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May 2019

Feature Articles

Tax Tips

QuickBooks Tips

 

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Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

What to Do if You Missed the Tax Deadline

Monday, April 15, 2019, was the tax deadline for most taxpayers to file their tax returns. If you haven’t filed a 2018 tax return yet, it’s not too late.

First, gather any information related to income and deductions for the tax years for which a return is required to be filed, then call the office.

If you are owed money, then the sooner you file, the sooner you will get your refund. If you owe taxes, file and pay as soon as you can, which will stop the interest and penalties you owe.

If you owe money but cannot pay the IRS in full, pay as much as you can when you file your tax return to minimize penalties and interest. The IRS will work with taxpayers suffering financial hardship. If you continue to ignore your tax bill, the IRS may take collection action.

Some taxpayers may have extra time to file their tax returns and pay any taxes due. These include: individuals living or working in a federally declared disaster area, military service members and eligible support personnel in combat zones, and U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico.

How to Make a Payment

There are several ways to make a payment on your taxes: credit card, electronic funds transfer, check, money order, cashier’s check, or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but processing companies may charge a convenience fee or flat fee. It is important to review all your options. The interest rates on a loan or credit card could be lower than the combination of penalties and interest imposed by the Internal Revenue Code.

What to do if you Can’t Pay in Full

Taxpayers who are not able to pay the full amount owed on a tax bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less than if you pay nothing at all. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise. Don’t hesitate to call if you have questions about any of these options.

Direct Pay. For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.

Payment Plans. Most people can set up a monthly payment plan or installment agreement that gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.

Taxpayers who have a history of filing and paying on time often qualify for penalty relief. A taxpayer generally qualifies if they have filed and paid timely for the past three years and meet other requirements.

Your specific tax situation will determine which payment options are available to you. Payment options include full payment, a short-term payment plan (paying in 120 days or less) or a long-term payment plan (installment agreement) (paying in more than 120 days). User fees may apply, depending on the type of installment plan you are approved for. A sole proprietor or independent contractor should apply for a payment plan as an individual.

You may qualify to apply online if:

  • Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
  • Short-term payment plan: You owe less than $100,000 in combined tax, penalties and interest.

Cash Payments. Individual taxpayers who do not have a bank account or credit card and need to pay their tax bill using cash, are able to make a cash payment at participating PayNearMe payment locations (places like 7-Eleven) in 44 states. Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the other ways you can pay section and follow the instructions.

What Happens if you don’t File a Past Due Return

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions–including substantial penalties and fees. For example, the failure-to-file penalty is 5 percent of the tax owed for each month or part of a month that a tax return is late. However, this penalty is reduced for any month where the failure to pay penalty also applies. The basic failure-to-pay penalty rate is generally 0.5 percent of unpaid tax owed for each month or part of a month.

Need Help Filing your 2018 Tax Return?

If you haven’t filed a tax return yet, don’t delay. Call the office today to schedule an appointment as soon as possible.

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Tips for Getting Paid on Time

Have you found that collecting on your accounts receivables has become more challenging? If so, strengthening your collection procedures may allow you to improve collection rates and shorten the aging days of your accounts receivables. While some tips discussed here may not be suitable for every business, most can serve as general guidelines to give your company more financial stability.

Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not sell to customers who are not creditworthy or who have become delinquent. You should also delineate what leeway salespeople have to vary from these guidelines in attempting to attract customers.

Tip: Have a system of controls for checking out a potential customer’s credit in place before shipping an order. Furthermore, there should be clear communication between the accounting department and the sales department as to current customers who become delinquent.

Explain Your Payment Policy. Invoices should contain clear written information about how much time customers have to pay and what will happen if they exceed those limits.

Tip: Make sure invoices include a telephone number and website address so customers can contact you with billing questions. Also include a pre-addressed envelope.

Tip: The faster invoices are sent, the faster you receive payment. For most businesses, it’s best to send an invoice with a shipment, rather than afterward in a separate mailing.

Follow Through on Your Stated Terms. If your policy stipulates that late payers will go into collection after 60 days, then you must stick to that policy. A member of your staff (but not a salesperson) should call all late payers and politely request payment. Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection, if that is your stated policy.

Train Staff Appropriately. Apprise the person designated to make calls to delinquent customers of the seriousness and professionalism required for the task. Here is a suggested routine for calls to delinquent payers:

  • Become familiar with the account’s history and any past and present invoices.

  • Call the customer and ask to speak with whoever has the authority to make the payment.

  • Demand payment in plain, non-apologetic terms.

  • If the customer offers payment, ask for specific dates and terms. If the customer does not offer payment, tell the customer what the consequences will be.

  • Take notes on the conversation.

  • Make a follow-up call if you still haven’t received a payment and refer to the notes taken as to any promised payments.

Need help tightening up your credit and collection policies? Help is just a phone call away!

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Identity Theft and Your Taxes

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. It presents challenges to individuals, businesses, organizations and government agencies, including the IRS.

Learning that you are a victim of identity theft can be a stressful event. In many cases, you may not be aware that someone has stolen your identity and the IRS may be the first to let you know you’re a victim of identity theft after you try to file your taxes.

