If you are a member/partner that works in an LLC you are most likely familiar with this term. Basically, GPPs are the equivalent of salaries for members/partners that work in the business. The difference is that members/partners are not technically "employees" and so they are not subject to (or even eligible to) withhold fed, ss, med, state, or local witholdings for their tax payments.
This, in itself is unique, and puts the burden on the member/partner to be responsible for their own tax payments. But another area where people get tripped up is how to account for these GPPs. The GPPs are actually treated as an expense on the Income Statement (aka P&L). They are not "capital withdrawals", "owner draws", "distributions" or any other term that implies that the money is coming from the equity of the business (reported on the Balance Sheet). They are literally compensation for service (albeit within an entity where they are members/partners).
I've talked with people that get confused about this because some of the top (the top) payroll systems out there don't really do a good job of elucidating this difference. Payroll companies (I won't name names but pick any) didn't design their systems to pay members of LLCs, they designed their systems to pay employees. So, oftentimes their work-arounds to pay and report GPPs to members/partners include terms like "owners draws" and the like. Reminder: GPPs are NOT Owner's Draws, they are Expenses.
If you need help untangling this type of issue or any other type of issue, please comment and/or reach out by email.
When you hit the age 70 1/2, the next calendar year you are required to withdraw from your IRA - it is called a Required Minimum Distribution (RMD).
You may know this, but did you also know that you can use those RMDs to give to charity? While getting a credit on your tax return?
When you instruct your IRA holding institution (TDAmertirade, Fideltity, etc.) to distribute directly to qualified charities, this results in a Qualified Charitable Distribution (QCD).
So, here's the scenario: I turned 70.5 on Oct. 5th, 2016 - which would make my birthday what? (April 5th) And now because of this, in 2017, I need to withdraw 2.7% of the total amount of my traditional IRA as my RMD. Assuming I have $100K sitting in my nice Fidelity IRA I have to take $2,700. BUT what if I don't want or need to take it but instead want to give it to a qualifying charity? (very important:the funds have to go directly from Fidelity to the charity. If not, doesn't work, sorry)
So, what I do is instruct Fidelity to wire or ACH the funds to the qualifying charity in the amount of $2,700 (equal to the amount I'm required to take due to RMD).
So, now I have a funny acronym salad. I've made a QCD in the same amount as my RMD, as relates to my IRA. Fun stuff, huh?
But here's the deal: At the end of 2017 I'll get a 1099-R noting that I've withdrawn from my IRA and normally, I'd report this on my tax return and pay ordinary income taxes on this amount. However, because I made a QCD for the same amount (it should be written on your 1099-R - it may not be, though, and if this is the case you'll have to ask the institution to redo it and/or give you a letter noting you've made a QCD) I am allowed to report $0 on my tax return. Nothing on my sch. A, nope, RIGHT ON THE 1040.
This is something, like I said, you probably do not know about. But if this applies to you, your parents or a loved one, let them know because it can be a massive tax savings for you WHILE supporting your favorite qualifying charities at the same time (for something you may already do).
G to the izzO, P to the....yah, okay, in case you missed it, last Friday, June 24, 2016, the GOP (Republicans) released their tax proposal. You probably haven't heard anything about it because you've been commenting on Brexit and/or Trump vs. Hillary (both of their tax plans differ from the GOP plan).
The plan, called both A Better Way and The Blueprint, if you cut through the salesy-ness of it, is a breath of fresh air. It is simple and easy to understand. I read through a bunch of it, focusing mainly on the individual and the corporate changes. Below are some of my notes on what I understood of some of their proposals:
The premise for changing the tax code comes from these facts:
The PATH Act of 2015 helped a bit. There were 12 program provisions that brought some integrity to the system...but it wasn't enough.
Corp. side: Globally only 2 countries have higher tax rates than US (when Fed. is combined with States) of 39% - Chad and UAE.
In 2015, Only 6 of the top 20 global companies are headquartered in the US. Down from 17/20 in 1960.
American companies hold $2Trillion in capital overseas - that could be repatriated to invest in US if not for high tax burdens.
27 corporate inversions from 2012 to 2015. 3x the amount of the previous 9 years.
The IRS has 80,000 employees across the country, even still, customer response times are abysmal. GAO says only 38% of callers are able to reach a rep. Wait times per call avg. over 30 minutes.
Some other premises for a new code: Slow GDP growth, Declining labor force, Flat productivity, Weak domestic investment.
