Category Archives: Business Tax

18 Tips for Florida Business Owners

18 Tips for Florida Business Owners
1-Corporate Incorporation/ LLC Organization/ Partnership Formation Registration/ Fictitious Name Application
A business is created through the Florida Department of State Division of Corporations [www.sunbiz.org]. Entity selection is important because different entities have different requirements and formalities.
2-Federal Tax Issues
Many people understand the importance of obtaining an EIN number. However, few understand the distinction between the entity as it exists under state law and the entity classification under federal law. The default classification rules for entities, foreign and US are found at 26 CFR 301.7701-1, 26 CFR 301.7701-2, and 26 CFR 301.7701-3. As an example, a corporation formed in Florida is by default a C-Corporation under federal tax law. The shareholders can elect to treat the entity as a Small Business Corporation, or S-Corp, if it meets IRS requirements by filing Form 2553. An LLC by default is a sole-proprietorship or partnership, depending upon the number of members, but it can elect to be treated as an S-Corp, Form 2553 or a C-Corp, Form 8832. The United States Department of Treasury, Internal Revenue Service issues employer identification numbers (EIN). To apply, the applicant employer should review the Small Business & Self- Employed webpage. [www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employer-ID-Numbers-EINs] Once the employer is assigned an EIN, it may file federal and state income taxes.
3-Florida State Tax Issues
Florida does not have an individual income tax. It also does not tax S-Corporations. However, Florida taxes C-Corporations, which must file tax returns whether they have income or not. To register to pay for taxes in Florida, visit http://dor.myflorida.com/. Furthermore, if you have employees, or your entity employs you, Florida re-employment tax must be paid (in addition to federal unemployment tax).
4-Obtaining Business Bank Accounts
To obtain bank accounts in the name of your business, you will need to follow the account opening procedures of the bank you choose, which may vary depending upon the individual circumstances involved. Generally, we’ve found that banks require the following documentation before even beginning a conversation: (a) a copy of the articles of organization or formation that were filed with the Florida Department of State showing that the person applying for the bank account is authorized to do so; and (b) a copy of the employer’s SS-4 Application for a EIN number. Note: you should be prepared to discuss the type of business the company is engaged in, so the bank officer can document it for compliance.
5-Employment Issues-Employee (W-2) v. Independent Contractor (1099-MISC).
The employer must determine whether the individuals providing services are employees or independent contractors. Employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Generally employers need not withhold or pay any taxes on payments to independent contractors.
6-Employment Issues-Employee
Under common-law rules, anyone who performs services for the employer is an employee if the employer can control what will be done and how it will be done. This is so even when the employer gives the employee freedom of action. What matters is that the employee has the right to control the details of how the services are performed. Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination. If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.
7-Newly Hired Employee Procedure
Verify the employee’s eligibility to work in the United States. Complete the most recent version of USCIC Form I-9, Employment Eligibility Verification. [www.uscis.gov/i-9]. Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. Both employees and employers (or authorized representatives of the employer) must complete the form. On the form, an employee must attest to his or her employment authorization. The employee must also present his or her employer with acceptable documents evidencing identity and employment authorization. The employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and to relate to the employee and record the document information on the Form I-9. The list of acceptable documents can be found on the last page of the form. Employers must retain Form I-9 for a designated period and make it available for inspection by authorized government officers. NOTE: State agencies may use Form I-9. Also, some agricultural recruiters and referrers for a fee may be required to use Form I-9. See also USCIS e-verify system. [www.uscis.gov/e-verify] Complete IRS Form W-9 so that the employer can withhold the correct amount of federal income tax from the employee’s pay. Employees should be offered new Form W-4 each year and when their personal or financial situation changes. See IRS Form W-4. [www.irs.gov]. Florida Department of Revenue [dor.myflorida.com] Federal and State law requires employers to report newly hired and re-hired employees in Florida to the Florida New Hire Reporting Center. Florida New Hire Reporting Center [newhire.state.fl.us/fl-newhire] See Fla. Stat. s. 409.2576 (requiring all employers to report newly hired and rehired employees to a state directory within 20 days of the employee’s start date) and 42 U.S. Code ? 653a (enacting a state directory of new hires). The Florida New Hire Reporting Center welcomes Independent Contractor reports, however, the law does not require employers to report them. The IRS provides strict guidelines on whether an individual is in fact an Independent Contractor or an employee. If you have questions regarding this guideline, please contact the IRS.
