April 2023 Due Dates/Information

Article Highlights:

Filing Due Date
Disaster Area Filing Due Dates
Extensions
Balance-Due Payments
Contributions to Roth or Traditional IRAs
Individual Refund Claims for the 2019 Tax Year
If There is Still Missing Information

As a reminder to those who have not yet filed their 2022 tax returns, April 18, 2023 is the due date to either file a return (and pay the taxes owed) or file for an automatic extension (and pay an estimate of the taxes owed). The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia – even if you don’t live in DC.

NOTE: If you live in a federally declared disaster area your due date may have been automatically extended. The extension will apply if you reside in the disaster area, and you need not be directly affected by the disaster to qualify. Check the IRS website at Tax Disaster Relief Situations for areas that have disaster filing relief extensions. For example, taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments. Call this office to confirm you qualify and for information related to state disaster relief due date postponements.

For those not covered by the disaster area filing postponement, and who need to request an extension, caution should be exercised when preparing the extension application, which is IRS Form 4868. Even though this form is described as “automatic,” the extension is automatically granted only if it includes a reasonable estimate of the 2022 tax liability and only if that anticipated liability is paid along with the extension application. It is not uncommon for taxpayers to enter zero as the estimated tax liability without figuring the actual estimated amount. These taxpayers risk the IRS classifying their forms as having been improperly completed, which in turn makes the extensions invalid. If you need an extension, please contact this office so that we can prepare a valid extension for you.

The extension must be filed in a timely manner; at this office, we can file your extension electronically before the due date and have any amount owed withdrawn from your bank account. If you do decide on mailing an extension, be advised that the envelope with the extension form must be postmarked on or before the April 18 due date. However, there are inherent risks associated with dropping an extension form in a mailbox; for instance, the envelope might not be postmarked in a timely fashion. Thus, those who have tax due should mail their extension forms using registered or certified mail so as not to risk late-filing penalties.

In addition, the April 18 deadline also applies to the following:

Balance-Due Payments for the 2022 Tax Year* – Be aware that Form 4868 is an extension to file, NOT an extension to pay. The IRS will assess late-payment penalties (with interest) on any balance due, even when the extension has been granted. Taxpayers who anticipate having a balance due need to estimate this amount and include payment for that balance, either along with the extension request (as indicated above) or electronically by this firm or through the IRS website.
Contributions to a Roth or Traditional IRA for the 2022 Tax Year* – April 18, 2023, is the last day for 2022 contributions to either a Roth or a traditional IRA. Form 4868 does not provide an extension for making IRA contributions.
Individual Estimated Tax Payments for the First Quarter of 2023* – The first installment of the 2023 estimated tax payment is due on April 18, 2023. If you make estimated tax payments and do not file the first installment on or before April 18, 2023, then that payment is late, and you should file it as soon as possible to mitigate any penalties.
Individual Refund Claims for the 2019 Tax Year – The regular three-year statute of limitations expires for the 2019 tax return on April 18 of this year. Thus, no refund will be granted for a 2019 return (original or amended) that is filed after April 18, 2023. Taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2019 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2019 returns.

*Those in specified disaster areas will have these deadlines postponed to October 16, 2023.

Please contact this office related to filing for state extensions or to see if you qualify for a disaster-related extension.

If your 2022 return is still pending because of missing information, please forward that information to this office as quickly as possible so that we can ensure that your return meets the April 18 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the April 18 deadline, then please let us know as soon as possible so that we can prepare an extension request.

If you have not yet completed your returns, please call this office right away so that we can schedule an appointment and/or file an extension for you.

Have You Lost Your Job? Here’s What You Need to Know About Taxes

If you were laid off from your job at some point in the last year, at least take comfort in the fact that you are not alone.

In 2022 alone, there were approximately 15.4 million layoffs in the United States as per one recent study. About 6.9 million of them happened in the last half of the year, from August to December. It’s also worth noting that this is certainly nothing new. It has been estimated that about 40% of people have been laid off (or fired) from a job at least once in their lifetime, and about half the country experiences full-blown layoff anxiety on a regular basis.

