Payroll Funds – Do NOT Touch

IRS3There is zero wiggle room when it comes to handling the federal income taxes and FICA taxes withheld from employees’ paychecks. The taxes are government property, which employers hold “in trust” and then remit to the IRS on a set schedule. Employers are not permitted to use this “trust fund” money for other purposes.

Serious Penalty

The penalty for breaking the rules is harsh. Any person involved in collecting, accounting for, or paying the trust fund taxes — a “responsible person” — who willfully fails to do so may be liable for a penalty equal to 100% of the unpaid taxes. The penalty is aggressively enforced.

Responsible Persons

Generally, a responsible person is anyone with the power to see that the taxes are paid. This might include a corporation’s officers, directors, and shareholders; employees; and the partners in a partnership. Under certain circumstances, even family members and professional advisors may be subject to the penalty.

It’s not uncommon for there to be more than one responsible person. When that’s the case, each responsible person could be found liable for the full penalty.

A Word About Willful

Failure to pay trust fund taxes can be willful without being an intentional attempt to evade paying the taxes. Temporarily “borrowing” from the trust fund to meet bona fide business expenses in a pinch can qualify as being willful.

If you would like to avoid getting into hot water with the IRS, then call Kimmey & Associates and ask for Michael Kimmey.

Oak Brook office – 630-581-7007

Orland Park office – 708-687-2917

Kimmey & Associates is a Chicago tax and accounting firm that has operated for over 35 years.  We have two convenient offices, Oak Brook and Orland Park to better service clients throughout Cook, DuPage and Will County.

The Repair Regulations — Businesses

IRSThe IRS allows business owners to deduct the ordinary and necessary expenses of operating a business each year. However, business owners also are required to capitalize the costs associated with acquiring, producing, and improving tangible property used in their businesses (such as equipment, supplies, buildings, etc.). Because these two rules had often proved difficult to reconcile, the IRS issued new final regulations in 2013 clarifying how the rules apply. Though these regulations are extensive and complex, small business owners should be aware of some of the opportunities they provide.

General Rules

The regulations delineate when you may deduct and when you must capitalize amounts paid to acquire, produce, or improve tangible property. Generally, amounts paid to improve a unit of property must be capitalized, while amounts paid for repairs and maintenance, as well as for materials and supplies consumed during the year, may be deducted.

Safe Harbor for De Minimis Expenditures

Qualifying businesses may elect to use a de minimis safe harbor that allows them to deduct costs incurred to acquire or produce tangible property in amounts of up to either $5,000 or $500 per item or invoice. The higher limit is available for taxpayers with an applicable financial statement (AFS). An AFS can be a certified audited financial statement used for nontax purposes, such as for obtaining credit. If you don’t have an AFS, you may still qualify for the $500 safe harbor if you expense amounts in accordance with a consistent accounting procedure in place at the beginning of the tax year.

Use of the safe harbor does not limit the ability to otherwise deduct amounts paid for incidental materials and supplies or for repairs and maintenance. Rather, it is an administrative convenience to allow expensing of smaller items without analyzing each one under the relevant rules.

Safe Harbor for Routine Maintenance

You may deduct amounts paid for recurring activities that keep your business property in its ordinarily efficient operating condition. For buildings and their systems, you must reasonably expect to perform the maintenance more than once during the 10-year period beginning at the time the property is placed in service. For other property, you must expect to perform the maintenance more than once during the property’s class life used for depreciation purposes.

Safe Harbor for Small Taxpayers 

Qualifying small businesses may also deduct the costs of work performed on a building with an unadjusted basis of less than $1 million. To qualify for the safe harbor, the business must have average annual gross receipts of less than $10 million. Additionally, the total amount paid during the taxable year for the building’s repairs, maintenance, and/or improvements may not exceed the lesser of $10,000 or 2% of the unadjusted basis of the eligible building property. The building may be owned or leased.

Additional restrictions may apply for you to qualify for these safe harbors. Contact us if we can help you determine how the final regulations apply to you.