8-Independent Contractor Procedure
Obtain a W-9. Use Form W-9 to request the taxpayer identification number (TIN) of a U.S. person (including a resident alien) and to request certain certifications and claims for exemption. (See Purpose of Form on Form W-9.) Withholding agents may require signed Forms W-9 from U.S. exempt recipients to overcome a presumption of foreign status. For federal purposes, a U.S. person includes but is not limited to: An individual who is a U.S. citizen or U.S. resident alien, A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States, Any estate (other than a foreign estate), or A domestic trust (as defined in Regulations section 301.7701-7). A partnership may require a signed Form W-9 from its U.S. partners to overcome a presumption of foreign status and to avoid withholding on the partner’s allocable share of the partnership’s effectively connected income. For more information, see Regulations section 1.1446-1. Advise foreign persons to use the appropriate Form W-8 or Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information and a list of the W-8 forms. Also, a nonresident alien individual may, under certain circumstances, claim treaty benefits on scholarships and fellowship grant income. See Pub. 515 or Pub. 519, U.S. Tax Guide for Aliens, for more information.
9-Child Support
Upon reporting the new hire to the Florida New Hire Reporting Center, the Florida DOR will receive the new hire information and issue an income withholding notice to the employer as appropriate. [dor.myflorida.com/dor/childsupport/employer_services.html] Worker’s Compensation Companies with four or more employees must pay into a state fund that compensates workers who are injured on the job. For more information, visit the Division of Worker’s Compensation website at: [www.myfloridacfo.com]
10-Sales Tax
Each sale, admission charge, storage, or rental is taxable unless the transaction is exempt. Sales tax is added to the price of taxable goods or services and collected from the purchaser at the time of sale. Florida’s general sales tax rate is 6 percent. Use tax is due on the use or consumption of taxable goods or services when sales tax was not paid at the time of purchase. For example: If you buy a taxable item in Florida and didn’t pay sales tax, you owe use tax. If you buy an item tax-exempt intending to resell it and then use the item in your business or for personal use, you owe use tax. If you buy a taxable item outside Florida and bring it into or have it delivered into Florida and you did not pay sales tax on the item, you owe use tax. Discretionary Sales Surtax. Most Florida counties have a discretionary sales surtax (county tax) that applies to most transactions subject to the sales or use tax. The county surtax rate applies to a taxable item or service delivered into a county imposing a surtax. The surtax rate that applies to motor vehicles and mobile homes is determined by the home address of the purchaser. Check the rates for each county (Form DR-15DSS) in which you sell or deliver taxable goods or services. For certain transactions, only the first $5,000 of a taxable sale or purchase is subject to the discretionary sales surtax. How Tax Is Calculated. Sales tax and discretionary sales surtax are calculated on each taxable transaction. Florida uses a bracket system for calculating sales tax when the transaction falls between two whole dollar amounts. Multiply the whole dollar amount by the tax rate (6 percent plus the county surtax rate) and use the bracket system to figure the tax on the amount less than a dollar. The Department of Revenue has rate tables (Form DR-2X) to help you. Who Must Pay Tax? Before you begin business in Florida, you must first find out if your business activity or products used will be subject to sales or use tax. If it is, you must register to collect sales tax or pay use tax. Revenue provides a partial list of business activities that are taxable. Governments and nonprofit organizations may not have to pay sales tax. If you do not know if your business must register to collect sales tax, contact your local service center or Taxpayer Services. Registration You can register to collect and pay sales and use tax using our secure website. Once you are registered, we will send you a Certificate of Registration (Form DR-11), a Florida Annual Resale Certificate for Sales Tax (Form DR-13), and tax return forms. Place the Certificate of Registration in a visible area of the business.