Whether you are laid off or fired, the chances are high that you will quickly find yourself on unemployment. While this can absolutely provide some much-needed financial relief at an important part of your life, there are some things about potential tax implications that you’ll definitely want to be aware of moving forward.

Losing Your Job and Taxes: Breaking Things Down

Whenever people find themselves on unemployment, one of the first things they often ask themselves is whether that money is taxable. To put it simply, it likely is.

When you fill out your income taxes the following year, the IRS will require you to report any unemployment income that you received. You will do this with Form 1099-G. The vast majority of all states do tax this type of unemployment income, so it’s likely that you’ll have to pay something on it. The only exception to that is those states that don’t have any income taxes at all or those that have laws on the book that make unemployment benefits separate from regular income as far as tax purposes are concerned.

When it comes to actually paying any money owed from your unemployment benefits, one of the easiest ways to do it actually involves a choice that you’ll make when you sign up in the first place. At that time, you’ll be able to request that the government take 10% out of each check for the express purpose of being used to pay your taxes. If you don’t want to do that, you can also make estimated payments on a quarterly basis – similar to what you would do if you were self-employed.

Note that if you choose to go that second route, you will make estimated payments four times – on April 15, on June 15, on September 15, and on January 15. Note that if the 15^th falls on a Saturday, Sunday, or Holiday the due date moves to the next business day.

Additional Considerations About Unemployment Benefits and Income Taxes

Another critical thing to remember when it comes to unemployment benefits and your taxes is that signing up at all could impact your ability to get certain other tax credits that you might be depending on. The primary example of this is the Earned Income Tax Credit, otherwise known as the EITC.

Many people don’t realize that unemployment benefits are not actually considered to be earned income. Because of this, depending on how much money you received in unemployment, it could reduce your EITC amount – or prevent you from getting it at all.

The EITC is worth up to a maximum of $6,935, for example. Your credit amount may be reduced to the point where you don’t get it at all. The same is true of the Child Tax Credit or CTC, which is worth $2,000 per child for your 2022 taxes.

Finally, it’s important to understand that if you’re on unemployment due to the sudden loss of a job, it’s entirely possible that you took advantage of other government benefits throughout the year as well. Maybe you needed housing or childcare subsidies, for example, or you’re on SNAP benefits. If you’re worried that they’re taxable like unemployment benefits, don’t be – this typically is not the case.

Having said that, filing your income taxes can certainly be a complicated scenario in the best of years, but it is especially so once you start to enter things like unemployment benefits into the equation. This is why, if you have any questions, it’s always important to consult the help of trained financial professionals. They can eliminate all the guessing and confusion from the equation, allowing you access to every last dollar that you’re entitled to with as few potential issues as possible.

If you’d like to find out more information about unemployment benefits and the potential tax implications they bring with them, or if you have any additional questions you’d like to discuss with someone in a bit more detail, please don’t hesitate to contact us today.

Why Quality Bookkeeping Matters

If you had to make a list of all the things that most business owners hate, taking care of accounting and other financial matters is probably right at the top.

Yet at the same time, a lot of those same business owners are struggling. Maybe they had a financial goal that they fell significantly short of. Maybe they tried to release a new product or service and it underperformed.

Either way, much of this can be changed by returning to those records and making sure that they’re as accurate and as up-to-date as possible.

In no uncertain terms: 2022 is over. We’re well into the new year and if you’re still trying to get your books closed from last year, you’ve got a major problem on your hands.

Thankfully, all hope is not lost. There is a way that you can get caught up on things to make sure you’re on the right path from a financial point of view. You just may have to shift the way you’re used to thinking about what constitutes quality bookkeeping, to begin with.

The Benefits of Proper Bookkeeping: Breaking Things Down

One crucial thing to remember is that getting your books together for 2022 is about more than just retroactive financial maintenance. It can directly impact your business and its ability to function in the coming year, too.

If your records aren’t up-to-date, you can never really be certain where you stand financially. You could have a much, much more positive impression regarding how things are going compared to the reality of the situation. This is especially true if yours is a business that experiences seasonal fluctuations in terms of the income you’re bringing in and the work you’re doing for clients.

