Just a quick reminder for all those self-employed folks out there…..the deadline for making your second quarter estimated tax payment for 2016 is rapidly approaching. These payments must be postmarked by June 15th, 2016. Didn’t we just get done with taxes!?

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

If you are filing as a sole proprietor, partner, S corporation shareholder and/or a self-employed individual, you should use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. For specific information on how to pay online, by phone, or by mail, visit:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

The end of the year is fast approaching, and so is the window to get any last minute tax planning done.  Please contact our office if you have any questions or need help implementing any of the following strategies.  Enjoy your Holiday Season and best wishes for a prosperous 2015 !

 Important dates

December 31    End of calendar year and the latest date for business purchases or charitable contributions that will be deductions on 2014 tax returns.

January 9         Sand’s Solutions Second Euchre Tournament to support the Oregon Food Bank.  7:00 pm till 10:00 pm at 3420 NE 41^st Ave.  RSVP to donnette@sandsolutions.com.

January 15          Fourth quarter estimated tax payments due for individuals. Prepay Oregon taxes by 12/31/14 for a 2014 tax deduction.  See Standard Deduction and Bunching Itemized Deductions

RETIREMENT PLANS

A retirement plan needs regular care to keep it operating properly, including a review of the plan’s basic operations.  A review might reveal that the plan is not:

1. Covering the proper employees
2. Providing employees the required information
3. Depositing employee deferrals timely
4. Following the terms of the plan documents.

See www.irs.gov/pub/irs-tege/rne_1014.pdf for a basic checklist to make sure you are in compliance.

S CORPORATIONS TREATING MEDICAL INSURANCE PREMIUMS AS WAGES

 Health insurance premiums paid on behalf of a more than 2% shareholder-employee are deductible as wages by the S-Corporation.  These benefits are not subject to Social Security, Medicare of Federal Unemployment taxes.  This additional compensation is included in Box 1 (Wages) of the W-2.

A 2-percent shareholder-employee then may be eligible for a deduction for these premium payments on their personal return, thereby avoiding paying taxes altogether on this amount.  Make sure to talk to your payroll service provider and ensure that this is reported correctly on your payroll reports to avoid an unnecessary tax bill!

TAX PLANNING STRATEGIES

 Year-end planning will be more challenging than normal this year.  Unless Congress acts, a number of popular deductions and credits expired and won’t be available for 2014.  They may revive some or all of the favorable tax rules as they have in the past, but this remains to be seen.

Standard Deduction and Bunching Itemized Deductions:  You are entitled to the greater of the standard deduction or your total itemized deductions for the year.  If your itemized deductions are normally close to the standard deduction amounts, you may be able to get more benefit by “bunching” them into every other year.  Charitable donations, real estate taxes, or state income taxes otherwise due in early 2015 are all good candidates for bunching, and by paying them by December 31^st they would be eligible as a tax deduction in the current year.

Managing your Adjusted Gross Income (AGI):  You will hear this term quite a bit during tax planning, as this is the figure that can drive the amount of deductions or credits that are phased-out by income limitations, as well as help to avoid or reduce the impact of the 3.8% net investment income tax.

1. Increase “above the line” deductions, such as for an IRA or self-employed retirement plans.
2. Consider an installment sale on the sale of property to shift income to future tax years.
3. Delay billings so payments aren’t received until 2015 or accelerate paying certain expenses.

 Check your Partnership and S Corporation Stock Basis:  If you own an interest in a partnership or S corporation, your ability to deduct any losses is limited to your basis.  Although any unused losses can be carried forward indefinitely, you may want to make a capital contribution, or in the case of an S Corporation make a shareholder loan, before year end to ensure your current year deduction.

Avoid the Hobby Loss Rules:  A lot of businesses that just start out or have hit a bump in the road may wind up showing a loss for the year.  The last thing a business owner wants in this situation is for the IRS to come knocking and argue that the losses aren’t deductible because the activity is just a hobby.  Surprisingly, the IRS has been fairly successful recently in making this argument in tax court.  If you are expecting a loss for the year, please contact us before year-end to make sure we do everything possible to maximize the tax benefit of the loss and minimize its economic impact.

These are just a few tax-saving ideas to get you started.  As always, you can call on us to help you sort through the options and implement strategies that make sense for you.

