Why the Number of Your Employees Matters

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Employer benefits, opportunities and requirements under the health care law are dependent upon the employer’s workforce size.

The vast majority of employers fall below the workforce size threshold for applicable large employers. Generally, an employer with 50 or more full-time employees or equivalents will be considered an applicable large employer. Applicable large employers can find a complete list of resources and the latest news at the Applicable Large Employer Information Center on IRS.gov/aca.

If you have:

Fifty or more full-time equivalent employees, you will need to file annual reporting whether and what health insurance you offered your full-time employees. In addition, you are subject to the Employer Shared Responsibility provisions.

Fifty or fewer employees, you are generally eligible to buy coverage through the Small Business Health Options Program. Learn more at HealthCare.gov.

Fewer than 25 full-time equivalent employees, you may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing coverage.

Regardless of size, all employers that provide self-insured health coverage to their employees must file an annual return reporting certain information for each employee they cover.

For More Information contact our office by calling 310.820.1080 or email us @ info@onts9.com

General Employment Tax Issues

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The Internal Revenue Service reminds business owners how critical it is to understand the various types of employment-related taxes they may be required to deposit and report.

This fact sheet provides information on some of the more common employment tax topics posed by business owners, including:
Worker Classification
Voluntary Classification Settlement Program
Fringe Benefits
Officer Compensation
• Backup Withholding and Information Return Penalties

Worker Classification
A common error is not correctly classifying a worker.
The IRS classifies workers as either independent contractors or employees. Tax responsibilities are different based on how the worker is treated; an employee requires employment tax withholding and matching by the business on wages paid to them while payments made to an independent contractor do not.
Contractors and subcontractors who are engaged in an independent trade, business or profession, in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts and circumstances of each case.

Voluntary Classification Settlement Program
Worker classification can greatly affect a business well beyond the initial determination. The Voluntary Classification Settlement Program, commonly called VCSP, is a program that allows taxpayers to voluntarily reclassify their workers as employees for future tax periods for federal employment tax purposes and to obtain partial relief from the federal employment taxes due during the misclassified periods of employment.
The VCSP process is simple. To participate, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP and, if accepted, enter into a closing agreement with the IRS.
Taxpayers should file Form 8952, Application for Voluntary Classification Settlement Program at least 60 days before the date that they want to begin treating their workers as employees. In order for their application to be considered, taxpayers must attach a list of names and Social Security numbers of all workers to be reclassified as part of the VCSP agreement.

Fringe Benefits
A fringe benefit is a form of payment for the performance of services. Businesses provide fringe benefits to all types of workers, including employees, independent contractors, partners and directors. Any fringe benefit is taxable and must be included in the worker’s income unless the law specifically excludes it or the recipient pays for the benefit.

Officer Compensation
Corporate officers are, by statute, employees. Although the statutes are clear, many S Corporations and closely held C Corporations fail to treat payments to their officers for services as wages. Instead, they improperly treat the payments as corporate distributions, loans and payments of personal expenses.

Most businesses use Form 1099-MISC to report payments to non-employees to the IRS. The Internal Revenue Code (IRC) requires a business to report payments to the IRS for services rendered by non-employees if the business paid the non-employee $600 or more during the calendar year.

A business should always secure the Taxpayer Identification Number, commonly called TIN, for any workers to whom the business makes reportable payments, so they can properly report those payments on Form 1099-MISC. A TIN is often, though not always, a Social Security number. Businesses can use Form W-9, Request for Taxpayer Identification Number and Certification, to obtain the worker’s TIN.

As always we hope you find this information valuable and in case of any questions call our office at 310.820.1080 or email us at info@onts9.com

Seven Steps for Making Identity Protection Part of Your Routine

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The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are seven steps you can make part of your routine to protect your tax and financial information:

1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.)

2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked.

3. Review each of your three credit reports at least once a year. Visit annualcreditreport.com to get your free reports.

4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account atwww.SSA.gov.

5. Read your health insurance statements; look for claims you never filed or care you never received.

6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash.

7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice.

Year End Tax Tips for Individuals

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Individual income tax rates of 10, 15, 25, 28, 33, 35 and 39.6 percent remain in place for filing next April. The more you made, the greater your percentage. The standard deduction for 2016 income will stay the same: $6,300 if you file your taxes using the status single or married filing separately. Married joint filers still receive a $12,600 deduction; head of household filers’ deduction jumps $50, to $9,300.