Between 2015 and 2018, the number of taxpayers reporting they were identity theft victims fell 71 percent. However, despite the steep drop in tax-related identity theft in recent years, taxpayers should remember that identity thieves constantly strive to find new schemes that work. Once their ruse begins to fail as taxpayers become aware of their ploys, they change tactics. Taxpayers and tax professionals must remain vigilant to the various scams and schemes used for data thefts.

Here’s what you should know about identity theft:

1. Protect your Records. Do not carry your Social Security card or other documents with your SSN (Social Security Number) on them. Only provide your SSN if it’s necessary and you know the person requesting it. Treat your personal information, including tax returns, as if they were cash. Don’t leave it in plain sight for people to steal. Protect your computers with anti-spam and anti-virus software and routinely change passwords for all of your Internet accounts.

2. Don’t Fall for Scams. Criminals often try to impersonate your bank, credit card company, and even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts. Always err on the side of caution and delete anything that seems suspicious or unfamiliar.

3. Beware of Threatening Phone Calls. Correspondence from the IRS is always in the form of a letter in the mail. The IRS will not call you threatening a lawsuit, arrest, or to demand an immediate tax payment using a prepaid debit card, gift card, or wire transfer. If you receive a suspicious or threatening phone call, hang up immediately.

4. Report ID Theft to Law Enforcement. If you discover that a tax return was already filed using your SSN and cannot e-file your return because, consider taking the following steps:

  • File your taxes by paper and pay any taxes owed.
  • File an IRS Form 14039, Identity Theft Affidavit (see below). Print the form and mail or fax it according to the instructions.
  • Contact one of the three credit bureaus (Equifax, Transunion, and Experian) to place a fraud alert and/or a credit freeze on your account.

5. Complete an IRS Form 14039, Identity Theft Affidavit. Once you’ve filed a police report, file an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. You may include it with your paper tax return as well.

6. IRS Notices and Letters. If the IRS identifies a suspicious tax return with your SSN, it may send you a letter asking you to verify your identity by calling a special number or visiting a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.

7. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, he or she will be issued an IP PIN (Identity Protection Personal Identification Number). The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. Each year, you will receive an IRS letter with a new IP PIN.

8. Data Breaches. Not every identity theft case involves taxes. If you learn about a data breach that may have compromised your personal information, keep in mind that not every data breach results in identity theft. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

9. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can report it on the IRS.gov website.

10. IRS Assistance. Information about tax-related identity theft is available online at IRS.gov. The IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

If you have any questions about identity theft and your taxes, don’t hesitate to call.

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Credit for Plug-in Electric Vehicles Winds Down

The tax credit available for purchasers of new General Motors plug-in electric vehicles begins phasing out on April 1, 2019. The phaseout was triggered because General Motors, LLC has sold more than 200,000 vehicles eligible for the plug-in electric drive motor vehicle credit during the fourth quarter of 2018.

Qualifying vehicles by the manufacturer, which include Chevrolet Spark EV (2014-2016), Chevrolet Volt (2011-2019), Chevrolet Bolt (2017-2019), Cadillac CT6 Plug-In (2017-2018), and Cadillac ELR (2014, 2016) are eligible for a $7,500 credit if acquired before April 1, 2019. Beginning April 1, 2019, however, the credit is reduced to $3,750 for General Motors’ eligible vehicles. For the next two quarters beginning on October 1, 2019, the credit will be reduced even further to $1,875. After March 31, 2020, no credit will be available.

The plug-in electric drive motor vehicle credit was enacted in the Energy Improvement and Extension Act of 2008 and subsequently modified. The law enables owners of eligible passenger vehicles and light trucks to take the credit. By law, five quarters after reaching the sales threshold, the credit ends for the manufacturer. General Motors vehicles are eligible for some portion of the credit until April 1, 2020.

Please call if you’d like more information about the Plug-In Electric Drive Motor Vehicle Credit.

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Delinquent Tax Debts Could Affect Passport Renewal

As a reminder, individuals with “seriously delinquent tax debts” are subject to a new set of provisions courtesy of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. These provisions went into effect in February 2018.

The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt and also requires the State Department to deny their passport application or deny renewal of their passport. In certain instances, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt, generally, an individual who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy.

Taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt by doing the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the
  • Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

However, a taxpayer’s passport won’t be at risk under this program if an individual:

  • Is in bankruptcy
  • Is identified by the IRS as a victim of tax-related identity theft
  • Has an account that the IRS has determined is currently not collectible due to hardship
  • Is located within a federally declared disaster area
  • Has a request pending with the IRS for an installment agreement
  • Has a pending offer in compromise with the IRS
  • Has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone, and who also owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

Taxpayers who are behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS and may qualify for one of several relief programs, including the following:

  • Taxpayers can request a payment agreement with the IRS by filing Form 9465, Installment Agreement Request. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Some taxpayers may be eligible to use the online payment agreement to set up a monthly payment agreement for up to 72 months.
  • Financially distressed taxpayers may qualify for an offer in compromise, an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay.