The ‘Blueprint’ doesn’t propose a VAT (Value Added Tax)...although Trump and Hillary may both be open to it.
They want to break up the IRS into 3 separate units: 1 focused on serving families and individuals vs. 1 separate unit just focused on businesses and 1 independent unit that acts like a small claims court.
The USA brought in $42 Trillion in tax revenue last year.
The current tax brackets are too complicated, new brackets would be: 0%/12%, 25%, and 33%.
The plan doesn't get rid of mortgage interest deduction or charitable giving deduction. But does get rid of everything else on the sch. A (itemized deductions).
For C CORPORATIONS, the Federal Income Tax Rate would lower to 20% from 35%.
Individuals would be taxed at ½ their income tax rate on dividends and cap gains.
Repeal Corp. AMT.
Full expensing of asset purchases. i.e. no depreciation applied to tangible and/or intangible property. Land is not included.
Elimination of deducting interest expenses. i.e. Whether you buy assets outright or finance them, no preference in the tax code. They don't want your economic decisions to be influenced by the tax code.
NOLs carried forward indefinitely
Territories made simpler, no incentive to move operations outside the US.
100% dividend exemption from foreign subsidies
No ‘lock out effect’: US companies can bring $ back to US penalty free
Subpart F rules will be simplified.
The Commissioner will have a 3 year term. President may only re-appoint 1x.
IRS's new mission = Service first.
Legislation by 2017.
Where are we? Post-tax season. 2Q16 estimated tax payments coming up in the next couple weeks. Still Spring but feels like Summer in NYC (pretty nice). This is a perfect season for CPE. CPAAcademy.com is a pretty decent 'free' source of CPE education hours.
Bookkeeping issues - machine learning & AI - is it here yet? Yes and no. The biggies (QB, Xero) are still...'analog'...so to speak...BUT in the area of personal finance there is an interesting entry into the space in an app called Penny. They've only been able to capture like 6 categories, so far, but the idea and execution: the practical analysis and helpful insights into your finances, is useful. If applied to business (and more accounts/categories) this would be a pretty great tool for not only small businesses but also for CPAs/Bookkeepers to gain key insights into the finances of the business. Frankly, I'm not sure how nimble the elephants in the room can be on this: Quickbooks & Xero...because their offerings are so core to the General ledger but it wouldn't surprise me if a business 'Penny' came in as an 'add-on' to these guys and possibly as a stand-alone accounting software.
What else? We also have been experimenting with an AI calendar 'virtual assistant'. Note, this is specifically for calendar scheduling, not anything else. The idea is that they handle the mundane back & forth that inevitably happen when 2 or more people schedule a meeting and post everything to everyone's digital calendar. I've used both Genee and Amy (x.ai). Genee is better at multiple person meetings, I've experienced, whereas Amy can take direct commands (like mark x time on my calendar for me to y) without involving others. Both are nascent and will take some improvement before they are as good as a person but it is interesting and kind of fun.
I think the 'Per Diem' may be the most misunderstood concept in all of tax reporting (with auto mileage being a close second). There are some basic rules that apply to everyone, but then there are random exceptions.
The best way to start out is to understand what a 'Per Diem' is. Literally, it means 'Per Day'. But for tax reporting purposes, the 'Per Diem' method of reporting is basically an optional way to report travel & meals/incidental (M/I) expenses on a 'Per Day' basis (the other reporting option is to report actual dollars spent).
The 2 classifications of Per Diems are:
M/I Per Diem
The M/I Per Diem reporting amounts are based on the # of days traveling and where you happen to be eating while traveling. - www.GSA.gov is the authority on the rates you can use, it has a list of all the rates for each state, for reference.
Exception: if your meals are paid for by someone else while traveling, you can still use the Per Diem option of reporting but would have to exclude the amount of the meal provided for you in the calculation (for example, you would report a % of the allowable Per Diem rate to only include the other 2 meals that day)
Exception: The first and last day you travel, the Per Diem is generally calculated at 75% of the full rate. Refer to General Services Administration (GSA) to obtain the specific Per Diem rates. If you are traveling abroad, you will be able to find your Per Diem rate by visiting the State Department website.
Note: whether you report M/I Per Diem or actual M/I expenses, they are still only 50% deductible.
Travel Per Diem
The travel Per Diem reporting option is also based on days traveling and where you happen to be traveling. However, again, not for sole proprietors, they must use actual $ spent.
