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Business Tax

18 / 05 / 2015 by Greg Freyman, CPA in Business Tax

Is Your Company At Risk For Having Loans Reclassified To Equity?

A bonafide “loan” from a shareholder to your company can turn into something much worse should it go unpaid. Even if there is a legitimate loan document detailing the interest, repayment schedule and other characteristics of the loan, it does not mean much when the terms are not enforced. There could be serious consequences as we explain below.

What happens if the loan isn’t repaid?

In these situations, the debt is generally reclassified to equity and any interest deduction taken is disallowed as per the court cases Roth Steel Tube Company v. Commissioner, 800 F2d 625 & Indmar Products Co., Inc., TC Memo 2005-32.

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Is Your Business Subject To Trailing Nexus?

Businesses that establish nexus within a particular state may be required to meet certain tax compliance requirements even after they stop conducting business within that state. For instance, some states have implemented trailing sales tax nexus rules which require companies to collect sales tax even if they no longer have tax nexus.

 

What is sales tax nexus?

Tax nexus can best be defined as the seller’s minimum level of physical presence within a state that permits a taxing authority to require them to register, collect and remit sales and use taxes. In determining whether an out-of-state seller needs to comply with tax nexus laws, it is appropriate to examine a combination of federal and state laws. Having said that, if de minimis activities are performed within a state that establishes only the “slightest presence” in a taxing jurisdiction, it is unlikely that the seller will need to register and collect sales tax in that area. If the company has more than a de minimis physical presence in the state, then sales tax registration and collection would likely be required. Most states characterize “doing business in their state” as regularly or systematically soliciting business either by employees, independent contractors, agents or other representatives or by distribution of catalogs or other advertising matter. It is important to know the rules in each state where your company conducts business.

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01 / 05 / 2015 by Greg Freyman, CPA in Business Tax

Are Health Reimbursement Accounts Still Allowed?

The IRS recently released an update on the tax rules for health reimbursement accounts in relation to the Affordable Care Act (ACA) and S Corporations. This update addresses small businesses that do not offer healthcare coverage, but do reimburse employees for insurance purchased on the healthcare exchanges. The IRS is waiving noncompliance penalties for the 2014 tax year and the first half of 2015.

 

Is this temporary?

Yes, the IRS has provided relief for businesses to transition to the new ACA rules. Moreover, an employer with less than 50 full-time employees will not be subject to the infamous $36,500 Section 4980D penalty per employee. The relief applies to employers that are conducting an employee reimbursement plan for 2014 and through June 30th, 2015. However, penalties will still be applied beginning on July 1, 2015.

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23 / 04 / 2015 by Greg Freyman, CPA in Business Tax

Are Business Travel Expenses Deductible?

The rules for deducting travel and living expenses while away from home depend on how long the work is being performed away from your family home. Please note that your family home is different from your tax home. So, are business travel expenses deductible?

 

Where is your tax home?

The first step we need to do is establish where your tax home is as per IRS Publication 463 and the Internal Revenue Code (IRC) Sections 162 & 274. This is your regular place of business, regardless of where you maintain your family home. Generally speaking, if you and your spouse do not live at your tax home, you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home. However, there is an exception to the rule in which you are only on a temporary assignment. This means that you expect to be at your temporary assignment for less than a year. In this case, your tax home does not change to your work location, but continues to be where you reside. Thus, you would be able to deduct travel expenses and living expenses that are not reimbursed by your employer.

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13 / 03 / 2015 by Greg Freyman, CPA in Business Tax

Filing For S Corporation Late Election Relief

Many existing C Corporations and new businesses elect to be taxed as an S Corporation. However, some of these businesses fail to meet the filing deadline, which is 75 days after incorporating or 2 months and 15 days after the beginning of the tax year. Fortunately, there are exceptions to this rule in which businesses may qualify for late election relief.

 

How does a business elect to be taxed as an S Corporation?

