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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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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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. So, established businesses must file by March 15 of the new tax year, or before. New businesses must file by March 15. Fortunately, there are exceptions to this rule in which businesses may qualify for late election relief.

What is an S Corporation?

 An S Corporation is one of the tax structures a business can opt to file with because it provides unique benefits, including corporate tax returns. There are specific criteria requirements in order to be considered for this filing status, so be sure to be informed about what it entails before filling in the necessary documents. However, this process need only be completed once and will remain valid every following year, even if new shareholders do not consent.

HOW DOES A BUSINESS ELECT TO BE TAXED AS AN S CORPORATION?

The company will need to have an officer and all associated shareholders sign a Form 2553 and then file it 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 a record of it, they should contact the IRS directly at their Business and Specialty Tax Line at (800) 829-4933 (M-F, 7 am-7 pm).

HOW TO QUALIFY FOR S CORPORATION LATE ELECTION RELIEF

If a company fails to timely file the form with the IRS to elect to be taxed as an S Corporation, it may still be eligible for a late election to be an S Corporation. However, the company must show that failure to file Form 2553 on time was the result of a reasonable cause. The IRS has two acceptable forms of reasonable cause: (1) a company’s president, chief executive officer, or similar responsible person neglected to file the election, and (2) that the corporation’s tax professional or accountant neglected to.

If a company does not file the Form 2553 on time, but still meets the late election relief criteria in IRC Section 1362(b)(5) detailed below, the next steps should be to file the IRS Form 2553. When filing the form, write at the top of the form the following words: “FILED PURSUANT TO REV. PROC. 2013-30.” Furthermore, if you make the election with your first tax return, write in the top margin of the first page of Form the 1120S “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30.

The Corp. meets the S-Corp. eligibility criteria:

1. The corporation intended to be classified as an S corporation as of the date entered on line E of Form 2553;
2. The corporation fails to qualify as an S corporation on the effective date entered on line E of Form 2553 solely because Form 2553 was not filed by the due date
3. The corporation has reasonable cause for its failure to timely file Form 2553 and has acted diligently to correct the mistake upon discovery of its failure to timely file Form 2553
4. Form 2553 will be filed within 3 years and 75 days of the date entered on line E of Form 2553

Please note that to request late election relief when the above requirements are not met, the corporation generally must request a private letter ruling and pay a user fee in accordance with Rev. Proc. 2014-1, 2014-1 I.R.B. 1.

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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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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The W-2 form is a document that employers must furnish to their employee(s) by the February 2nd, 2015 for the 2014 tax year. The deadline is generally January 31st, but this year it fell on a Saturday. The IRS and the State will also receive a copy of the form. Furthermore, the taxing authorities will match the information on this W-2 form with the information provided on your tax return. If there are any mismatches, depending on the error, it can automatically trigger an initial rejection of your tax return or a correspondence audit.

As a working individual, you earn income is subject to federal, state, city and payroll taxes (social security & medicare). The amount of income taxes (not payroll) that are withheld throughout the year depends on the information detailed on the federal form W-4 and state form (NYS uses form IT-2104, each state has a different form) that you completed when you commenced work for your employer. Please note that the more exemptions you claim, the less tax withheld for federal and state income tax purposes.

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Let us review the concept of how state taxes impact federal tax returns.

On New York State tax forms IT-201-I, or IT-150, or NYC-202(4), the taxpayer is subject to either individual or business income tax. However, on Schedule A or Schedule C of federal form 1040, the taxpayer may deduct state and local income taxes. Specifically, if the taxpayer elects to itemize deductions on Schedule A, state and local taxes would be included in the schedule. Please note though that the state taxes remitted during the year are generally not equal to the total amount due at the end of the tax year. Moreover, the taxpayer will end up either owing additional taxes or receiving a refund for taxes overpaid.

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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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Staff accountants and bookkeepers using payroll in QuickBooks can record all of their entries to wages and taxes payable, while also grossing up payroll as infrequently as once a month, quarter, or year. This can be a significant time saver, especially when the month to month reporting is not needed.

However, when reporting on a weekly, monthly or quarterly basis to senior management, bookkeepers may need to record the payroll systematically each and every single pay day. In this article, I will explain how to record payroll in QuickBooks with minimal effort.

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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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