If you owe back taxes and are worried your passport could be revoked because of unpaid taxes, please contact the office.

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EIN application Process Revised to Enhance Security

Starting May 13, 2019 only individuals with tax identification numbers may request an Employer Identification Number (EIN) as the “responsible party” on the application. An EIN is a nine-digit tax identification number assigned to sole proprietors, corporations, partnerships, estates, trusts, employee retirement plans and other entities for tax filing and reporting purposes.

The change prohibits entities from using their own EINs to obtain additional EINs. Individuals named as the responsible party must have either a Social Security number (SSN) or an individual taxpayer identification number (ITIN). The requirement applies to both the paper Form SS-4, Application for Employer Identification Number, and online EIN application.

A detailed explanation of who should be the responsible party for various types of entities is provided on the Form SS-4 Instructions, but generally, the responsible party is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. In cases where more than one person meets that definition, the entity may decide which individual should be the responsible party.

Certain Entities Exempt

Governmental entities (federal, state, local and tribal) are exempt from the responsible party requirement as well as the military, including state national guards.

No Change for Tax Professionals

There is no change for tax professionals who may act as third-party designees for entities and complete the paper or online applications on behalf of clients.

Purpose

The new requirement will provide greater security to the EIN process by requiring an individual to be the responsible party and improve transparency. If there are changes to the responsible party, the entity can change the responsible official designation by completing Form 8822-B, Change of Address or Responsible Party. A Form 8822-B must be filed within 60 days of a change.

Questions?

Call today and speak to a tax and accounting professional you can trust.

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Options for Receiving Payments in QuickBooks

One of the reasons we like QuickBooks is because it uses language and processes that are familiar to small business people. Instead of using the term “accounts receivable,” it has a menu label that says Customers and menu items that use phrases like Create Invoices and Receive Payments. You would have to go into the Chart of Accounts to find standard accounting terminology – and we never recommend that you do that without consulting with a QuickBooks professional first.

Yet when you’re doing customer-related tasks, you’re following a traditional accounts receivable workflow, a series of steps that completes a sales cycle, like Estimate | Invoice | Payment | Deposit. QuickBooks keeps it simple for you and doesn’t often force you into unfamiliar territory.

One of the more pleasant elements of accounts receivable is the process of receiving customer payments. There’s more than one way to do this, and it’s very important that you use the correct way in each situation.

Payment Methods

Before you record your first payment, you’ll need to make sure that QuickBooks is set up to accommodate its Payment Method. QuickBooks comes with some standard types, but you can add, edit, and delete your own options (though not those that are built in to the software).

Open the Lists menu and click Customer & Vendor Profile Lists, then Payment Method List. This window will open:


Figure 1: You can work with Payment Method options in this window.

To use any of the commands in the Payment Method drop-down list, you’d highlight the method by clicking on it and opening the options list by clicking the down arrow in that field.

When you add or change an existing entry, the window that opens contains fields for both Payment Method and Payment Type. They should be identical or at least very similar.

Settling an Invoice

If your company sends invoices, you’ll need to record their matching payments in the Customer Payment window. Click Customer | Receive Payments or the Receive Payment icon on the home page. There’s also a button for this in the toolbar in an open invoice. However you get there, here is what it looks like:


Figure 2: You’ll record payments that customers send in response to invoices in this window.

Select a customer in the RECEIVED FROM field, and any outstanding invoices will appear in the table below. The CUSTOMER BALANCE appears in the upper right corner. Enter the PAYMENT AMOUNT and verify the date.

Click in the box for the correct payment method to the right. If it’s a check, enter the number in the CHECK # field. If you choose CREDIT DEBIT, you can enter the card details in the small window that opens. If you provided this information in the customer’s record and chose that as the PREFERRED PAYMENT METHOD, it should fill it in automatically.

To set a PREFERRED PAYMENT METHOD, which will save time, open the customer record and click the small pencil icon in the upper right. Click Payment Settings and complete the fields in that window.

If the customer has paid less than the balance due, you can either LEAVE THIS AS AN UNDERPAYMENT or WRITE OFF THE EXTRA AMOUNT. Select one of those two options in the lower left and save your work when you’re done.

Instant Payments

You’ll use a different form when a customer gives you a payment in exchange for the goods or services you provided, without receiving an invoice. Click Customers | Enter Sales Receipts to open a window like this:


Figure 3: If a customer gives you a payment without receiving an invoice, you’ll provide them with a Sales Receipt.

You’ll complete this form much like you did the CUSTOMER PAYMENT window, except you won’t be applying the payment to an existing invoice.

If you have a merchant account or are willing to get one, you can record payments and email sales receipts at remote locations on your mobile device. We can walk you through the setup.

Receiving payments from customers is one of the easier tasks you’ll do as a QuickBooks user, but if you don’t use the software’s tools correctly, your books will be difficult to untangle. To ensure that you’re doing this element of your work right from the start; contact the office to schedule a consultation.

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Tax Due Dates for May 2019

May 10

Employees who work for tips – If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.

Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2019. This due date applies only if you deposited the tax for the quarter in full and on time.

May 15

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.


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