If you are tired of overpaying taxes and making mistakes on tax breaks you rightfully deserve, then call Kimmey & Associates and ask for Michael Kimmey.

Oak Brook office – 630-581-7007

Orland Park office – 708-687-2917

Kimmey & Associates is a Chicago tax and accounting firm that has operated for over 35 years.  We have two convenient offices, Oak Brook and Orland Park to better service clients throughout Cook, DuPage and Will County.

IRS Going After Golf Courses for Tax Deduction

Golf Course Easement2It’s getting much tougher to successfully claim a charitable deduction for a conservation easement. Unfortunately, this will further erode the construction of new golf course projects in 2016 and beyond.

Typically, a new golf course project will make consideration plans to conserve and protect the natural habitat of fish, wildlife, and natural ecosystem by preserving open space for the scenic enjoyment of the general public. These easements often amount to sizeable charitable deductions which help offset the investment.

Although the IRS has lost several conservation easement cases regarding golf courses, they turned the tide in 2003 and 2005 and have become more aggressive fighting these situations. In 2003 and 2005, the IRS went to Tax Court over two North Carolina golf course easements. In both instances, the IRS disagreed with the taxpayers over charitable deductions. The court, the IRS stated that “fairways, tee boxes and greens … are sodded or planted with 419 Bermuda and Tidwarf, which are nonnative grasses and consequently do not provide a relatively natural habitat for the Golf Course Easementpitcher plants and Venus flytraps.” Additionally, the court found that the use of pesticides, insecticides, fungicides, herbicides and fertilizers not only does not preserve the natural habitat, but actually “injures or destroys” the habitat. And, being part of a gated community that is not open to the general public does not provide scenic enjoyment for the general public. In both cases, the IRS won.

In 2009, a coastal Alabama golf course project, Kiva Dunes, won a three year court battle which vindicated their $28.7M tax break in exchange for leaving 141 acres of land undeveloped. This setback created a round of legislative changes aimed at banning golf course easements altogether. Fortunately, this effort was blunted by the golf industry.

Since the beginning of 2014, there have been 19 cases heard in US Tax or federal district court regarding conservation easements for golf courses.

If you are seeking to lower your tax obligations legally and would like assistance, call Michael Kimmey & Associates at 708-687-2917 or 630-581-7007.

 

 

Tax Issues for Divorcing Individuals

Tax AvoidWhen a couple divorces or separates, there are many issues that need to be sorted out. One issue many forget to discuss is taxes. Here is a look at some of the tax issues divorcing couples may encounter.

File Jointly or Separately?

For tax purposes, a person’s marital status is determined on the last day of the tax year, so individuals who separate (but don’t divorce) during the year typically will need to make a choice between filing jointly or separately.

Filing separately may result in the loss of valuable tax credits and deductions. For example, the American Opportunity Tax Credit (for higher education costs) is not available to a married taxpayer who files a separate return. Typically, filing jointly will result in the lowest overall tax.

One reason to consider filing separately is for protection from the other spouse’s future tax liabilities. Generally, spouses who sign joint returns have joint and several liability — meaning that they are each fully liable for unpaid tax liabilities arising out of the return. Moreover, the IRS has the right to pursue the party who is best able to pay the full amount quickly, leaving issues of fairness to be worked out between the two filers. (The “innocent spouse” rules and/or the “separate liability” election may provide protection in some circumstances.)

Alimony Versus Child Support

Alimony represents taxable income to the recipient and a tax deduction for the person paying it. Child support, on the other hand, is not taxed to the recipient, and the person paying the child support gets no deduction for the payments. Because the tax consequences are so significant, a number of technical rules govern what constitutes alimony.

Generally, alimony must be paid in cash (or by check) pursuant to a divorce or separation agreement and terminate upon the death of the recipient. Some people — in the divorce decree or settlement agreement — try to “front-load” their alimony payments by designating payments in the early years as alimony rather than as child support. The IRS has specific rules limiting front-loading.