Speaking of that, without up-to-date records you also have no true idea of what you worked last year at all. This is about more than just figuring out how much money is sitting in a bank account somewhere. Knowing how much you’re working can help uncover trends and patterns that you likely would have missed. You can see who your biggest clients are, for example, and the ones that you absolutely want to hang onto. You can also see if you need to diversify your client base to avoid putting “all of your eggs in one basket.”

Up-to-date records can also help shed more visibility into the parts of your business that are working and, more importantly, which ones aren’t. If you started offering a new product or service in 2022, for example, it stands to reason that you would want to know as much about its performance as possible. The same is true if you’ve expanded your operations in a way that maybe isn’t generating as much money as possible. That way, you can double down on what is working and get rid of what isn’t as soon as you can in 2023. Without this type of insight, you’re really only making decisions on little more than gut instinct.

Finally, it’s likely that you’ve set out goals for yourself in terms of performance for the new year. They may not be achievable with all the processes and best practices you currently have in place, though. You may need to change to reach those goals and if that is the case, you need to know which direction you should be pivoting towards.

All of this is to say that you are truly doing yourself a massive disservice if your books and other essential records are not up-to-date. Again, these types of records are more than just a “necessary evil” or a “frustrating cost of doing business.” For your business to remain healthy and grow, you need the insight and information contained in these records to stay informed.

That’s why, if you are looking for a single step you can take to help improve your success, it’s this one. Spend the time to get your records up-to-date. Make sure the information contained in them is accurate. Put a process in place to help make sure those books stay accurate and, by all means, use that information in any way that you can in the future.

Truly, you would be surprised by just how much easier it is to plan and remain successful once you have done precisely that.

The Importance of Working With a Professional

If all of the above sounds like it is equal parts time-consuming and frustrating, that’s because it largely is. But it’s still one of the most important things that you can do to build a foundation of financial success for your organization – and it’s also a road that you don’t have to travel down alone.

Especially in the early days of a business, it’s natural for entrepreneurs to hang onto that “can-do spirit” and try to handle everything themselves. In a lot of ways, this is the mentality that got you so far in the first place. But you’re an expert in your industry – you’re not necessarily an expert in bookkeeping, nor can you be expected to be.

At the same time, you don’t want to take chances and do a poor job because it almost always guarantees that you’ll be making decisions based on inaccurate financials. Not only could this potentially inhibit growth, but it could actually cause the types of cash flow issues that cause many organizations to prematurely close their doors every year.

All of this is to say that once you realize the task is too much for you to handle, don’t be shy about bringing in a financial professional. At the very least, they can free up as much of your valuable time to focus on other daily aspects of your business – which for many is the most important benefit of all.

If you’d like to find out more information about why quality bookkeeping matters for small business success, or if you’d just like to talk about your needs with a professional in more detail, please don’t hesitate to contact us today.

It’s Not Too Late for an IRA Contribution

Article Highlights:

Contribution Due Date
Age Rules
Compensation Rules
When To Contribute
Contribution Limits
Deductibility & Benefits
Saver’s Credit
Choosing Between Traditional & Roth IRAs

Most of the time an expense that may be tax deductible needs to be paid by the end of the year for which the expense will be claimed. However, there is an exception to that rule. IRA contributions for the prior year can be made after the close of the year if made by the return’s original filing due date for the year. Thus IRA contributions for 2022 can made by April 18, 2023. Normally the due date would be April 15, 2023, but when the due date falls on a weekend or a holiday, the due date becomes the next business day. Since April 15, 2023 falls on a Saturday and Monday, April 17 is a holiday observed in Washington, D.C., the due date for 2023 returns becomes April 18. If you reside in a federally-declared disaster area the date may be extended past April 18.

There are several benefits to making an IRA contribution, the most important one being that you are putting money aside for your future retirement. The following is a rundown of the rules and tax tips relating to making IRA contributions and the potential tax benefits.

Age Rules – It used to be that you had to be under age 70½ at the end of the tax year to contribute to a traditional IRA. That is no longer the case after 2019, and contributions to a traditional IRA can be made at any age so long as you have earned income equal or greater than the IRA contribution. There has never been an age limit to contribute to a Roth IRA.

