IRS Urges Employers to Take Advantage of Expanded Work Opportunity Tax Credit; Sept. 28 Deadline to Request Certification

The Work Opportunity Tax Credit is available to employers who hire and retain veterans and individuals from other target groups (see below) who experience significant barriers to employment. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.  The Department of Labor is a great source of info on the credit, offering a tutorial, video, and employer’s guide.

The IRS also offers some excellent resources.

This year, there is an extended certification deadline — Sept. 28, 2016 — which applies to eligible workers hired between Jan. 1, 2015, and Aug. 31, 2016.

The 10 categories of WOTC-eligible workers include:

  1. Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  2. Unemployed veterans, including disabled veterans
  3. Ex-felons
  4. Designated community residents living in Empowerment Zones or Rural Renewal Counties
  5. Vocational rehabilitation referrals
  6. Summer youth employees living in Empowerment Zones
  7. Food stamp (SNAP) recipients
  8. Supplemental Security Income (SSI) recipients
  9. Long-term family assistance recipients
  10. Qualified long-term unemployment recipients (for people who begin work after 2015).

This is a great example of a win-win tax credit, designed to encourage employers to hire those people who face difficulties getting into the workforce, which not only helps the employers and their employees, but also strengthens communities.

More here: IRS Urges Employers to Take Advantage of Expanded Work Opportunity Tax Credit; Employers Have until Sept. 28 to Request Certification for Many New Hires

Back-to-School Season = Catch-up Time for Nanny Taxes

“The IRS considers that babysitter or nanny that was working in the home for the family over the course of the summer to be an employee of the family, which makes the family a household employer… Families should make sure they tie up all those loose ends before they move on with the rest of their year so that it doesn’t make tax time come April even more complicated than it has to be.”

Source: Back-to-School Season Means Catch-up Time for Nanny Taxes

Nice little reminder article of the thresholds and requirements for taxation of household employees (hint: it’s more likely that you owe it than not) — but remember that the nanny payroll company cited in the article is but one of many out there.  Because it’s such a specialized area, they tend to be pricier than I think is reasonable, but it’s better than trying to do it yourself.  Here are some companies to consider:

Some companies offer lower prices than others, but beware — make sure you’re getting all the features you need:

  • Will they apply for federal EIN, state registration and unemployment accounts for you?  This is a royal pain and it’s best to outsource these steps.
  • Will they prepare and file quarterly and annual payroll taxes, as well as issue W-2s, or is this an extra charge?
  • Do they offer direct deposit?
  • Are their charges per paycheck or per month?  If your nanny gets paid every week, this difference can be substantial.
  • Will they prepare your annual Schedule H for you?

If you’ve found an affordable household employee payroll service that performs all the above tasks, please mention them in the comments!  I’m always looking for good companies to recommend to clients.

QuickBooks 2017 Has Arrived!

It’s time once again for me to share what an amazing human being Charlie Russell is.  One of my favorite bloggers anywhere and on any topic, he’s just released a new article called “QuickBooks 2017 Has Arrived! Here Is What to Expect“.  I encourage you to read all of it, as he does the most wonderful job of presenting illustrations, describing his testing, and offering real-life interpretations of everything, including the value he sees in various features.

To summarize, however, I’ll quote a few of Charlie’s responses from the comments section (run together with ellipses):

“Intuit is continuing with their recent policy of making fewer changes in the annual release of QuickBooks than in the past… Back in Fall 2014 Intuit stated that there would only be incremental improvements to the desktop product, few if any big significant changes. They want to keep the desktop people happy long enough for them to get comfortable with the idea of an online product, and then get them to move over there… I’m still waiting for the online products to match their hype.”

That said, there are some really nice changes to this year’s version of the QuickBooks Desktop software.  My personal favorites are (1) Search Improvements and (2) Report Customization Improvements, though some folks are pretty excited about (3) Scheduled Reports, and (4) Security Updates.

In addition, there are some miscellaneous improvements that are a total relief… as in FINALLY!

  • The Record Deposits icon shows the number of deposits that are available.
  • A Cleared flag shows on cleared credit card charges.
  • If a User is deleted, the deleted user’s name will still show on the audit trail.
  • Your Company name will print on the deposit summary.
  • You can copy/paste detail lines on weekly timesheets.

Now, as Charlie points out:

“Accounting professionals will have to get the new version, of course, because you will have clients who have the new version. You need this version to work with their files… but from the end-user’s standpoint, there isn’t a lot that compels you to upgrade unless your version of QuickBooks is retiring.”