The best way to see this is by using an example:
You are an employee of Google. You are from Chicago. You go to a conference in San Francisco for 3 days.
While traveling you also spend on M/I (there are no meals provided at the conference):
So, what Per Diem reporting options do you have, as an employee of Google, for getting reimbursed (that Google will then report on their taxes)?
Well, you first look up the Per Diem amounts for SF at this website:
M/I Per Diems are $74/day
Travel Per Diems are $250/day
Remember to only calculate 75% of day 1 (traveling to) and day 3 (traveling from) -check the www.GSA.gov for specific rules. So, the M/I Per Diem amount for 3 days of travel is: $185 or (74 + (2 x .75 x $74)). Since you only actually spent $43 on M/I, you're going to report the M/I Per Diem amount of $185 to get the best allowable benefit.
But since your actual travel of $1,550 was greater than the allowable Travel Per Diem: $625 ($250 + ($250 x .75 x 2)), you are going to report your actual travel expenses of $1,550.
I hope this example helps. There are many, many exceptions involved with Per Diem reporting, so before applying it, use the GSA resource website to dig into the rules and exceptions of your specific situation.
Good luck and safe travels.
For more resources check out:
Question: What Per Diem reporting option do you have if you were a Single Member LLC reporting on your Sch. C for personal taxes?
Answer: Only the M/I Per Diem option. Travel has to be calculated at actual expenses. See shaded area below for Per Diem reporting area on Sch. C:
The IRS will never, unsolicited, call you on the phone. Period.
The IRS will never email you. Period.
The IRS will never message you. Period.
If this happens to you, do not panic. But do get up to speed on how to report it using this link:
Well, this is a first for me. The guidance from NYC is that some C-Corp. Tax returns won't be ready by the filing deadline (March 15th). This will mean that we'll have to file extensions for businesses that really don't need them. Not an insurmountable explanation, but it is what it is. For more, check this out: http://www.nysscpa.org/news/publications/thedaily/blog-posts/corporate-tax-forms-for-nyc-nys-missing-in-action-snarls-filing-process-020216
This is one of the most bizarre NYC winters I've lived through, I think. We had Snowmaggeddon just a few weeks ago and today is 52 degrees and raining/blowing cats & dogs. These are some pics from lunch time:
Aside from being a bit scary, it was somewhat exhilarating. The wind gusts were so powerful and the rain so ridiculous it was really just funny.
It coincides with another tumultuous time, tax season. 1099-Misc.'s have been distributed (for the most part) but now is the time for Corp. returns (due March 15, 2016). We can guarantee a timely filing if your support docs are to us by the end of Feburary, but after that we can't guarantee.
And the next push after that is LLCs, Partnerships & Individuals on April 18th, 2016 (an extra few days this year). We'll need that info by the end of March to guarantee a timely filing.
Either way, stay dry, if you can and enjoy the weather.
The IRS issued this statement regarding the temporary efiling outage:
Both New York State and IRS opened for e-filing yesterday. Which means, we're open for business to help you with your tax filings. Reach out to email@example.com to get started.
Additionally, the deadline for filing this year is April 18th (not the traditional date of April 15th).
If you have minimum wage workers this is no secret to you but for everyone else, the minimum wages for workers went up starting in 2016.
NYS minimum wage is now $9/hour (vs. $8.75 in 2015) for most workers. If you work in a restaurant and make tips, the minimum wage is now $7.50/hour but if you're working "overtime" then the minimum is $12/hour. Additionally, there is is meal allowance of $2.50/meal.
The highlights are here:
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) went to:
for more click here
I got cap. gains, I got no pain...
Remember that song? It was Insane Clown Posse, right? No, wait, it was the marijuana guys, right? Ah, yes *Google Search*: Cypress Hill. Actually, I may have mis-remembered the lyrics a little bit but the substance of the mangled lyrics remain intact, the tax rates on Capital Gains are relatively insane. Relative to what? and Why? Let me explain...
Remember in 2012, all the people (Democrats) were incredulous about the wealth of Mitt Romney? They were shocked (shocked) that Mitt Romney paid a lower tax rate than someone in the middle class. There was much outrage and yet after he released his tax returns it was pretty clear why his tax rate was so low even though he made so much money: he owns a lot of assets that pay him Dividends and he sold bunch of assets that resulted in Capital Gains. Those 2 types of income made up most of his taxable income (poor guy didn't even deduct his "speaking fee" expenses...lotta good that did him) and they are treated differently than Ordinary Income.
