The new tax cuts and jobs act was recently signed into
law for 2018. There are some pros and cons from this passage. One of the
biggest changes is the overall decrease in corporate tax rates. Last year C
corporations were subject to graduated tax rates of 15% for taxable income up
to $50,000, 25% for income over $50,000 to $75,000, 34% for income over $75,000
to $10,000,000, and 35% for income over $10,000,000. If you happened to own a
personal service corporation, you were subject to a flat income tax rate of 35%
on all of your income. Now in the 2018 tax year the corporate tax rate a flat
21%. The new flat rate is now only 25% for personal service corporations. The
new tax cuts and jobs act (TCJA) also gets rid of the corporate alternative
minimum tax. An additional pro of the TCJA is the increased write off amounts
for §179 deductions when you purchase new vehicles and machinery. There is a
new pass through 20% deduction that your business could possibly take.
There were a few downsides for businesses in the TCJA.
The first con was the new 20% deduction phases out for higher income businesses
and personal service companies. The 2nd and major issue has been the
removal of the meals and entertainment deduction. Businesses that take clients
to sports events and restaurants will be losing this deduction. Food expenses
that were previously 100% write off in 2017 starting in 2018 they are now cut
to 50%. The food given out at your workplace like donuts and coffee will be a reduced
write off in 2018. No matter what changes go into law be prepared by planning
with a professional.
By law, U.S. citizens and residents must report their
worldwide income. This includes income from foreign trusts and foreign bank and
You must file required tax forms. You may need to file
Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may
also need to file Form 8938, Statement
of Specified Foreign Financial Assets. Certain domestic corporations,
partnerships, and trusts that are considered formed or availed of for the
purpose of holding, directly or indirectly, specified foreign financial assets
(specified domestic entities) must file Form 8938 if the total value of those
assets exceeds $50,000 on the last day of the tax year or $75,000 at any time
during the tax year.
There is a foreign earned income exclusion. If you qualify,
you won’t pay tax on up to $100,800 of your wages and other foreign earned
Unmarried taxpayers. If you are not married, you satisfy the
reporting threshold only if the total value of your specified foreign financial
assets is more than $50,000 on the last day of the tax year or more than
$75,000 at any time during the tax year.
Married taxpayers filing a joint income tax return. If you
are married and you and your spouse file a joint income tax return, you satisfy
the reporting threshold only if the total value of your specified foreign
financial assets is more than $100,000 on the last day of the tax year or more
than $150,000 at any time during the tax year.
Specified foreign financial assets include the following
1. Financial accounts maintained by a foreign financial
2. The following
foreign financial assets if they are held for investment and not held in an
account maintained by a financial institution:
a. Stock or securities issued by
someone that is not a U.S. person (including stock or securities issued by a
person organized under the laws of a U.S. possession),
b. Any interest in a foreign
entity, and c. Any financial instrument or contract that has an issuer or
counterparty that is not a U.S. person (including a financial contract issued
by, or with a counterparty that is, a person organized under the laws of a U.S.
Exceptions: If you do not have to file an income tax return
for the tax year, you do not have to file Form 8938, even if the value of your
specified foreign financial assets is more than the appropriate reporting
Duplicative reporting. You do not have to report any asset
on Form 8938 if you report it on one or more of the following forms that you
timely file with the IRS for the same tax year.
Form 3520, Annual Return To Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts.
Form 5471, Information Return of U.S. Persons With Respect
To Certain Foreign Corporations.
Form 8621, Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund.
Form 8865, Return of U.S. Persons With Respect to Certain
Foreign Partnerships. Instead, you must identify on Form 8938 the form(s) on
which you report the specified foreign financial asset and how many of these
forms you file.
In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
Visit IRS.gov for more information. The FBAR is not filed with a federal tax
return. When the IRS grants a filing extension for a taxpayer’s income tax
return, it does not extend the time to file an FBAR. It should be filed at https://bsaefiling.fincen.treas.gov/main.html.
- the US person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at anytime during the calendar year reported.
The new annual due date for filing Reports of Foreign Bank
and Financial Accounts (FBAR) for foreign financial accounts is April 15. Schedule
an appointment today so IATC Inc can help you.
One out of every four US citizens are currently paying back their student loans. At the end of the year you might receive a Form 1098-E, Student Loan Interest Statement. Generally, an institution lender that received interest payments of $600 or more on one or more qualified student loans must send Form 1098-E to all borrowers by January 31. Don’t forget to take this easy deduction to minimize your tax burden.