Compensation Rules – You must have taxable compensation, also termed earned income, to contribute to either a traditional or Roth IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses, and taxable alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.

Contribution Limits – In general, the most you can contribute to your IRA for 2022 is the smaller of either your taxable compensation for the year or $6,000. If you were age 50 or older at the end of 2022, the maximum you can contribute increases to $7,000. The limit applies to combined contributions to traditional and Roth IRAs, not each type. If you contribute more than these limits, an additional tax will apply. The additional tax is six percent of the excess amount contributed that is in your account at the end of the year.

Deductibility – Contributions to a traditional IRA are generally tax deductible, but the deductible amount phases out for taxpayers who are active participants in their employer’s retirement plan and whose adjusted gross income exceeds a threshold amount. (The “retirement plan” box in box 13 on your W-2 form from your employer will be checked if you are an active participant in your employer’s plan.) A higher phaseout threshold applies to unemployed spouses who make contributions based on the other spouse’s income. For 2022, the adjusted gross income (AGI) phaseout range is:

Filing Status	Phaseout Threshold	Fully Phased Out
Unmarried	$68,000	$78,000
Married Filing Jointly	$109,000	$129,000
Married Filing Separately	$0	$10,000
Spousal IRA	$204,000	$214,000

If you can deduct the traditional IRA contribution, it will lower your AGI, taxable income and tax liability. The amount of your AGI is used to limit certain other deductions and tax credits. So deductible IRA contributions are a way to reduce your AGI and potentially increase other deductions and credits. For example, if you are obtaining your health insurance from a Government Marketplace, lowering your AGI could actually increase the amount of your premium tax credit that helps to pay for your insurance.

Saver’s Credit – For lower income taxpayers, there is a tax credit that helps you pay for your IRA contribution.The credit is a percentage of your IRA contribution ranging from 50% to 10% of your first $2,000 of IRA contributions. If you are married, it applies to each spouse individually. For 2022, the credit applies to married taxpayers with an AGI less than $68,000, single taxpayers under $34,000 and head of household filers under $51,000.

Choosing Between Traditional & Roth IRAs – Generally distributions (except for non-deductible contributions) from traditional IRAs are taxable, while distributions from Roth IRAs are tax-free. This is because you can’t deduct contributions to Roth IRAs.

For more details on how an IRA contribution will impact your 2022 tax return, please give this office a call. We can also determine the effect at your tax appointment.

How Employee Stock Options Are Taxed

Article Highlights:

Non-statutory Option
Wage Income
Statutory (Incentive) Options
Capital Gains
Alternative Minimum Tax

Many companies, as an incentive to employees to help grow the companies’ market value, will offer stock options to key employees. The options give the employee the right to buy up to a specified number of shares of the company’s stock at a future date at a specific price. Generally, options are not immediately vested and must be held for a period of time before they can be exercised. Then, at some later date, and assuming the stock price has appreciated to a value higher than the option price of the stock, the employee can excise the options (buy the shares), paying the lower option price for the stock rather than the current market price. This gives the employee the opportunity to participate in the growth of the company through gains from the sale of the stock without the risk of ownership.

There are two basic types of employee stock options for tax purposes, a non-statutory option and a statutory option (also referred to as the incentive stock option), and their tax treatment is significantly different.

Non-statutory Option – The taxability of a non-statutory option occurs at the time the option is exercised. The gain is considered ordinary income (compensation) and is supposed to be included in the employee’s W-2 for the year of exercise. We say “supposed to be” because it is not uncommon to see smaller firms mishandle the reporting.

The employee has the option to sell or hold the stock he or she has just purchased, but regardless of what he or she does with the stock, the gain, which is the difference between the option price and market price of the stock at the time of the exercise, is immediately taxable. Because of the immediate taxation, most employees who have been granted options will, when exercising their options, immediately sell their stock. Under that scenario, the W-2 will reflect the profit and Form 8949 (the tax form used to report sales of stock and other capital assets) may need to be prepared to show the sale, essentially with no gain or loss, so that the gross proceeds of sale reported on the return are matched up with the sale reported to IRS (on Form 1099-B). If there was a sales cost, such as a broker’s commission, then the result would be a reportable loss, albeit usually a small amount. Since the difference between the option price and market price is included in wages, it is also subject to payroll taxes (FICA).

