Tax

The Tax Cuts and Jobs Act included a number of tax law changes that affect small businesses such as deductions for fringe benefit, which can affect both a business’s bottom line and its employees’ deductions. Here’s a summary of what these are:

Transportation fringe benefits. The new law disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting, except as necessary for employee safety.

Bicycle commuting reimbursements. Under the new tax law, employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.

Moving expenses. Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the former exclusion for qualified moving expense reimbursements. There is one exception for active duty members of the U.S. Armed Forces. They can still exclude moving expenses from their income. There is additional guidance on reimbursements for employees’ who moved in 2017, but were reimbursed for expenses in 2018. Generally, reimbursements in this situation are not taxed.

Achievement awards. Special rules allow an employee to exclude achievement awards from wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies the definition of tangible personal property.

Don’t hesitate to call if you have any questions about tax law changes affecting fringe benefits and your small business.

• By Leon Clinton
• April 27, 2019

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2018, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2018. Otherwise, the trustee may report the contribution as being for 2019 when they get your funds.

Generally, you can contribute up to $5,500 of your earnings for tax year 2018 (up to $6,500 if you are age 50 or older in 2018). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Saving for retirement should be part of everyone’s financial plan and it’s important to review your retirement goals every year in order to maximize savings. If you need help figuring out which retirement strategies are best for your situation, give the office a call.

• By Leon Clinton
• April 24, 2019

April 15 (April 17 if you live in Maine or Massachusetts) is the deadline for most people to file their federal income tax return and pay any taxes they owe. The bad news is that if you miss the deadline (for whatever reason), you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. The good news is that there is no penalty if you file a late tax return but are due a refund.

Here are ten important facts every taxpayer should know about penalties for filing or paying late:

1. A failure-to-file penalty may apply. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late.

2. Penalty for filing late. The penalty for filing a late return is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late and starts accruing the day after the tax filing due date. Late filing penalties will not exceed 25 percent of your unpaid taxes.

3. Failure to pay penalty. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

4. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact the office today if you need help figuring out how to pay what you owe.

5. Extension of time to file. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. Two penalties may apply. One penalty is for filing late and one is for paying late–and they can add up fast, especially since interest accrues on top of the penalties but if both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. Minimum penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. Reasonable cause. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Please call if you have any questions about what constitutes reasonable cause.

9. Penalty relief. The IRS generally provides penalty relief, including postponing filing and payment deadlines, to any area covered by a disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA).

10. File even if you can’t pay. Filing on time and paying as much as you can, keeps your interest and penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill, the less you will owe.

If you need assistance, help is just a phone call away!

• By Leon Clinton
• April 20, 2019