The amount of your student loan interest deduction is gradually
reduced if your income is between $65,000 and $80,000 ($135,000 and $165,000 if
you are married and file a joint return). You can’t claim a student loan
interest deduction if your income is $80,000 or more ($165,000 or more if you
file a joint return). The maximum deduction you can get regardless of how much
you pay is $2,500 as of 2018.
Bookkeeping is one of the most outsourced functions of today’s accounting firms and businesses. A fairly large amount of accountants would gladly tell you it’s not worth their time to do your bookkeeping. Accountants at International Accounting & Tax Consultants feel just the opposite. Bookkeeping and accounting are really not the same thing. Bookkeeping is just one of the many functions of accounting. Accounting encompasses many different functions involved in managing the financial affairs of a business. Accountants do prepare reports based largely on the work of the bookkeepers.
Bookkeeping is a crucial record-keeping task. Bookkeeping is considered entry level work, but it actually forms the foundation of information your accountant uses. When transactions are not properly recorded it’s costly to have to go back through your books and find the error. Preparing source documents for all the operations of a business. The transactions recorded cover buying, selling, transferring, paying and collecting activities. The source documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeeping involves the ability to determine and enter in the source documents the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.
Bookkeepers also make entries of the financial transactions into journals and accounts. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.
Bookkeeping involves preparing reports at the end of specific periods of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they’re as error-free as possible. A bookkeeper also compiles the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have thousands of accounts. You have probably heard once or twice before about closing the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized. Bookkeeping is still an important task for any company. Give your company the best foundation you can by using knowledgeable professionals like those at IATC.
Ever since our incorporation IATC Inc. has been assisting
entrepreneurs with their business accounting. In the past few years the US and
Canada has seen a large demand from businesses who are into producing and
selling Cannabis. They have run into various roadblocks that have limited their
potential to grow and succeed. They have legal road blocks because of Sec.
280E. This code takes away deductions or credits for businesses that carrying
on a trade or business if such trade or business which consists of the
trafficking in controlled substances. Marijuana is being slowly allowed on the
state level, but is still a Schedule I controlled substance affected by such
regulations. The businesses are being
provided generic accounting services which are exposing these companies to
unnecessary liabilities. The tax rate of 70% being paid by Cannabis companies
are the highest in the US from the state and federal level.
Cannabis businesses have found it difficult to be properly
serviced in these critical areas such as banking, accounting, and legal. We
took our time to learn about this industry and create specific accounting
systems and procedures that help cannabis companies stay compliant throughout
the US. Due to the specialized knowledge required we created our own green
division within IATC that assist businesses within the cannabis arena. If you
have a cannabis company and need expert help IATC Inc. is the company for you. Call
us today at (202) 780-4494.
If you watch the news you will probably feel like there are major unexpected disasters happening every week. Unfortunately, you would still be underestimating the number of serious disasters in this country. FEMA actually tracks this data, and so far in 2016 there have been at least 69 declared disasters this year.
If you are not going to consult with a professional please review the IRS Pub 547 as it covers disasters, casualties, and thefts in-depth. A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. It includes a major disaster or emergency declaration under the Act. It is true that you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return. There are always important distinctions and rules to follow. One issue that clients struggle with is not being able to deduct casualty and theft losses covered by insurance. You have to actually own the property to deduct the loss. You can be the person paying for the property, but if you are not the property owner the IRS will disallow all deductions.
What’s the difference between these losses? A casualty loss comes from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration. This definition is a determining factor for clients on if you can qualify for casualty losses.
A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. You might be thinking now you can deduct some stolen items like a cellphone, laptop, or jewelry. I wouldn’t get my hopes up high just yet. The amount of your theft loss is normally your adjusted basis of the property, because the fair market value of your property after the theft is considered to be zero.
Time to Deduct
Casualty losses are deductible in the year the casualty occurred. Casualty losses from a federally declared disaster that occurred in an area warranting public or individual assistance have the option to treat the casualty loss as having occurred in the previous year immediately preceding the tax year in which the disaster happened, or you can deduct the loss on your return for the preceding tax year.
Theft losses are normally deductible in the year you discover your property was stolen unless you have a chance of recovery through a claim for reimbursement. No deduction is available until the taxable year in which you can determine with reasonable certainty whether or not you will receive a reimbursement.