Year end tax-saving tactics include spreading recognition of your income between years by postponing year end bonuses and maximizing both deductible retirement contributions and allowable retirement distributions for this calendar year, coordinating capital losses against the sale of appreciated assets, postponing redemption of U.S. Savings Bonds, and delaying your year end billings and collections.

You may also want to defer corporate liquidation distributions (full cash-value payment for all a company’s stock you hold) until 2016, pay your last state estimated tax installment in 2015 and pre-pay real estate taxes or mortgage interest.

Life changes: Did you get married or divorced? Have a child? Buy a home? Change jobs or retire? A change in employment, for example, may bring severance pay, sign-on bonuses, stock options, moving expenses and COBRA health benefits, among other changes that affect your taxes.

Additionally, try to predict any life events in 2016 that might trigger significant income or losses, as well as a change in your filing status.

Retirement savings: You can contribute up to $5,500 to an individual retirement account or Roth IRA for 2015 and, if you’re 50 or older, $1,000 more in catch-up contributions. You also have until April 15, 2015, to make an IRA contribution for 2015.
One tax move in this area: Delay until 2016 converting your traditional IRA to a Roth IRA, which incurs taxes.

Giving: You can still make tax-free gifts of $14,000 per recipient (a total of $28,000 in the case of married couples).

Tax-free distributions, up to a maximum of $100,000 per taxpayer each year from IRAs to public charities, have been allowed as an alternative to reporting the income and taking an itemized deduction. You must be 70½ or older to do this.

High Earners
if your income is six figures or more, you should anticipate possible liability for the 3.8 percent net investment income (NII) tax calculated on net investment income in excess of your modified adjusted gross income (MAGI). Threshold MAGIs for the NII tax are $250,000 in the case of joint returns or a surviving spouse, $125,000 for a married taxpayer filing a separate return, and $200,000 in any other case.

Keeping income below the thresholds is worth exploring, as is spreading income out over a number of years or offsetting the income with both above-the-line and itemized deductions. Of course, planning for the NII tax requires a very personalized strategy.

The tax rate on net capital gain is no higher than 15 percent for most taxpayers. Net capital gain may not be taxed if you’re in the 10 or 15 percent income tax brackets. A 20 percent rate on net capital gain can apply if your taxable income exceeds the thresholds set for the 39.6 percent rate ($413,200 if you file single, $464,850 for married filing jointly or as a qualifying widow(er), $439,000 for head of household and $232,425 for married filing separately).

Wash sale rules: These cover sales of stock or securities in which your losses are realized but not recognized for tax purposes because you acquire substantially identical stock or securities within 30 days before or after the sale.

Alternative minimum tax: The AMT is now “patched,” which permanently increases the exemption amounts and indexes those amounts for inflation. For 2015, the exemption amounts are $53,600 for single individuals and heads of household, $83,400 for married couples filing a joint return and surviving spouses and $41,700 for married couples filing separate returns.

You can take several steps to reduce the AMT’s effect on your tax liability. Avoid certain deductions, including the accelerated depreciation deduction on real property or expensed research, among others. You might also avoid exercising incentive stock options in a year in which you’re subject to AMT.

Pease limitation: This reduces a higher-income taxpayer’s allowable itemized deductions by 3 percent of the amount (up to 80 percent), with the reduction kicking in after certain income thresholds. For 2015, Pease thresholds are $309,900 for married couples and surviving spouses, $284,050 for heads of households, $258,250 for unmarried taxpayers and $154,950 for married taxpayers filing separately.

Related to the Pease limitation is the personal exemption phase-out (PEP). The threshold income amounts for the PEP are the same as those for the Pease limitation.

May take an above-the-line deduction for qualified unreimbursed expenses up to $250 paid during the year.

Year-End Tax Tips for Businesses

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Consider several general strategies, such as use of traditional timing techniques for income and deductions and the role of the tax extenders, as well as strategies targeted to your particular business. As in past years, planning is uncertain because of the Affordable Care Act and the expiration of many popular but temporary tax breaks.

Filing Changes

Recent legislation changed filing deadlines for some entity tax returns for 2016: Partnership tax returns will be due on March 15, not April 15 (for calendar year partnerships), and c-corporation returns will be due on April 15, not March 15 (for calendar year C Corporations). Returns for s-corporation will continue to be due on March 15.