11-Intellectual Property Issues
Intellectual property includes copyright, trademark, and patents. These are important to your business because they protect the goodwill your business has formed. Simply by operating a business, the law creates a protection in the jurisdictions in which you operate. However, a formal application for protection of your intellectual property can be filed with the state and federal governments. Generally speaking, a specialized attorney must be hired in these cases.
12-Liability issues
If you operate as a sole proprietor or as a fictitious name, or you sign personal guarantees, or you operate as a general partner, your personal assets are subject to creditor’s claims. Operating a business through an entity that offers liability protection can help avoid creditors’ claims. However, the formalities of the entity must be followed and the right entity must be selected for you.
13-Securities Laws
The federal securities laws must be followed. It seems even many people don’t enlighten themselves on these important issues. A security is a) A note. (b) A stock. (c) A treasury stock. (d) A bond. (e) A debenture. (f) An evidence of indebtedness. (g) A certificate of deposit. (h) A certificate of deposit for a security. (i) A certificate of interest or participation. (j) A whiskey warehouse receipt or other commodity warehouse receipt. (k) A certificate of interest in a profit-sharing agreement or the right to participate therein. (l) A certificate of interest in an oil, gas, petroleum, mineral, or mining title or lease or the right to participate therein. (m) A collateral trust certificate. (n) A reorganization certificate. (o) A preorganization subscription. (p) Any transferable share. (q) An investment contract. (r) A beneficial interest in title to property, profits, or earnings. (s) An interest in or under a profit-sharing or participation agreement or scheme. (t) Any option contract which entitles the holder to purchase or sell a given amount of the underlying security at a fixed price within a specified period of time. (u) Any other instrument commonly known as a security, including an interim or temporary bond, debenture, note, or certificate. (v) Any receipt for a security, or for subscription to a security, or any right to subscribe to or purchase any security. (w) A viatical settlement investment. Federal snd state law indicate that securities must be registered or exempt. Therefore, if you are selling an interest in a company, that interest is likely a security. If the security isn’t registered or exempt, then the consequence is that the buyer may have the right of rescission, among more significant remedies. Therefore, taking a look at Regulation D at www.sec.gov and Chapter 517 of the Florida Statutes www.flofr.com will be helpful.
14-Maintaining the identity of the entity
In order to maintain the identity of the company you created, annually, you must do certain things such as filing an annual report with sunbiz.org, filing tax returns, whether tax is owed or not, having annual meetings, and selecting a board of directors to govern the entity. Florida law states that entities lose their liability protection if the basic formalities are not followed and lose the right to conduct business, with the exception of winding up.
15-Sale of business
There are many options when selling a business as far as how the sale is conducted. A tax free reorganization is possible and there are various tax planning strategies such as an ESOP or installment sale, that can help buyers and sellers make tax efficient choices. The buyer and seller’s interests are not aligned in a business sale. Namely, the seller wants to structure the deal as a stock sale to take advantage of capital gains rates. The buyer wants to buy the assets from the seller’s business so it can mark up the assets to reflect a premium paid for goodwill which is generally no amortizable, and to avoid lingering or unknown liability issues. A tax free reorganization may be able to help both buyer and seller and warrants consideration.
16-Worker’s Compensation
Companies with four or more employees must pay into a state fund that compensates workers who are injured on the job. For more information, visit the Division of Worker’s Compensation website at: [www.myfloridacfo.com]
17-Local Taxes (County & City & Personal Property)
The city and county may have business taxes and environmental taxes applicable to businesses operating in their limits. A review of the city and county websites will show you how to apply for a business tax and pay it.
18-Licenses
Depending on the type of business you operate, you may be required to obtain an operating license to conduct that type of business from the city, county, and/or state. For example, CPAs and Attorneys must be licensed. Moreover, businesses that sell alcohol need liquor licenses. Review of the city, county, and state websites will help you determine whether a license is needed.