Property Transfers

Spouses should take care when dividing up assets. The general rule is that no gain or loss is recognized for property transfers if they occur either within one year of the end of the marriage or within six years of the end of the marriage and pursuant to a divorce or separation instrument. However, such transfers may create tax issues down the road, because when the property is sold, the owner may have to pay capital gains tax on the difference between the sale price and the basis (generally, the original cost). As a result, it’s important to consider potential future taxes when negotiating a property settlement.

Child-related Tax Breaks

Only one parent may claim the dependency exemption for a child. Generally, the dependency exemption will go to the parent with physical custody, although numerous subsidiary rules may apply. The rules for claiming the child tax credit generally track those for the dependency exemption. And the general rule for the child and dependent care credit is that the credit will go to the parent with physical custody.

If you are tired of overpaying taxes and making mistakes on tax breaks you rightfully deserve, then call Kimmey & Associates and ask for Michael Kimmey.

Oak Brook office – 630-581-7007

Orland Park office – 708-687-2917

Kimmey & Associates is a Chicago tax and accounting firm that has operated for over 35 years.  We have two convenient offices, Oak Brook and Orland Park to better service clients throughout Cook, DuPage and Will County.

IRS Tax Audit Help – How to File Appeal

Yes, you can start a dialogue with the IRS if you feel that its findings are incorrect.

The very thought of having to communicate with the Internal Revenue Service about something you believe is an agency error is intimidating to most people. The tax code is massive and often difficult to decipher, and everyone gets at least a little nervous they consider engaging the governing agency.

IRSBut there are numerous reasons why you might dispute something that the IRS has communicated to you. You might think, for example, that the law was not interpreted correctly, so a decision may not have been the right one. Or you don’t believe that a collections effort should have been initiated against you, or you feel that your offer in compromise should have been accepted.

There are three things you need to do first:

  • Double- and triple-check any IRS publications that you consulted to make sure you read them correctly, as well as to be sure that you’re very clear on what your position is and why.
  • Decide whether you are going to go it alone or whether you would like a CPA or attorney to represent you.
  • Prepare to file a written protest to request an Appeals conference.

Note: You may be able to bypass this formal document if you qualify for something like the Small Case Request. Check with us to see which procedure will be appropriate in your case.

Even if you choose to let us guide you through this complex process, you can start gathering information for the written protest. The IRS expects it to contain a great deal of detail, including:

  • Your contact information,
  • A clear statement indicating that you intend to appeal to the Office of Appeals because of changes that the agency suggested,
  • The letter that the IRS sent you that outlined the changes it believed needed to be made,
  • The pertinent tax period(s) or year(s),
  • A list of the items with which you take exception,
  • Your rationale for disagreeing, including supporting facts,
  • Your signature, of course, and
  • A statement and signature from any professional who helped you prepare the protest document.

Talk to us if you’re protesting a lien, levy, seizure, or denial or termination of an installment agreement. These disagreements require a different procedure.

Be Proactive

You may assume that the IRS is always right and therefore may be uncomfortable second-guessing the changes the agency made to your tax return. But you have a perfect right to protest – as long as you’re certain of the rationale for your dispute.

The best way to avoid having to go through this process, of course, is to be exceptionally careful about your tax return in the first place. This requires planning throughout the year and a thorough understanding of all of the information you supply to the IRS. If your return contains more than some simple income and deductions, we’d be happy to work with you from start to finish.

If you need assistance or have received a notice from the IRS, call us and ask for Michael Kimmey.  We have two offices to better serve you.

Oak Brook IL office – 630-581-7007

Orland Park IL office – 708-687-2917 

Michael Kimmey & Associates has operated for over 35 years servicing Chicago businesses and individuals.  We are licensed to represent you in front of the Internal Revenue Service.

Tax Breaks for Chicago Business Owners

Tax BreaksIf you run a small business, you already have a full plate. The last thing you need is for the IRS to question any of your business expense deductions. But it could happen. And that’s why having records that prove your expenses is so important. Even deductions for routine business expenses could be disallowed if you don’t have appropriate records.

What Records Are Required?

Except in a few instances, the tax law does not require any special kind of records. You’re free to have a recordkeeping system that is suited to your business, as long as it clearly shows your expenses. In addition to books that allow you to track and summarize your business transactions, you should keep supporting documents, such as:

  • Canceled checks
  • Cash register receipts
  • Credit card sales slips
  • Invoices
  • Account statements

The rules are stricter for travel, entertainment, and transportation expenses. You should retain hotel bills or other documentary evidence (e.g., receipts, canceled checks) for each lodging expense and for any other expense of $75 or more. In addition, you should maintain a diary, log, or account book with the information described below.

Travel. Your records should show the cost of each separate expense for travel, lodging, and meals. For each trip, record your destination, the dates you left and returned, and the number of days spent on business. Also record the business purpose for the expense or the business benefit you gained or expected to gain. Incidental expenses, such as taxi fares, may be totaled in reasonable categories.

Entertainment. Record the date the entertainment took place and the amount of each separate expense, along with the name and address or location of the place of entertainment. Note the business purpose for the expense or the business benefit you gained or expected to gain and the nature of any business discussion or activity that took place. Also list the identities and occupations of the individuals you were entertaining or other information that indicates their business relationship to you.

If the entertainment was directly before or after a business discussion, be sure to indicate the date, place, nature, and duration of the discussion and the individuals who took part in both the discussion and the entertainment activity. For a business meal, you must prove that either you or your employee was present.

Transportation. As with travel and entertainment, you should record the amount and date of each separate expense. Note your business destination and the business purpose for the expense. If you are deducting actual car expenses, you’ll need to record the cost of the car and the date you started using it for business (for depreciation purposes). If you drive the car for both business and personal purposes or claim the standard mileage rate, keep records of the mileage for each business use and the total miles driven during the year.

Don’t Mix Business and Personal Expenses

Things can get tangled if you intermingle business and personal expenses. You can avoid headaches by having a separate business bank account and credit card.

If you are tired of overpaying taxes and making mistakes on tax breaks you rightfully deserve, then call Kimmey & Associates and ask for Michael Kimmey.

Oak Brook office – 630-581-7007

Orland Park office – 708-687-2917

 Kimmey & Associates is a Chicago tax and accounting firm that has operated for over 35 years.  For small businesses that use QuickBooks accounting software, Kimmey & Associates is a QuickBooks Certified ProAdvisor.

Why Hire a QuickBooks Certified ProAdvisor

QB Certs 4QuickBooks Certified ProAdvisors are accountants that have gone through a rigorous training process developed by Intuit, the company that developed QuickBooks. And at the end of this training, a series of tests must be passed in order to become certified.

Why Hire a Certified ProAdvisor?

QB ProA Certified ProAdvisor can provide accounting and tax assistance well beyond a technical staff person at Intuit. Often, they have extensive experience that can save you precious time and money rather than trying to figure out something yourself.

Second, a Certified ProAdvisor often knows what is currently available on the market today to solve your day-to-day challenges either with a QuickBooks product or another vendor that integrates with QuickBooks software. Surprisingly, there are many apps and software vendors that make QuickBooks operate more effectively and save you time.

And third, a Certified ProAdvisor will attend conferences to learn what changes are around the corner. For example, the cloud accounting changes to QuickBooks are rapidly changing so staying abreast of these changes will be key to better serving your business needs.

If you are searching for a QuickBooks Certified ProAdvisor, call us and ask for Michael Kimmey.  Our initial consultation is free and we have two convenient offices to better service you.

 

 

Net Operating Losses Provide Tax Benefits

Net Operating LossFor many businesses, profits vary from year to year. However, with proper planning, even a bad year can be helpful from a tax perspective. Where business deductions exceed gross income, a taxpayer may have a net operating loss (NOL) that can be used to offset income in another tax year, potentially generating a refund of previously paid taxes.

Who May Use an NOL?