Expensing and Bonus Depreciation

Many businesses use enhanced Code Sec. 179 expensing as a key component of year-end tax planning. Sec. 179 property is generally defined as new or used depreciable tangible property purchased for use in a trade or business. Software was also recently included, as was qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.
(Congress has not renewed the enhancements to Sec. 179 expensing for 2015, but they likely will be renewed. Year-end planning should reflect both the likely extension and the possibility of no extension.)

Similarly, bonus depreciation has been a valuable incentive for many businesses. Fifty percent bonus depreciation generally expired after 2014 (with limited exceptions for certain types of property).

Qualified property for bonus depreciation must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less for a wide variety of assets.

Year-end placed-in-service strategies can provide an almost immediate cash discount for qualifying purchases.

Although you should factor a bonus-depreciation election into year-end strategy, you don’t have to make a final decision on the matter until you file a tax return. Also, bonus depreciation isn’t mandatory: you might want to elect out of bonus depreciation to spread depreciation deductions more evenly across future years.

Another potentially useful strategy involves maximizing benefits under Sec. 179 by expensing property that doesn’t qualify for bonus depreciation, such as used property, and property with a long MACRS depreciation period.

Section 199 Deduction

Year-end planning benefits from the release of guidance on the Code Sec. 199 domestic production activities deduction is an often under-utilized potential break. The guidance provides many examples of what business activities qualify; recent Internal Revenue Service guidance highlights manufacturing, construction, oil-related work, film production, agriculture, and many other pursuits.

Work Opportunity Tax Credit

if your business is considering expanding payrolls before 2015 ends, take a look at the Work Opportunity Tax Credit (WOTC). (Although the WOTC, under current law, expired after 2014, Congress is expected to renew the WOTC for 2015 and possibly for 2016).
Generally, the WOTC rewards employers that hire individuals from certain groups, including veterans, families receiving certain government benefits, and individuals who receive supplemental Social Security Income or long-term family assistance. The credit is generally equal to 40 percent of the qualified worker’s first-year wages up to $6,000 ($3,000 for summer youths and $12,000, $14,000, or $24,000 for certain qualified veterans). For long-term family-aid recipients, the credit is equal to 40 percent of the first $10,000 in qualified first-year wages and half of the first $10,000 of qualified second-year wages.

Repair-Capitalization Rules

Currently, a de minimis safe harbor under the so-called “repair regs” allows you to deduct certain items costing $5,000 or less that are deductible in accordance with your company’s accounting policy reflected on your applicable financial statement (AFS). IRS regulations also provide a $2,500 de minimis safe harbor threshold if you don’t have an AFS.

Routine Service Contracts

If you’re an accrual-basis taxpayer (meaning you have a right to receive income as soon as you earn it), you have a new tool for planning. The IRS has provided a safe harbor under which accrual-basis taxpayers may treat economic performance as occurring on a ratable basis for ratable service contracts—perhaps particularly useful in connection with your regular services that extend into 2016. If your business meets the safe harbor for ratable service contracts, you may be able take a full deduction in the current tax year for certain 2015 payments even though you may not perform the services until next year.

Affordable Care Act

For large businesses, the ACA imposes many new requirements, including the employer shared responsibility provision (also known as the employer mandate). Small businesses, although generally exempt from this mandate, need to review how they deliver employee health insurance.
Many small businesses have provided a health benefit to employees through a health reimbursement arrangement (HRA). Following passage of the ACA, the IRS described certain types of HRAs as employer payment plans – therefore subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with these reforms triggers excise taxes under Code Sec. 4980D.

Pending legislation in Congress would allow small employers (that is, those with fewer than 50 full-time and full-time equivalent employees) to have stand-alone HRAs and reimburse expenses without violating the ACA’s market reforms.

Small employers also should review the Code Sec. 45R credit. If your business has no more than 25 full-time equivalent employees, you may qualify for a special tax credit to help offset your costs of employee health insurance. You must pay average annual wages of no more than $50,000 per employee (indexed for inflation) and maintain a qualifying health care insurance arrangement. (Generally, health insurance for employees must be obtained through the Small Business Health Options Program, part of the Health Insurance Marketplace.)

Bonus checks

Please be advised that bonus checks to your employees are like payroll checks and payroll taxes should be deducted and paid. So before writing the bonus checks please email us the gross or net amount of bonus checks and we will provide you with the copy of bonus checks.

Please call us at (310)820-1080 if you have any questions or email us @ info@onts9.com

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