Casualty Property Type
Personal-use property or property that is not completely destroyed. Casualty losses are the smaller of:
- The adjusted basis of your property, or
- The decrease in fair market value of your property as a result of the casualty
Business or income-producing property that are completely destroyed losses is the adjusted basis.
Insurance or Other Reimbursements
You must reduce the loss first, whether it is a casualty or a theft loss by the salvage value and by any insurance or other reimbursements you receive or expect to receive. The adjusted basis of your property is the cost including any improvements or depreciation.
How to Claim Your Loss
Individuals have to claim their casualty and theft losses as an itemized deduction on Schedule A. You should have subtracted any salvage value, and any insurance or other reimbursement of Personal use property already. You must now subtract $100 from each casualty or theft event that occurred during the year and add them all up. 10% of your adjusted gross income is subtracted from the total to calculate your allowable casualty and theft losses for the year. Casualty and theft losses should be reported on Form 4684.
If your loss deduction is more than your income, you may have a net operating loss (NOL). The NOL is for individuals as well as business to have an NOL from a casualty the treatment is identical. Any unused portion of a casualty loss deduction can be carried back for three years, and then carried forward for 20 years until it’s used up. In a tax year you don’t have any income you can take advantage of the deduction in the future.
It is summer already and half of the year has already passed by. Life changes like getting married or a new job can be exciting events. This is the perfect time to see your accountant for a quick tax checkup. I normally recommend clients send in their most recent paystub. I use the stubs to check if the amount of taxes being withheld is accurate. I use this time to remind clients of the recommended strategies for tax minimization given to them previously.
The summer is provides a little more free time than during the busy season. If the strategies suggested are no longer viable we can formulate a plan tailored to your liking. A checkup is a great way to avoid any unexpected surprises at the tax desk. It still gives you time to prepare for changes you might have not been aware of. If you’re a do it yourself small business problems with your books are easier to find with less transactions. The details of events are easier to be remembered now rather than a year later.
I know it can be stressful when the tax bill is larger than originally planned. Having that knowledge know can empower you to make necessary changes for your business. You can enjoy your vacation knowing your accounting is in order. If you need bookkeeping services or an individual tax review you should Contact Us today at International Accountants and Tax Consultants.
Summer is a great time for family vacations and amusement parks. If you are one of the lucky 20 million young adults’ ages 16-24 years old working is also on the schedule. The Bureau of Labor and Statistics estimates annually 20.3 million young adults become employed between the months of April and July. School may be out but you will still be learning about life as a working adult. Earning your own money brings its own kind of personal freedom. A summer job is the perfect introduction to money management. One topic normally skipped over is the actual taxes taken from you.
When you receive your first paycheck stub you should notice your gross pay and a few deductions before you get your actual net pay. Gross Pay is the total amount of income earned before any deductions are taken out. The first thought going through your mind might be how do I keep all of my hard earned money? Your first lesson as a working adult is you don’t get to keep all of your hard earned money. All businesses are tax collectors for the government. The first day you became an employee you were signed up for the government’s special pay as you go tax package.
There are normally four separate taxes being deducted from your gross earnings. Federal income tax withholding is the first tax to be deducted from your paycheck. This tax is a percentage on the gross amount of money you are earning. The tax percentage for 2015 was 10% on earnings from $1-$9,225. To make it easier for you the IRS actually lists a tax table every year that tells you the amount of income tax you should have paid based on your gross income. This tax is how the government pays for public services.
The second and third deduction you should see is the FICA deduction. FICA stands for the federal insurance contribution act. This tax is actually comprised of two individual taxes that are required by law to be deducted from your earnings. Social Security tax of 6.2% is the second followed by the Medicare tax of 1.45%. The taxes collected under FICA are used to pay for retirement, survivors benefits, and qualified disabled individuals. Medicare is used to pay for medical insurance.
The fourth tax is the state income tax deduction. Depending on your home state you might even have additional locality taxes. States like Alaska, Texas, Florida, Tennessee, Wyoming, Washington, Nevada, South Dakota, and New Hampshire do not have income taxes. When file a tax returns the federal income tax and state income tax over payments are what you would have refunded back. The next time you look at your paycheck the deductions should all make sense.