If an employee chooses to hold the stock, he or she would have to pay the tax on the difference between the option price and exercise price, plus the FICA tax, from other funds. If the stock subsequently declines in value, the employee is still stuck with the gain reported when the option was exercised. Any loss on the subsequent sale of the stock would be limited to the overall capital loss limitation of $3,000 per year.

Statutory (Incentive) Options – What makes the taxation of a statutory option different from a non-statutory option is that no amount of income is included in regular income when the option is exercised. Thus, the employee can continue to hold the stock without any tax liability; and, if he or she holds it long enough, any gain would become a long-term capital gain. To achieve long-term status, the stock must be held for:

More than 1 year after the stock option was exercised, and
More than 2 years after the option was granted.

The advantage of long-term capital gains is that they are taxed at lower maximum rates. For example, the capital gains tax rate is 15% for a taxpayer who might otherwise be in the 32% tax bracket.

There is a dark side to statutory options, however. The difference between the option price and market price, termed the spread, is what is called a preference item for alternative minimum tax (AMT) purposes. If the spread is great enough, that might cause the AMT to kick in for the year of exercise. If a taxpayer is already subject to the AMT, this would add to the tax; and, even if not, it might push him or her into the AMT. The current year AMT will be in addition to any tax when the stock is ultimately sold but will establish a higher tax basis for the AMT should it come into play in the year the stock is eventually sold. Not all AMT scenarios can be addressed in this article in detail, so additional guidance may be appropriate.

If the stock is sold before it achieves the long-term holding period requirements described above, the tax treatment is essentially the same as for a non-statutory option.

Restricted Stock – Under normal circumstances where an employer compensates an employee for his or her service in the form of stock, the excess of the fair market value of the stock over any amount paid for the stock is treated as income to the employee at the time he or she receives the stock.

However, if the stock is subject to substantial risk or forfeiture because it is restricted (cannot be sold) then income is deferred until the interest in the property either:

(1) is no longer subject to that risk, or

(2) becomes transferable free of the risk, whichever occurs earlier.

The employee has the option to include the FMV of restricted stock (less any amount paid for the stock) in income in the year the stock is received by filing the so-called Sec 83(b) election within 30 days of the transfer of the restricted stock. The amount of the income recognized as a result of the election is based on the fair market value (FMV) of the shares on the date of grant less any amount the employee paid for the stock. This amount becomes the basis of the stock. The stock’s FMV isn’t reduced to reflect the restrictions on the stock, unless there is a permanent limitation on the transfer of the stock that would require the employee to resell the stock to the employer at a price determined under a formula.

The benefit of making the election is to permanently fix the compensation element and then any appreciation over and above the basis (the compensation that was included in income) will be eligible for long-term capital gains rates if the stock is held for more than one year (two years if the stock is acquired from an incentive stock option). Caution: If the stock is subsequently forfeited, any loss is a capital loss subject the annual $3,000 overall capital loss limitation.

Code Sec. 83 governs the amount and timing of income inclusion for employer stock, transferred to an employee in connection with the performance of services. Under Code Sec. 83(a), an employee must generally recognize income for the tax year in which the employee’s right to the stock is transferable or isn’t subject to a substantial risk of forfeiture. The amount includible in income is the excess of the stock’s fair market value at the time of substantial vesting over the amount, if any, paid by the employee for the stock.

If you are planning to exercise employee stock options and have questions or wish to do some tax planning to minimize the tax bite, please give this office a call.

Are You Caring for a Disabled Family Member? Read This.

Article Highlights:

Caring for Disabled Family Members
Qualified Medicaid Waiver Payments
Exclusion Qualifications
Mandatory Exclusion
Earned Income
Earned Income Tax Credit
Tax Court Ruling

Many taxpayers prefer to care for ill or disabled family members in their homes as opposed to placing them in nursing homes, but doing this can be expensive, time-consuming, and exhausting. The government also recognizes home care as a means of reducing the government’s costs in terms of caring for individuals who otherwise would be institutionalized (because they require the type of care that is normally provided in a hospital, nursing facility, or intermediate care facility).