The company will need to file a Form 2553 with the IRS to elect to be taxed as an S Corporation. After this is completed, the IRS sends a CP261 Notice to businesses to confirm acceptance of the S Corporation election. If the business owner and/or accountant did not receive the letter or do not have record of it, they should contact the IRS directly at their Business and Specialty Tax Line at (800) 829-4933 (M-F, 7am-7pm).

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24 / 02 / 2015 by Greg Freyman, CPA in Business Tax

Does Your Business Need To File Form 3115?

Up until recently, most businesses needed to file Form 3115 to ensure that tangible property items have been properly capitalized or expensed in current and prior years. However, the IRS recently issued Revenue Procedure 2015-20 which provides relief for certain businesses. Under this new procedure, certain small taxpayers have the option of following the new regulations only prospectively, without filing a 3115. Please note that a small taxpayer is any business with total assets of less than $10 million as of the beginning of the first tax year that started on or after Jan. 1, 2014, or with average annual gross receipts of $10 million or less over the three prior tax years.

 

What if our business still needs to file form 3115?

First, you should note that it will take time to review the regulations associated with Form 3115. Specifically, be prepared to spend time reviewing your accounting records. The IRS has actually provided guidance for practitioners and businesses to understand and apply the law. Specifically, the IRS recommends 20 hours to learn the law, 39 hours to review work papers and 24 hours to prepare the form. While we believe that these estimates are a little extreme, it will still take several hours.

While it may take time to prepare, it’s important to note that your business may benefit financially by filing the form. There may be several instances in which your business can and should have claimed expenses that it has not done so in the past. This will be reported as an IRC Section 481(a) adjustment.

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17 / 02 / 2015 by Greg Freyman, CPA in Business Tax

Tax Rules For Deducting Real Estate Losses

There are many different types of real estate professionals in the market. Some do it for a living, while others manage one or two properties for supplemental income. The business tax deduction rules vary greatly depending on how you are classified as a real estate investor as detailed in IRS Publication 925.

To qualify as a real estate professional for tax purposes, you need to meet the following requirements:

  • More than 50% of your professional services are provided in the real estate field
  • You spend more than 750 hours each year in managing a real estate business
  • You are not an employee of the business (unless you own at least 5% of the business)
  • You must also materially participate in the rental activity

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S Corporation Filings Impact Your Individual Return

One of the most common questions we receive from S Corporation owners is, “Why do I need to file my corporate taxes before I file my individual taxes?”

It’s important for us to first define a subchapter S Corporation (S-Corp). An S-Corp is a “pass through” entity that is generally not subject to federal or state taxes. However, New York City does have an income tax for S-Corps because the city of New York does not recognize the S-Corp status and treats the S-Corp as a regular corporation. There are several other states that also do not recognize the S-Corp status.

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Are There New York City Property Taxes?

I would have to say that it really depends on what kind of property you own and what you intend to do with that property. There are many levels of New York City property taxes, and they all vary by industry and use. Below, I’ve provided some basic guidelines that cover the taxes, fees, and reporting obligations.

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Can I Claim The Standard Mileage Deduction For Vehicle Costs?

Recently, the Internal Revenue Service (IRS) announced the new standard mileage rates to deduct vehicle expenses for the 2015 tax year.  The latest rules impact individuals using a vehicle for business, charity, or medical and moving purposes. With the exception of the costs related to business, the standard mileage rates all stayed the same or were slightly down from 2014 due to lower gas and oil costs.

 

What is the the standard mileage deduction rate for 2015?

For 2015, the standard mileage rate increases to $0.575 for business miles driven, up from $0.56 in 2014 (reference: Internal Revenue Notice 2014-114). While the IRS expects fuel prices to be lower in 2015, an annual study indicated higher fixed and variable costs for operating an automobile, including depreciation, insurance, repairs, tires, and maintenance.

The rate will be $0.23 per mile for medical or moving purposes, down $0.005 from 2014, and $0.14 per mile driven in service of charitable organizations. The medical and moving expenses are based on the lower expected price of oil, while the charitable rate is set by law.

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