If you are a nonprofit some donor will eventually give you an in-kind donation instead of typical cash. In-kind donations can be tangible and intangible assets. You could be receiving tangible donated items like shirts, posters, supplies or any other items. Intangible donated items can be patents, copyrights or even professional services like legal or accounting. In-kind gifts are recorded when a donor provides the item unconditionally and without receiving anything in return. The donor should not hold a partial interest in the items donated to your organization. The IRS rules states that the value of time and services cannot be deducted by the donor.
The first issues most nonprofits encounter is how to value the in-kind gift for donors. Nonprofits should not be actually valuing any gifts for donors. How are you going to acknowledge the donation if you have no idea what it costs? You are supposed to use the fair market value of such gifts. Use the donor’s website or local shop prices to get an idea of how much items should cost. By acknowledging the amount, it would cost you is not the same as valuing the gift. Any donated asset that does not have a value and no alternative uses should not be recognized in the nonprofit financial statements. If the products being given to your nonprofit is expired or worthless. You don’t have to recognize some items given to your organization in financial statements, but you can still provide them with an acknowledgment letter. The donor is still contributing to your nonprofit, and you still want to say thank you to organizations or individuals helping. This is a good way to make donors feel appreciated, while fostering a continued relationship.
A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a written acknowledgment of the contribution from the recipient organization. An organization that does not acknowledge a contribution will not incur any penalties, and aren’t really required to provide any. Without a written acknowledgment the donors cannot claim the tax deduction. Most businesses will not donate to an organization without receiving an acknowledgment. A written statement should contain certain elements. This can work for cash or non-cash contributions alike.
- the name of organization and tax Id number.
- the amount of cash contribution if any
- a detailed description without the value of the non-cash contribution
- a statement that no goods or services were provided by the organization in return for the contribution, if that was the case
- a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
- a statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible benefits.
You should you write your acknowledgement letter so it’s clear what you received from the donor. We are going to use an example of If your nonprofit organization POIU was given catering as an in-kind donation by a catering company? The catering company charged $3,500 a discounted price to do the event. Even though the catering company would normally charge customers $8,000 including staff time. How would you recognize this in-kind donation? I wrote a quick statement that you can use.
“Thank you for your generous gift of a buffet style catering for our fundraiser event in which we had 100 potential donors attend on 09-12-15. Your generous contribution will help the POIU foundation further our important work. You would be glad to know that we were able to raise $16,260 through pledges and donations that night.
Under current IRS regulations, you will not be able to declare the value of your donation from our acknowledgment. We can say that your generosity is greatly appreciated. If we had to purchase this buffet style catering on our own it would have cost us approximately $8,000. We saved $4,500 for what you gave as an In-Kind contribution. The money saved is able to go directly to support our homeless clothing initiative.”
Donated services are normally recognized in the financial statements if those services are able to create or enhance a nonfinancial asset. Alternatively, if those donated services require specialized skills that are provided by an entity who possess the skills, and your entity would need to purchased them if they were not recognized. A good example would be if an accountant at IATC provides accounting services for your non-profit at no charge. The nonprofit organization would need to recognize the value of the accounting services as a contribution and related expense, because those services would need to be purchased if not otherwise provided.
Donated services that create or enhance a nonfinancial asset do not need to be specialized to be recognized, but those that neither create nor enhance a nonfinancial asset must be specialized to be recognized. In other words, you should not recognize the value of these services provided as they are not specialized skills and would not need to be purchased in the normal course of business. In-kind contributions of property but not of services should be reported on
Line 1 of Parts II and III of Schedule A;
Form 990, Part VIII line 1g;
Schedule B, Part II;
or Schedule M, column (c) if applicable
Form 990 filers generally may use any reasonable method to determine or estimate the value of these non-cash contributions. Schedule B gives you special instructions for valuing marketable securities. Schedule M requires that you report of the method used to determine the revenue attributable to the different categories of non-cash contributions. In-kind donations of services are not reported on Form 990, but the value of those services will be shown as reconciling items on the 990.
Financial Statement Disclosure
Disclosure are there to give additional insight into events. The contributed services received should disclose the events or activities for which the donated services were used. This area should give more details into about nature and extent of the contributed services, and the amount recognized as revenue during the period. This is the best place to disclose the amount of donated services received, but not recognized as revenue.