10 Legal Tax Savings Secrets: Learn How to Save…

10 Legal Tax Savings Secrets: Learn How to Save…

Client Talking Points

Do you want to add some value? Here are some points that can add value to you and your clients right now…

  1. Legal Tax Savings Secret: Holding Real Estate in the corporate solution (C-Corp or S-Corp). Is your client holding assets that appreciate in value using the corporate solution? Corporations do not get the benefit of long-term capital gains rates. The corporate rate is presently 35% and corporation dividends to shareholders are not deductible to the corp., and are thus, double-taxed. Holding assets that depreciate (go down) in value in a corporate solution makes sense. However, if the value of the asset increases, liquidating that asset has inefficient tax consequences for the small business owner. This applies to S-Corporations as well. Nevertheless, if President Trump, Senator Ted Cruz, and Congress achieve their goal of reducing corporate tax rates to 15%-20%, then this would be a future opportunity to liquidate corporate holdings at reduced corporate tax rates. TALKING POINT: Ask your client to monitor this proposed legislation, anticipated for 2018.
  2. Legal Tax Savings Secret: 1031 Like-Kind Exchange. Is you client aware of 1031 Exchanges? 1031 exchanges allow clients to sell business property including real estate or business personal property and exchange it for similar items. Taxes from the exchange are deferred and the client’s basis carries to the new property. Corporations can use this as well. TALKING POINT: Ask your client whether he or she is planning to liquidate business property (especially real estate, or rental real estate) to take advantage of an opportunity. If the client doesn’t need the cash and would prefer to re-invest, mention the 1031 exchange.
  3. Legal Tax Savings Secret: IC-DISC. Does your client export products that have US-made components? The IC-DISC is an export incentive permitted by the tax code. Essentially, a manufacturer, exporter, or supplier can reduce its tax rate to 20% by paying sales commissions to an IC-DISC that it owns and controls. The IC-DISC is a corporation that makes an election to be treated as an IC-DISC. Instead of paying 35%, it pays 20%, and can defer income as well. TALKING POINT: Ask your client if they export goods produced or remanufactured in the US, or whether the client knows if its goods or services are ultimately exported downstream. If Harley Davidson’s motorcycles are exported by unrelated suppliers, Harley would be eligible.
  4. Legal Tax Savings Secret: Cost Segregation. Is your client aware of cost segregation studies? Normally commercial buildings are depreciated over 39.5 years. This means the price paid for the building is recovered at 2.5% annually. Cost segregations allow buildings to be depreciated in part as personal property, allowing significant depreciation in early years. TALKING POINT: Speak to your client about newly acquired or recently renovated buildings. Good candidates are buildings recently remodeled or perhaps less than 15 years old.
  5. Legal Tax Savings Secret: IRS Penalties. Has your client recently been penalized by the IRS? IRS penalties can be issued for a variety of reasons. However, the IRS can be surprisingly gracious with removing penalties from accounts under the right circumstances. If a client has been given significant penalties, simply asking to remove them may do the trick.
  6. Legal Tax Savings Secret: Asset Protection. Corporate entities and LLCs often can provide significant asset protection. The entity acts as a shield between the creditor and its shareholders. However, the entity’s assets themselves may be subject to creditor’s claims. On the other hand, operating a thinly-capitalized company could render the corporate shield weak, and subject to piercing (attacking personal assets). TALKING POINT: Ask clients with significant assets in their corporate accounts if they have an asset protection strategy, or have considered whether their assets could be subject to attack from creditors.
  7. Legal Tax Savings Secret: Non-US-Residents and Non US Domiciliaries owning real estate in the US. US citizens and US residents get generous estate and gift tax exemptions currently in excess of $5.5 million filing single, and $11 million for married persons. By contrast, foreign owners of real property receive a $60,000 exemption. TALKING POINT: Why give all that hard-earned money to the IRS, needlessly? Utilize a foreign corporation to block the tax, as shares of foreign corporations are not subject to the estate tax. Be aware, as discussed above, that capital gains tax rates become corporate rates. But see President Trump’s proposal, above, regarding reducing corporate rates. Therefore, some planning is involved. Also, you may consider life insurance to pay for the potential tax consequences.
  8. Legal Tax Savings Secret: Compliant on Estimated Taxes. What is better: to pay down back taxes or make estimated tax payments? A big issue we encounter is people fall behind on past tax debts. This causes them to miss estimated tax payments because they are devoting resources to paying back taxes. The best strategy is to make sure estimated taxes (future taxes) are paid before back taxes. How you accomplish this warrants a discussion with a professional and an analysis of your client’s situation.
  9. Legal Tax Savings Secret: Filing Tax Returns. Has your client filed all tax returns? This is important for many reasons. Firstly, it is criminal to willfully fail to file returns. Also, the penalty for failing to file a return is greater than failing to pay. Finally, for those people who are W-2 wage earners, failing to file a return is a compliance risk for your employer. Yes. One of the first things the IRS requests in a corporate audit is copies of the C-Suite’s personal tax returns. Other responsible parties may be requested as well.
  10. Legal Tax Savings Secret: Estate Planning. When is the last time your client considered his or her estate plan. Believing you’ll live a long time is wishful thinking. You’ll never know what tomorrow brings. Make sure your family is protected.