The point here is that contained within our current tax code there is a character difference between different types of income. For example, the progressive Federal tax rates most people think about:
Taxable Income of $0-$9,224 = 10% tax rate*
Taxable Income of $9,225-$37,449 = 15% tax rate*
Taxable Income of $37,450-$90,749 = 25% tax rate*
Taxable Income of $90,750-$189,299 = 28% tax rate*
Taxable Income of $189,300-$411,499 = 33% tax rate*
Taxable Income of $411,500-$413,199 = 35% tax rate*
Taxable Income of over $413,200 = 39.6% tax rate*
*the taxable income thresholds in this example are for Unmarried people.
Those rates only apply to Ordinary Income and not to Capital Gains.
Capital Gains rates look like this:
Taxpayers (unmarried and married) in the 10-15% tax bracket pay 0% tax on Capital Gains.
Taxpayers in the 25%, 28%, 33% or 35% tax bracket pay only 15% tax on Capital Gains.
Taxpayers in the 39.6% tax bracket pay only 20% tax on Capital Gains.
Now, do you see why Capital Gains tax rates are relatively insane?
If Mitt Romney had simply said "Don't hate the player, hate the game" do you think he would have been able to mute some of the outrage over his relatively low tax rate?? I guess we'll never know.
Some other notes:
Unrecaptured Gain on Real Estate (sec. 1250 gain) pays 25% tax on gain.
Collectibles and qualified business stock gains result in 28% capital gains tax.
If you have any other questions on Capital Gains (line 13 of the Form 1040), please reach out to firstname.lastname@example.org
Here are the 2015/2016 updates to salary deferral limits:
This is a great time of year for gift giving. The calendar year is about to wind down and a new one will begin. Some basic reminders:
You've all seen the cute little onesies that people gift to infants that say "tax deduction". Or all the comments to parents of December babies congratulating them on their "tax deduction". Well, they're cute and humorous sentiments but the idea that children are a "tax deduction" is a myth. Well, not a myth, technically, but a misnomer. Those cute little kids aren't "tax deductions" they are actually exemptions.
The IRS code for personal tax returns, in some areas of the 1040, is one step shy of being a lottery scratch-off ticket. There are deductions, credits and exemptions; some before tax is computed, some after. The current 1040 tax return is a Rube Goldberg-esque, 100 years in the making, attempt to ensure that you aren't cheating your fellow Americans by paying less than you're supposed to in tax.
In the case of exemptions, everyone gets one (for example, if you're married, filing jointly, you automatically get 2). Additionally, if you have dependents (a status granted to those cute kids referred to earlier) you are entitled to an exemption for each of those, as well.
The personal and dependent exemption amount for 2015 tax returns is: $4,000.
Similar to itemized deductions, though, exemptions are phased out as your income reaches certain limits.
Married, filing jointly: $309,900
Head of Household: $284,050
Married, filing separately: $154,950
A family of 5, earning less than $309,900, would report a $20,000 exemption amount.
Feel free to reach out with any questions regarding exemptions (line 42 on the 1040) to email@example.com
There is a give-away embedded in the tax code called: deductions. When filing personal tax returns, deductions reduce taxable income. Each "personal taxable entity" is given the option of taking a standard deduction or itemized deductions. It is rarely a complicated choice because one chooses the greater of the deduction amounts. However, while not a complicated choice, it does generate some questions about how each are determined.
The standard deduction is available for anyone when filing 2015 Federal return.
What constitute itemized deductions? At the risk of being cavalier, anything on Schedule A. What is schedule A, you ask? It is the IRS sub-schedule of 1040 (literally called Form Schedule A) that helps one compute eligible itemized deductions.
Everything listed on sch. A is deductible but some deductible expenses are subject to limits. For example:
Additionally, itemized deductions begin to be phased-out (disallowed) when your income reached a certain level:
The IRS recently upped the minimum for "expense-ing" tangible property from $500 to $2,500. It doesn't go into effect until 2016 but they've agreed to not audit going back so, effectively, can report this way for 2015. Read more about it here:
http://www.accountingweb.com/tax/irs/irs-increases-tangible-property-expensing-threshold-to-2500 or reach out with any questions.
One of the most common questions related to Travel & Meals & Entertainment is about deductibility. i.e. How much can I deduct?
The answers are directly from the IRS site here: