Volume 7, Issue 6
By: Mike McVay, Tax Accountant - McVay Business Services Pensacola, FL
850-725-5696/251-279-7941
www.PensacolaFLTax.com - Mike@MikeMcVay.com

Failure to File and Failure to Pay: Are You Headed for T-R-O-U-B-L-E?

The old saying goes, “There are only two certainties in life: death and taxes.” Have you ever wondered what would happen if you filed your tax return late or worse, did not file at all? Well, you are looking for trouble if you do not file your tax return.
If you do not file an income tax return, the IRS will gather all the transmitted tax documents and create a “substitute return” for you. If they show you are due a refund, nothing further will be done. Surprised? If they show you owe money, they will begin sending you collection letters.
And, if that is not bad enough, there will be a penalty for not filing your return equaling five percent per month up to 25 percent of the tax due. Then, there is another penalty of .5 percent per month up to 25 percent of the tax due for failure to pay the tax. An example is if you owe $1000, it will cost you $250 penalty for not filing, but only a $5 penalty for not paying. And then, don’t forget they tack on interest to that number!
If you qualify for a refund and wait more than three years to file your return, the IRS will take that refund away, because the statute of limitations expires. Don’t expect them to send you a reminder letter!
In addition to the penalties you are charged for not filing your return, you also increase your chances of being audited. For example, if you file on time, you have a 3 percent chance of an audit. If you don’t file on time, your chance of being audited increases to 50 percent...Yikes!
There have been many high profile cases about celebrities not filing or paying their taxes. Here is a short list of people that owe or have owed the IRS:

• Toni Braxton = $400,000
• Val Kilmer = $500,000 and has a lien on his New Mexico property
• Pamela Anderson = $700,000
• Wesley Snipes = $2.7 million and jail time
• Marc Anthony = $3.4 million
• Nicholas Cage = $14 million

Here is an example of how the IRS will handle situations.  David Pushman was a limo driver.  He failed to file two tax returns.  He said he had reasonable cause which was that he had a heart condition, ADD, decreased earnings, no money to pay the taxes and his friend discarded his records.  The court determined that he demonstrated willful neglect and denied his “reasonable cause.” 
The general rule is to file on time (it’s okay to file up to the extension deadline) since the consequences are harsher for not filing than not paying the tax due. However, be proactive to pay any tax due by the deadline, not the extension deadline. 
Be aware of the new filing deadlines:

• For individuals, file by April 15th or October 15th with the approved extension.
• For C corporations, file by April 15th or September 15th with the approved extension
• For S corporations, file by March 15th or September 15th with the approved extension
• For partnerships, file by March 15th or September 15th with the approved extension

Don’t put yourself in a position of grief. Even if you are not ready to file, file something and you can amend the return later. As always, reach out if we can help. Mike McVay, Tax Accountant 850-725-5696.

Volume 7, Issue 9
How to Protect Yourself from Identity Theft
By: Mike McVay, Tax Accountant - McVay Business Services Pensacola, FL 850-725-5696
www.PensacolaFLTax.com - Mike@MikeMcVay.com
 
 
The security breach at Equifax a few months ago left many people thinking once again about identity theft. The best thing is to do everything you can to prevent it from happening to you. Here are a few tips to help you reduce your risk of being a victim of identity theft as well as how to reduce the damage from security breaches of your personal data from sources you can’t control. 
 
Discontinue paper statements that are mailed. 
 
Paper bank, brokerage, and credit card statements that are mailed can be misboxed, intercepted, lost, or stolen, and the information can fall into dishonest hands. Instead, discontinue paper statements, and access them via your online account where you can review, print, or save them each month for your records.   
 
Rent a private mail box.
 
If you have trouble with mail theft in your area and can’t check your mailbox as soon as the mail is delivered, consider renting a post office box or a private mail box. These are especially handy if you travel a lot or have many packages delivered and no one is home to sign for them. They cost up to $300 per year, and you can find them at places like The UPS Store, Mailboxes Etc., Postal Annex, or your local post office.
 
Shred your trash.
 
If you throw out junk mail offers for new credit cards or bank accounts, be sure to shred that paper and anything else that might contain private information.
 
Don’t email secure data. 
 
Credit card numbers, social security numbers, and passwords should not be sent via email unless the email is encrypted or secure. The odds of something happening are low, but could happen. 
 
Use different passwords for different account groups. 
 
Even the most secure-minded person uses the same password for many different accounts. You can too, but be smart about it. Use a unique password for your bank that you don’t use anywhere else. You might use the same password for all of your social media accounts because it’s just easier. Or another one for all of your free accounts; just don’t use those for any banking or credit card activity. Be smart about your password use, and make your password difficult based on the level of information that is at risk.     
 
Choose hard passwords.
 
It’s painful, but choosing long, hard passwords can help throw off thieves. Include at least one capital letter, one special character, and one number in your password.  Make it nice and long. And don’t use common words, your birthday, parts of your social security, or your phone number in your password.  When it’s provided, use a random password generator.  And don’t let your browser automatically save your banking passwords for you.
 
Close inactive accounts.
 
If you no longer use an account you signed up for, close it rather than let it linger. It will reduce your risk. Be mindful, though; if you close some credit card accounts, your credit score could be adversely affected even if there has been no activity for a while.
 
Consider freezing your credit.
 
If you don’t need a new credit card or loan or are not planning a large purchase soon, consider freezing your credit. When you credit is frozen or secure, no one can run checks against it. Any identity thieves would not be able to take a loan out in your name. 
 
Avoid unsecure wifi.
 
Although the ambience is nice at a Starbucks, the wifi is not secure, and connecting and doing your work all day long there is a big security risk. 
 
Monitor all account activity.
 
Check your bank and credit card accounts frequently, and turn on all alerts and fraud notifications. You can turn on alerts for when transactions exceed a dollar amount and when your bank balance goes below a certain amount. Getting emails or text messages on your activity can help you stay on top of things.  
 
Consider identity theft insurance.
 
Identity theft insurance is now common, and you can get it and fraud protection for your business as well as for individuals. If you are a victim, it reimburses you for the cost of restoring your credit. Check with your local insurance agent for more information. 
 
Choose an Accountant wisley. One that takes your privacy seriously and implements safeguards in their practice like McVay Business Services.
We hope it never happens to you. Try these tips to reduce your risk of identity theft.  

Tax & Bookkeeping Tips
Volume 7, Issue 12A
By: Mike McVay, Tax Accountant - McVay Business Services Pensacola, FL 850-725-5696
www.PensacolaFLTax.com - Mike@MikeMcVay.com
 
1099s—The Ins and Outs
 
Processing 1099s can be confusing and frustrating. Here are some facts you need to know!
 
General Rule: If you pay someone more than $600 in a calendar year for services, not material/product, then you are required to provide a 1099 showing the amount you paid. One tip is to collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or corporation. If it is a corporation, then no 1099 is required. The 1099 is due January 31st. The 1096 form is not required if you E-File. If you file by paper, it is required.
 
Addressing the 1099: If the person you paid uses their Social Security number as a tax ID number, then the person’s full name must be on the first line of the 1099. If you list the business name by mistake, then you will receive a letter from the IRS saying that the name and ID do not match. Then the IRS may require you to withhold money from future checks.
 
Reimbursed Expenses: If you pay a subcontractor for expenses incurred, do NOT include that amount in box 7. If you receive a 1099 from someone with reimbursed expenses, like travel or postage, don’t worry. Show the full amount of income on your tax return and then show the full amount of expenses and it will net out the same. If you lower the 1099 amount on your return to “correct” it, that will trigger an audit.
 
Strict Classification Rules: If you hire a subcontractor, be sure that the state won’t deem the person as an employee. A few indications to strengthen your case are:

• You have a contract agreement between parties.
• The subcontractor invoices the business.
• The subcontractor has a business license. The business does not tell the contractor WHEN to perform the work or HOW to do their job. The subcontractor uses their own equipment and materials.
• The subcontractor is available to be hired by other companies. 

 
Remember, there are fines, penalties, and back taxes at the federal and state levels to pay if a worker is misclassified. Here is a link to a 20-factor test to determine if the worker is an employee or a contractor: https://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf
 
Penalties: If you miss the deadline and file within 30 days, the penalty is $50. If you file after 30 days of the missed deadline, the penalty is $100. If you file after August 1, or do not deliver, or have an incorrect name and taxpayer identification number combination, the penalty is $260. Intentional disregard results in a penalty of $530.
 
Extensions: Extension on E-Filing –Form 8809: you will receive an automatic 30 day extension as long as you request prior to the deadline of January 31st. You can find the form on the IRS website and either fax or mail it in.

• Fax: 1-877-477-0572
• Mail: Internal Revenue Service, Attn: Extension of Time Coordinator, 240 Murall Drive, Mail Stop 4360, Kearneysville, WV 25430

 
Extension on Recipient Delivery: there is no specific form; you will need to send a letter to the IRS. It is not an automatic extension. If granted, you will be provided with an extra 30 days for delivery; however, if not granted, you will still receive a 10-15 day grace period.
 
1099-K Rules:  There has been a lot of confusion regarding the new 1099-K rules. All merchant companies that process credit card payments are required to issue 1099-Ks to the seller. It can be for one transaction for any amount. The main reason for this law is to capture payments going through eBay, PayPal and Amazon. However, now the common business owner will get a 1099-K as well if their clients or customers pay them with a credit card. Here is the confusing part: businesses will provide a 1099-MISC for payments made with a check or cash and the merchant company will process 1099-K’s made with a credit card. Let’s give some examples to clarify:
 
Example 1 – You pay a subcontractor $700 for services. If you paid them with a check, you issue them a 1099-MISC.
 
Example 2 – You pay a subcontractor $700 with a check and $800 with a credit card. You will issue them a 1099-MISC for $700 and the subcontractor’s merchant company will give them a 1099-K for the $800.
 
Example 3 – You pay a subcontractor $300 with a check and $800 with a credit card. The safe answer is to still issue a 1099-MISC for $300 because the combine total payment to the subcontractor (check and credit card) was over the $600 amount.
 
Oddball Clarifications: If the contractor is NOT a US citizen and lives in another country, have them fill out a W-8BEN and keep this on file. Prepare a 1099, but there will be no tax ID number on the form. If questioned by the IRS, show them a copy of the W-8BEN. There are no withholding requirements for those that work outside the United States.
 
If a foreign contractor performs services in the U.S., there are 3 conditions that need to be met:

1. The nonresident alien performing labor services is present in the U.S. for less than 90 days during the tax year.
2. The total pay does not exceed $3,000.
3. The pay is for labor performed for an office or place of business maintained in a foreign country. 

 
If any of the above conditions are not satisfied, a principal has to report and withhold income of a foreign independent contractor. However, the withholding can be avoided if the country of the contractors has a tax treaty with the U.S. 
 
If the 1099 comes back to you undelivered, keep a copy for your records to show the attempt. If the contractor has already performed their services and you cannot get the contractor to fill out the W-9, keep a log of the attempts to contact them by phone, email or letter. The IRS has penalties for not sending the 1099 and if you show intent, hopefully there will be grace in the penalties.
 
If you find you made a mistake on the amount or tax ID number, you can always correct the form and re-send it by checking the “Corrected” box.
 
Corporations do NOT get 1099s, but some people are confused if they should send a 1099 to LLCs. Send a 1099 to single-member LLCs and multi-member LLCs (partnerships). 1099s are required to ALL attorneys regardless of their entity type or amount paid!

Here’s an example from this month’s issue of Business Consulting News from Mike McVay, Accountant, Certified QuickBooks & Payroll ProAdvisor. Mike@MikeMcVay.com - 850-725-5696. 
 