W-2 Deadline January 31

W-2 Deadline Dates To File W-2s

January 31st February 29th* March 31st*
Deadline to distribute Forms W-2 to employee Deadline to file using paper Forms W-2 Deadline to file using Business Services Online

* If this date falls on a Saturday, Sunday or legal holiday, the deadline will be the next business day.

W-2 Deadline Changed as a result of Identity Theft.

Tax information from 104,000 filers was recently stolen. The IRS is paying for credit monitoring for victims. Victims can also apply for identity theft numbers. In a major about face, the IRS indicated it WILL give victims copies of the false returns to help taxpayers assess the damage from the intrusion. ALERT: The IRS and Congress also move up the date for employers to file W-2s with the feds to January 31 from March 31.

Identity Theft Letter.

Potentially impacted individuals are notified of the data loss via Letter 4281C, IM Breach Notification Letter. See IRM 10.5.4.4.3 (12-02-2014).

Estate Taxes.

Estates wanting to elect portability must timely file an estate tax return, even if not required. Under the portability rule, when one spouse dies, the unused estate and gift tax automatically passes to the surviving spouse. In order to take advantage, file a 706.

High Incomers.

2012 data show: the average tax rate of the top 1% of earners was 22.83%. The top 1% is defined as AGI of at least $434,682. The rate at the top 0.01% was 19.53%. These 13,608 taxpayers had AGI of $12.1 MIL. At the top 0.001; 17.6%. AGI was $62 MIL.

IRS Priorities.

Employee or not employee (independent contractor)? That is the question. Worker misclassification. Labor Dept to get involved. IRS suspects employers near 50 workers will 1099 some to avoid ACA mandate. There is a reduced penalty for voluntarily correcting errors. IRS uses three part test: behavioral, financial, and type-of-relationship.

2018 Tax Inflation Adjustments Announced

The Internal Revenue Service announced today its 2018 annual tax inflation adjustments. The tax year 2018 adjustments generally are used on tax returns filed for the tax year 2018 and due beginning in 2019.

The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.

The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)

For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively.

The limitation for itemized deductions claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).

The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).

The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017.

In 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking,

For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017: $695.

Participants who have self-only coverage in a Medical Savings Account, must have an annual deductible that is no less than $2,300, an increase of $50 from tax year 2017, but not more than $3,450, which is an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. Participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017, however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.

The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.

The foreign earned income exclusion for 2018 is $104,100, up from $102,100 for tax year 2017.

Estates of decedents who die during 2018 have a basic exclusion amount of $5,600,000, up from a total of $5,490,000 for estates of decedents who died in 2017.

The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.