Tax Deductible Value
The value of In-Kind gifts for which the nonprofit should thank the donors for contributing is not the same as the value that the IRS allows to be deducted for tax purposes. Donors will feel they have given a lot more than what they can deduct as an in-kind donation. IRS already states donors of In-Kind gifts cannot take a deduction for the time that they donated as a part of an In-Kind gift. Donors are able to deduct only their actual out-of-pocket expenses. The donor itself is responsible for having the receipts before taking such a tax-deduction for their charitable gifts. Let us take our catering example If you are given catering as an in-kind donation by a catering company. The catering company spent $1,500 on the food and supplies to make the event possible. Even though the catering company would normally charge customers $ 8,000 including staff time. They can only deduct the $1,500. If someone decided to hire the catering company for your organizations and paid the full $8,000 then they can deduct the $8,000 as an in-kind donation.
Recording and Valuing In-Kind Donations?
In-kind should be recorded at fair market value as contribution revenue as an asset or expense in the period received. Guaranteed Pledges to give noncash items are required to be recorded as contribution revenue in the period the promise is made even though the organization may not actually receive the asset or benefit until a future period. The pledged asset would be recorded when the contribution is made and expensed in the period of the benefit. The fair market value of in-kind tangible assets can be determined by using the price you would pay on an open market for the same or similar items. You can visit a local store or use the internet to make this task easier. Services received can be determined by the normal hourly rate charged for the provided service.
I decided as an accountant to donate thirteen hours of my consulting services, and my normal hourly rate is $200 per hour. Your organization would record $2,600 of contribution revenue and professional fees expense as a result.
Donors sometimes will provide discounted goods or services to your nonprofit organization. In these situations, your organization should record the difference between the market rate and the discounted rate paid as contribution revenue and expense like in the catering example above.
I recently wrote about organizations losing their nonprofit status. I’m following up with some more information on how to restore it. If your organizations tax exempt status was automatically revoked, you must apply to have its nonprofit status reinstated. This rule applies to an organization even if they weren’t originally required to file an application for exemption. The IRS determines if the organization meets certain requirements for tax-exempt status. The IRS will issue your organization a new determination letter. Your reinstated organization should appear in the next update of the Exempt Organizations. Let’s see how we can get back to that nonprofit exempt status.
If you had a nonprofit organization that was eligible to file either Form 990–EZ or 990–N for each of the three consecutive years that it failed to file, and had not previously had its tax-exempt status automatically revoked. You can apply to have the tax-exempt status retroactively reinstated effective from the Revocation Date.
Complete and submit Form 1023 Application for recognition of exemption under section 501 (C)(3), 1023 EZ, or Form 1024 Application for recognition of exemption under section 501 (a). The application should be completed before the 15 months after the date of the Revocation Letter or the date on which the IRS posted the organization’s name on the Revocation List, whichever is later. On the top of the form write “Revenue Procedure 2014–11, Streamlined Retroactive Reinstatement”. Ensure you mail it to the proper location. IRS has a ton of addresses and PO Boxes. Wrong addresses can extend an already long wait. If you are not sure check Irs.gov before mailing it off.
Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192
Finally Include the appropriate user fee along with the Application. You have to pay the same application fees you did when you first filed for the tax exempt organization. The IRS has a user fee chart have the amount you need to pay. Expect to pay at least $400-$850.
Under Section 4 of Revenue Procedure 2016-11 you must demonstrate reasonable cause by attesting that the organization’s failure to file was not intentional and that your organization now has procedures in place to file in the future. After such date, reasonable cause may be demonstrated through that attestation. The organization can avoid the IRS penalty under section 6652(c) for failure to file Annual Returns for three consecutive taxable years. Look at the chart below to see the amounts you could be penalized for. It is also a penalty for the managers in charge of filing as well.
|Organization (§ 6652(c)(1)(A))
||Lessor of $10,000 or 5% of gross receipts of the organization for the year.
|Organization with gross receipts exceeding $1,015,500 (§ 6652(c)(1)(A))
|Managers (§ 6652(c)(1)(B))
If you can be retroactively reinstated under Section 4 it’s a good idea. Your organization must still file properly completed Forms 990–EZ for all the past taxable years. The organization should write “Retroactive Reinstatement” on the Forms 990–EZ. Any year the the organization was eligible to file a Form 990–N, your organization is not required to file a prior year Form 990–N or Form 990–EZ for that year. The prior year returns are sent to a different IRS address than the application. This is the address provided on the IRS website. If you are not sure check Irs.gov before mailing it off.
Department of Treasury
Internal Revenue Service Center
Ogden, UT 84201-0027