Cash bonuses, no matter how small, are wages subject to FITW, FICA, FUTA and applicable state/local payroll taxes. If given after FIT has been withheld from regular wages—or with regular wages but identified as separate—you can use the 25% supplemental withholding rate. If wages exceed $1 million for the year, withhold at 39.6%. [26 CFR 31.3402(g)-1]
 
Discretionary (lump-sum) bonuses. To be discretionary (excludable from overtime calculations)—it must be the employer who decides when and how much to give. The bonus cannot be required by a contract, agreement or promise, or be given in a pattern so that it is expected. To be discretionary, the bonus must be a complete surprise to the employee.
 
Exception: Holiday bonuses can be discretionary, even if expected each year. [29 CFR 778.211]
 
Nondiscretionary bonuses are those required under a contract, agreement or promise, express or implied—e.g., for higher or faster production, as inducements to take a job or not leave—or bonuses employees have come to expect (with the exception of holiday bonuses). Nondiscretionary bonuses for hourly employees must be added to weekly gross pay for the week in which they are earned and must be included when computing the week’s O.T. [29 CFR 7788.209]
 
Example: Jo earns $14/hr. One week she works 42 hours and earns a $50 prorated production bonus.
 
Jo’s normal pay: $588 for the week ($14 x 42 hrs) + $50 bonus = $638 straight-time pay.
 
Overtime pay: $638 for the week (including the nondiscretionary bonus) ÷ 42 hours worked = $15.19 regular rate of pay x 50% premium rate = $7.60 (rounded) x 2 hours’ O.T. = $15.20 (rounded) premium pay.
 
Gross pay: $638 straight-time pay + $15.20 premium pay = $653.20 gross pay for the week.
 
Signing and related bonuses. A bonus given for signing or cancelling an employment contract is wages subject to FIT, FITW, FICA and FUTA.
 
Why risk falling behind?

It’s never too early to prepare for the next tax filing. As 2017 nears its end, make sure you have everything in order by the time you file your business tax returns by next March 15 or your personal tax returns by next April 15.
DO YOU KNOW YOUR ESTIMATED TAX LIABILITY?One of the most important things to consider is what your estimated tax liability will be. You don’t want to encounter any surprises when you file. By determining your estimated taxes now, you can either make sure you are paying enough before this year is complete, or you can start saving to preemptively cover what you might owe.
First, you need to know what “tax liability” is. Ultimately, it is the amount of taxation incurred by an individual or business based on a taxable event (earned income, interest earnings, sales of assets, etc.) multiplied by current tax rates. The longer you wait to estimate your tax liability for the year, the fewer options you have. Otherwise, starting to prepare now will enable you and your tax preparer to review every detail and explore all the options available.
Here are 3 simple steps you can take now to prepare for your 2017 tax return:

1. Consult a Tax Preparer

If you don’t already have a tax preparer, it’s time to find one. McVay Business Services is an expert at business and personal income taxes that you can trust to manage your tax preparation needs. We can thoroughly review your situation, calculate estimated tax liability for you and/or your business and make recommendations to start saving money or pay estimated taxes before the year’s end. To avoid S-Corp tax audits make sure the working shareholders are taking W-2 wages and paying in over half their S-Corp earnings in 2017. Many S-Corps are being audited when owners are paying themselves low or no W-2 wages. 

1. Gather All Financial Information
   Now, you won’t have all your final W-2s, 1099s and other earnings documents until early next year, but if you keep precise accounting records, you should have accurate information from which to estimate your tax liability. Estimates are based on your earnings so far plus anticipated earnings through the rest of the year. Gather your receipts, make a list of charitable contributions, bring last year’s tax return documents and collect all personal information you may need when filing (such as social security numbers for any dependents).

1. Make an Appointment
   In order to get a jump on your 2017 tax return and have your estimated tax liability determined, set your first tax appointment as soon as possible. The sooner you start this process, the more options you have. McVay Business Services will make sure no details are overlooked and every aspect of your tax preparation goes smoothly. Then, when you file your return next year, you’ll be prepared for everything that happens. We want to help you maximize your return and avoid financial setbacks that often come with last-minute filings from those who are not properly prepared.

To schedule a consultation, call us today at 850-725-5696 or send us an email at Mike@MIkeMcVay.com - Visit www.PensacolaFLTax.com for more information. 

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