Monthly Archives: June 2014

Summer jobs have tax consequences

What job will your teen choose this summer? And what are the tax consequences? Here are typical employment scenarios.

  • The family business. Hire your under-age 18 child in your sole proprietorship, pay reasonable compensation for a legitimate job, and you may qualify for an exemption from social security, Medicare, and federal unemployment tax on the wages. This is also true for a single member LLC that’s taxed as a sole proprietorship, though not for corporations.
  • The entrepreneur. When your child establishes a sole proprietorship business to offer services from computer consulting to dog walking, regular self-employment tax rules apply. That means when net income from the business is more than $400, self-employment tax is due.
  • The domestic worker. Performing chores such as yard work and babysitting for the neighbors may trigger the household employee rules, sometimes called the nanny tax. This can be good news for your teen, as these jobs are typically exempt from social security and Medicare taxes when paid to workers under age 18 who are considered household employees.
  • The employee. A job at a retail store or restaurant generates earned income that is subject to employment and income taxes. Your child may need to file a federal income tax return when wages and tips are more than the standard deduction ($6,200 for 2014).

Whatever job your child tackles this summer, remember the “kiddie tax” does not apply to income earned from working. Please call if you have questions about other tax effects of a summer job.

Do a second quarter payroll check-up

As spring turns to summer, another payroll quarter is ending. Here are items to check off your to-do list.

  • Confirm your federal tax deposits. Do you outsource the preparation of any portion of your payroll? Remember that you’re responsible for timely filing and paying, even if a payroll provider is performing those actions for you. Access the free, on-line Electronic Federal Tax Payment System to make sure federal deposits are being made in a timely manner.
  • Review severance payments to former employees. In general, severance pay is subject to federal and state withholding, as well as social security and Medicare tax. If you neglected to withhold these taxes in the past, you will need to file amended payroll returns. Update your company payroll policies to reflect the proper method going forward.
  • Make prior quarter corrections on the right form. Use the latest version of Form 941X (revised April 2014) to correct errors on a previously filed Form 941. Note that Form 941X is appropriate only for certain corrections and that you may have to file other forms as well.
  • Make sure your 401(k) is current. Federal laws for maintaining your plan’s tax exempt status change and your plan documents need to keep up. Be sure to adopt required amendments. This is also a good time to investigate implementing non-mandatory features to add benefits such as the option to allow your plan to accept Roth contributions.

Please call for the latest developments in payroll rules. We’re here to keep you up to date.

Net operating losses: Carry back or forward?

Did your business report a loss for 2013? By now, you’ve already made the decision of whether to carry the loss forward to future years or back to a prior year. Here’s an overview of carrybacks and carryforwards.

  • Carryback. As a general rule, you can use your 2013 net operating loss to offset income earned in the preceding two years. The loss is carried back first to the earliest year, then forward. If the entire loss is not used during those two years, you can carry the remainder forward for 20 years.

    You can either amend your prior year returns or file a special form for a quick refund. In either case, you’ll receive interest if the IRS takes more than 45 days to process your request.

  • Carryforward. You have up to 20 years to use the net operating loss to offset future income.

    Note that the IRS assumes you will carry a net operating loss back in order to claim a refund. The assumption means that if you chose to carry your current year loss forward to future years, you had to attach an election statement to your 2013 tax return — and that election is irrevocable.

    What if you forgot to attach the carryforward election to your return? As long as you filed the return on time, you may be able to complete an amended return for 2013 and attach the election to it. To qualify for this relief, the amended return must be filed within six months of the due date of your return.

Do you have a question about your net operating loss? Please give us a call. We’re here to help.

IRS gives you a second chance to elect estate portability

Are you an executor for an estate created in 2011, 2012, or 2013? Then you may benefit from a procedure that extends the due date for making a portability election on an original estate return.

Here’s what you need to know.

Portability has to do with the federal estate tax exclusion, or the dollar amount of assets that are exempt from federal estate tax. Each estate can claim an exclusion to shelter assets from the tax.

Prior to 2011, when portability was introduced, any unused portion of an estate’s exclusion died with the estate. That meant married couples couldn’t take advantage of “leftover” exclusion amounts to reduce the tax on the surviving spouse’s estate.

Now portability is a permanent part of estate tax rules, making it possible to transfer all or part of an unused exclusion between spouses. You do that on Form 706, the federal estate tax return. The catch: Normally, you have to file the return and the election by the nine-months-after-death due date, even if the total value of the estate is less than the exclusion.