Still and all, I’m pretty happy about these changes.  I don’t need a lot of bells and whistles — I just want a stable product to continue to be stable, with improvements that shave a few minutes off my workday here and there.

There are also some updates in the most recent QuickBooks Online version — but as you’re probably aware, these come up constantly (usually monthly), so they are usually less significant than the annual updates we see in the Desktop version.  (Personally, it makes me insane how cloud software just changes overnight without warning.  I like to have time to play with new features and improvements before interrupting my workflow with them.)

And if you’re not already subscribed to Charlie’s blog posts in Accountex (formerly the Sleeter Group), do yourself a favor and take care of that right now.

 

Deducting Loan Origination Fees on Business Taxes

I was recently researching the tax treatment of loan origination fees for a client, and found almost all the search terms I was using returned only information on personal mortgage loans, not business loans.  With a decent amount of searching, I came across a few nice articles that clearly spell out the tax treatment versus the financial accounting (GAAP) treatment of these fees, so I am sharing them here in hopes that when you go searching for the same info (as a business owner or accountant), you’ll find them all here together, in this nice little spot.

To clarify, there are different types of loan fees at closing — so, find this part out first — as that’s the key to how they’re treated.

First up, The Balance (a personal finance site that has a pretty decent “Small Business” section) discusses Deducting Interest Expenses on Your Business Taxes:

For mortgages on business property, you may end up prepaying interest from the settlement date to the closing date, as part of your closing costs.

The IRS says that when you prepay interest, you must allocate the interest over the tax years to which the interest applies. You may deduct in each year only the interest that applies to that year.

You may not deduct interest that must be capitalized, that is, interest that is added to the principal balance of a loan or mortgage. This interest expenses must be depreciated along with the other costs of the business asset.

  • For sole proprietors and single-member LLCs, show these expenses in the “Expenses” section of Schedule C on Line 16. Note that interest expenses are divided between mortgage interest and all other interest expenses.

  • For partnerships and multiple-member LLCs, show these expenses in the “Other Deductions” section of Form 1065

  • For corporations, show these expenses in the “Other Deductions” section of Form 1120.

Meaden & Moore’s blog does a really nice job of explaining — through an example that culminates in a journal entry — the accounting treatment (Generally Accepted Accounting Principles, or GAAP) of not only how to amortize these fees over the life of the loan, but why (the matching principle).

These costs should be recorded as an asset and the related periodic expense should be charged to amortization expense. If these costs were expensed in full at the time of payment, expense for that period would be artificially higher than normal and potentially misleading. Utilizing the matching principle will allow a Company to align this expense with the term of the loan.

However, I only found one article that discussed what I was really looking for: the comparison of tax vs. GAAP rules for period expensing or capitalization/amortization of loan origination fees.

Loan Origination: Getting Tax and Financial Accounting to Mesh, by CFO.com’s Accounting & Tax department, offers an excellent general explanation of why tax and GAAP (financial statement accounting) systems differ.

We have seen that, with respect to many items of income and expense, tax accounting differs, diametrically, from financial accounting. This divergence, of course, is not surprising in light of the fact that the fundamental goals of each system also diverge.

Financial accounting has as its underpinning the doctrine of conservatism such that, wherever possible, net income is understated through the mechanism of accelerating expenses and deferring income. The fundamental objective of the tax accounting system, as we are all aware, is revenue collection such that the system strives to enhance net (or taxable) income and, to this end, income items are accelerated while expenses, wherever possible, are deferred. With each system, however, ”matching” (of revenues with the expenses incurred to produce such revenues) is also advertised as a central tenet. But frequently, this particular objective is sacrificed on the altar of the larger objectives — conservatism and revenue enhancement.

In the case of the bank in the particular example they use, the fees were deductible as a period expense for tax purposes (as opposed to being amortized, which is the requirement for GAAP) because the bank’s loan marketing activities were a core activity of its day-to-day business.

That case stands, broadly, for the proposition that expenses must be capitalized if they provide benefits that extend beyond the year in which such expenses are incurred.

Which means that in most situations, for both financial statement and tax purposes, these fees need to be written off over the period of the loan — but there are exceptions for tax purposes if the activities are central to daily operations.

IRS Urges Mid-Year Withholding Check-Up: Refunds Will Be Delayed For Some

Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.

Source: IRS Urges Taxpayers to Check Their Withholding; New Factors Increase Importance of Mid-Year Check Up