• IRA Withdrawal to buy Real Estate
• Correcting same-sex spouse health insurance premiums wrongly included in 2013 W-2 Income
• Documentation necessary to substantiate vehicle expenses
• Fringe benefits provided to pass-through entity owners

Major deadlines for September
September 15 Third quarter estimated tax payment due for individuals.
2013 tax returns due for partnerships and corporations on extension.

September 26 Sand’s Solutions inaugural Euchre tournament to support the ALS Association. Beginners, as well as card sharks, welcomed to play this very Midwest card game. Light refreshments provided. 7:00 pm till 10:00 pm at 3420 NE 41st. RSVP to donnette@sandsolutions.com.

September 28 Walk to Defeat ALS in downtown Portland at noon. Meet at the Salmon Street fountain and look for the Red Wigs. Feel free to join our team, pour a bucket of ice water over your head, or make a donation by going to http://webor.alsa.org/goto/JerryCatlin.

IRA Withdrawals

Generally, a distribution from an IRA is taxable in the year of the distribution. Taxable distributions received before the taxpayer turns age 59 ½ are subject to a 10% early withdrawal penalty tax unless an exception applies. An IRA distribution is not taxable to the extent it is rolled over to an IRA or other eligible retirement plan (ERP) within 60 days of the distribution.

In order to use IRA funds to purchase real estate, the IRA plan documents must allow for alternative investments. If your current plan doesn’t allow for such investments, you can initiate a rollover or a trustee-to-trustee transfer from your current IRA to one that permits such investments. It is important that the execution of this transfer is done correctly to avoid unintended tax consequences, so seek competent professional advice if you are unsure.

Same-sex spouse health insurance premiums included in 2013 W-2 Income

The IRS provides that a same-sex spouse is treated as a spouse for federal tax purposes if the couple is legally married under state law. Accordingly, health insurance premiums paid by the employer on behalf of the spouse are excludable from the employee’s income. If you have received a Form W-2 that incorrectly includes these amounts in taxable wages, you should request a corrected W-2 or file an amended Form 1040 using the original W-2 and attach Form 4852, Substitute for Form W-2, Wage and Tax Statement.

Calendar notes not enough to substantiate vehicle expenses

Generally, a taxpayer must keep records sufficient to substantiate the amount of any deduction claimed to support the taxpayer’s tax liability. Under the Cohan rule, if a taxpayer establishes that an expense is deductible, but is unable to substantiate the precise amount, a court may estimate the amount of the taxpayer presents sufficient evidence from which to form an estimate. However, there are strict substantiation requirements related to the use of automobiles. You must maintain adequate records or produce sufficient evidence establishing the amount, date and business purpose of each expenditure. The best way to do this is to keep a contemporaneous auto log documenting the beginning and ending odometer reading for each trip along with a description of the business purposes. Get an app for that!

The federal income tax outcome when a partnership or S Corporation provides fringe benefits to its owners can get quite confusing. For some benefits, the owners are ineligible and the benefits can’t be deducted on the business return. Following are some of the benefits that can be provided tax-free to owners.

• Qualified educational assistance program
• Qualified dependent care assistance program
• No-additional-cost services
• Qualified employee discounts
• Working condition fringe benefits, such as business use portion of a company vehicle, professional dues, company provided cell phones and job related education expenses.
• De minimis fringe benefits, such as personal use of cell phones or computers maintained exclusively at the business establishment, occasional employee cocktail parties or picnics, occasional use of the copy machine and local telephone calls.
• On-premise athletic facilities
• Qualified retirement planning services.

Everyone knows that this is the busy time of year for accountants. This is definitely the case with Sand’s Solutions, Inc. as we are going into our second tax season in the Beaumont neighborhood. However, when opportunity comes knocking, it’s best to open the door. Although the timing is not ideal to coordinate all of the details, we are moving to an amazing office space located just off of NE Fremont at 3420 NE 41st Avenue, directly behind Amenity Shoes.

The new space will give us a dedicated conference room for meetings, the ability to host neighborhood events, additional private office spaces and room to grow and expand our practice. We are very excited to have secured our long term business location and look forward to helping better serve our individual and business tax and consulting clients. Our contact information will all remain the same, except for our physical address.

We look forward to helping you navigate the filing of your tax return and being your Problem Solvers (and maybe squeezing in a couple of March Madness basketball games).