NOLs are available to individual business owners, corporations, estates, and trusts. Partnerships and S corporations do not take NOL deductions, though their partners and shareholders may use “passed through” losses on their own returns.

How Is an NOL Applied?

The general rule is that a taxpayer may carry an NOL back two years and forward 20 years, though certain limited exceptions may apply. For example, an individual with an NOL that was caused by a casualty, theft, or disaster may use a three-year carryback period.

In general, the taxpayer will carry back an NOL to the earliest year it can be used and then carry it forward, year by year, until it is used up. The taxpayer may also elect to forego the two-year carryback and carry the loss forward for the 20-year period. However, the general preference is to use an NOL sooner rather than later because a dollar of tax saved today is generally worth more than a dollar saved in the future.

How Is an NOL Calculated?

Calculations of NOLs can be complicated. For example, a noncorporate taxpayer’s NOL is calculated without regard to any personal exemptions or NOLs from other years, and certain deductions for capital losses and nonbusiness items are limited.

If you are tired of overpaying taxes and need a partner, call us and ask for Michael Kimmey.  Our initial consultation is free.

 

Office Space Decisions for Chicago Businesses

Office SpaceBuy or lease?

It’s a decision many small businesses face. Owning real estate certainly can have advantages, including the opportunity to build equity. But many small businesses in need of space choose the rental route instead.

Cash Flow Considerations

By leasing, a company can avoid taking on debt to acquire a property. Less debt on the balance sheet may allow the company to finance other things, such as receivables or inventory and equipment purchases. And the upfront cash commitment needed to enter a lease agreement may be much lower than the down payment required for a property purchase.

Shopping Tips

If your business is looking around for the right rental location, here are a few suggestions to keep in mind. Not all of these tips are appropriate for all businesses, but some may help you get a lead on a good spot — and a good deal.

  • Find an eager landlord. Rental spots that have been on the market for a while could have some negative features, but they may be worth a look. If you find a location that suits you, you might also find a landlord who is anxious to negotiate.
  • Think about the term. A long-term lease locks in your rental rate — and that can be an advantage if you expect the market to trend upward. But leasing for short periods is often less expensive than leasing for longer periods. If your business is in its formative years, significant changes may lie ahead, so a short-term arrangement could be more practical, too. Adding an “option to renew” clause can help keep your costs down and your options open.
  • Divide and conquer. Could you make do with two smaller spaces instead of one large space? The more flexible you can be, the better your chances of finding a good deal.
  • Check rental comps. Commercial property markets can be very localized. Rents may vary considerably between one locality and another just a few miles away. Unless you’re limited to a specific location, compare rates in several areas.

If you are struggling with the buy versus lease decision, call Michael Kimmey & Associates.  We have convenient office locations in Oak Brook and Orland Park to better service you.

Oak Brook accounting office – 630-581-7007

Orland Park accounting office – 708-687-2917

 

Michael Kimmey is a small business accounting firm that has been operating for over 35 years.  We provide accounting, tax and financial management services.  We have additional expertise in QuickBooks accounting as a Certified QuickBooks ProAdvisor.  We also provide additional expertise like construction accounting, and manufacturing accounting.

Foreign Bank Account Violations are Expensive

Bank AccountIf you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.

First, it is important to determine if you are required to report your foreign bank account. It comes down to being able to say yes to the following four questions:

  • You are now a US citizen or permanent resident or have been in the last six years.
  • You have had a foreign bank account for a year or longer since 2008.
  • Your balances in all of your foreign accounts exceed $10K
  • You have not reported the account through the FBAR paperwork to the IRS.

The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.

This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.

In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.

A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.

A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.

If you are tired of overpaying taxes and would like to lower your risk of being audited, call 630-581-7007 and ask for Michael Kimmey.

 

Michael Kimmey & Associates is a tax accounting firm servicing the greater Chicago metro.  We have offices in Oak Brook and Orland Park to service businesses and individuals.  Our tax compliance services include Tax Audit Representation to tax preparation for established businesses.  To better service our business clients, we are Certified QuickBooks ProAdvisors.