion, a lot of good has come out of these tax changes, at least as far as self-employed business owners are concerned.

  • You Can Still Deduct Your Home Office. As long as your home desk is your principal place of employment, this deduction is all yours. It just can’t be used for any purpose other than business. Consult your tax professional if you’re unsure.
  • You’re Still Afforded Mileage, Contract Labor Costs, Bank Fees, and Ad Expenses. The key here is to keep your receipts. Nothing has changed regarding the costs incurred for doing business. You just have to be able to backup your claims.

What to Watch Out for When Filing 2018 Self-Employment Taxes

self employment taxes advice from AZ CPA

Taxes have their pitfalls. (We’re sure you’re super surprised!) Here are a few things you should be aware of if you’re self-employed:

  • You’ll Still Owe Self-Employment Tax. When you’re self-employed, the IRS sees you as both an employer and an employee. Double whammy! You’re responsible for both contributions to Medicare and Social Security from both sides, but you can write off the “employer contribution” portion.
  • You’re No Longer Penalized for Not Having Healthcare. In the past, health insurance was once place self-employed people chose to forego in favor of saving cash. While you’re no longer penalized for not having health insurance, this is one expense you probably shouldn’t skimp on. You never know when you’ll need it.

No tax law is ever cut-and-dry, but recent changes in legislation are tilted toward small business owners and self-employed professionals. While this may change in the future, it certainly benefits you to seek professional tax advice to ensure you’re cashing in on the savings while they’re available.

If you are looking for a CPA in the Phoenix area who understands how these changes will affect Arizona small-to-medium sized businesses, please contact us.

Reference Websites:

https://azbigmedia.com/will-tax-law-changes-affect-2018/

https://www.moneytalksnews.com/ask-stacy-im-self-employed-how-will-the-new-tax-law-affect-me/

https://www.corporatemonkeycpa.com/2018/02/03/1099-self-employment-is-now-a-better-tax-choice-than-a-w2-salary/

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