For example, say you were the executor of an estate created in 2012. The exclusion for that year was $5,120,000. When the total asset value of a 2012 estate was less than that amount, a federal estate tax return wasn’t required — and so you might not have filed one.

If that’s the case, you missed a chance to make the portability election — but all is not lost. Under a recent IRS revenue procedure, estates created during 2011, 2012, and 2013 that meet certain requirements have until December 31, 2014, to file an original Form 706 and make the election.

As a result, you have a second chance to elect portability.

We urge you to call to learn about this valuable tax planning opportunity.

Don’t lose money to a car repair scam

Forty years ago car owners could often grab a wrench, peek under an automobile’s hood, and fix minor problems. For most of us, those days are gone. Nowadays, computers operate many of our cars’ systems. Skilled technicians with sophisticated diagnostic gear are needed to check an auto’s vital signs. When mechanics have finished probing and prodding and repairing, they may hand you a hefty bill for their work.

Although most auto repair shops employ honest and skilled technicians, some shops take advantage of unsuspecting car owners. Less-than-ethical mechanics may jack up prices, provide services that aren’t necessary, pad invoices with bogus fees, or install poor-quality parts.

Following are two of the most common auto repair scams and how to avoid them:

  • Bait and switch. A shop may advertise cheap oil changes or other routine maintenance services to get your car into the repair bay. Once there, myriad problems may begin to surface. Before you know it, a simple oil change has morphed into an expensive transmission repair. Reputable mechanics will inform you of items requiring attention, but shysters may pad a work order with unnecessary repairs or replacements.

    Protect yourself by getting written estimates that specify repairs to be performed and fees for parts, labor, storage, and loaner cars. Refuse to pay for work that hasn’t been authorized in advance. Mechanics should allow you to inspect damaged parts and should never hold your car as collateral. In some cases, a second or third opinion may be warranted, even if it means paying reasonable diagnostic or reassembly fees.

  • Charges for used or damaged parts. Dishonest repair shops have been known to replace a vehicle’s tires with retreads, install another car’s castaways, even purposely damage existing car parts and charge for expensive repairs. Avoid such scams by inspecting tires before and after the work is completed. Examine all parts to ensure that used parts haven’t been substituted for new. And watch for evidence of fresh damage. You may authorize a mechanic to use reconditioned parts, but charges should be commensurate with the items installed.

If you’re unsure about a particular repair shop, check with trusted friends. Scan for complaints on the Better Business Bureau’s website. Pull out your owner’s manual and follow its advice. Track repair expenses and shop around until you’re satisfied that you’ll be getting your money’s worth.

Put the customer at the center of your website

On a fundamental level, every business succeeds or fails based on its ability to anticipate and satisfy the needs of its customers. Unfortunately, many companies stray from this maxim, and nowhere is this failing more apparent than in the proliferation of business-centered websites. Surf the Internet and you’re sure to find business websites that flagrantly annoy the folks who pay the bills — customers and clients — all the while touting a company’s industry awards, management staff, and plans for market domination.

A customer-centered website, on the other hand, engages visitors. It provides real solutions. It establishes rapport, holding the attention of potential clients by focusing text and graphics on their needs and wants. To ensure your website is geared toward customers, ask the following six questions:

  • Will customers benefit from visiting this website? It’s great that you’ve won awards and sales are climbing, but how does that information help potential customers? Tie those awards to product quality. Link sales data to testimonials of satisfied purchasers. Present clear and concise product descriptions, photos and videos, and biographies of key personnel to encourage trust in your company and its products.
  • Is the site easy to navigate? The website should be clearly organized. If visitors become frustrated trying to journey from one page to another, they’ll leave. Pages should be laid out with plainly named categories and every page should contain links to every other page.
  • Does it look professional? Nothing presents a bad impression more quickly than spelling and grammar mistakes. Did you use “their” when you really meant “they’re”? Are your sentences awkwardly worded or confusing? If so, ask other writers to proofread your text before it’s published on the Internet.
  • Can your products be purchased easily? Does it take a graduate degree in computer science and the patience of Job to download a file from your website? Or can customers, with a few clicks, order your products or get more information?
  • Do you provide online support? Be sure to offer clearly written answers to common questions (FAQs) and an e-mail address or phone number for contacting your customer service team.
  • Can they give feedback? Don’t avoid customer opinions — relish them. Give visitors a way to discuss your website and the products and services you’re providing. Respond quickly and courteously and take their suggestions to heart.

Remember, customers are the engine of your business. Treat them well.