To promote home care and reduce the government’s institutional care expenses, Medicaid (through state agencies) pays home caregivers a small amount of compensation, referred to as a Medicaid waiver payment, to care for an individual in the care provider’s home.

Originally the IRS took the position that these payments were taxable income to the caregiver. Back in 2014, the IRS changed its position and announced that, if the care met certain requirements, the compensation would be excludable and treated in the same manner as excludable difficulty-of-care payments under the foster care payments rule. This is the case even when the caregiver and the individual being cared for are related.

The compensation exclusion applies if the following requirements are met:

The compensation must be required due to a physical, mental, or emotional handicap with respect to which the State has determined that there is a need for additional compensation.
The care must be provided in the care provider’s home. The “provider’s home” may be the care recipient’s home if the care provider resides there and regularly performs the routines of the provider’s private life, such as sharing meals and holidays with family. In contrast a care provider who sleeps at the care recipient’s home several nights a week but on weekends and holidays resides with his or her own family in a separate home would not be providing the care in the care provider’s home and would not qualify to exclude the Medicaid waiver payments received.
The payments must be designated as compensation for qualified foster care or difficulty of care.
To be excludable, the care payments are limited to a maximum of five individuals aged 19 and older or ten individuals aged 18 and younger.

Since these payments are treated the same as qualified foster care difficulty-of-care payments, and since compensation for qualified foster care payments is mandatorily excluded, Medicaid waiver payments are also mandatorily excluded. That is, the care provider receiving these payments may not choose to include them in income.

When the IRS originally ruled that the compensation was excludable from income that meant it was no longer earned income and thus lower-income caregivers who were previously able to qualify for the earned income tax credit (EITC) based on the compensation would no longer be eligible for EITC.

The EITC is a refundable federal tax credit for lower-income taxpayers with earned income. The amount of credit is based on income and increases based on the number of children that the taxpayer has (qualified children include those under age 19 and full-time students under the age of 24; there is no age limit when the child is permanently and totally disabled).

Lucky for all Medicaid waiver payment recipients, one recipient took the IRS to Tax Court over the earned income issue. The taxpayers in that court case received payments under a state Medicaid waiver program for providing care to their adult disabled children in the family home and excluded the Medicaid waiver payments from income but still treated them as earned income when computing the EITC, disregarding the IRS’s position that excluded payments were no longer earned income. The IRS subsequently disallowed the credit, and the taxpayers filed a timely Tax Court petition.

The Tax Court held that the IRS could not reclassify the taxpayer’s Medicaid waiver payment to remove a statutory tax benefit provided by Congress. The IRS subsequently conceded to the court ruling so that even though the compensation is excluded from income it still retains it character as earned income and is to be used to determine the EITC if a taxpayer otherwise qualifies.

As you can see, the impact of the exclusion can be quite different depending upon your circumstances. If you are receiving Medicaid waiver payments and have not yet dealt with the exclusion, please call this office to see how excluding these payments might affect you.

Don’t Ignore Household Employee Payroll Tax Rules

Article Highlights:

Household Employees
Tax Avoidance
Form 1099-K
Filing 1099s
Correct Procedures
W-2s, Payroll Taxes and Reporting
Overtime
Hourly Pay or Salary
Separate Payrolls

If you hire a domestic worker to provide services in or around your home, you probably have a tax liability that you don’t know about – or one that you do know about but are ignoring. Either situation can come back to bite you. When the worker is your employee, your liability includes both withholding and paying payroll taxes as well as issuing a W-2 after the close of the year.

Sure, it is a lot easier simply to pay your worker in cash so as to avoid federal and state payroll taxes – and all the paperwork that goes with them. Your domestic worker will likely be fully cooperative with a cash deal because he or she can also avoid paying taxes. However, if the IRS or your state employment department finds out about these payments, the result could be very unpleasant for you.

Some families may be paying their household help via a third-party payment processor such as PayPal, Venmo, etc. Beginning for the 2023 tax year these payment processors must begin reporting those payments (on Form 1099-K) when the total for the year exceeds $600.

Not everyone who performs services in or around your home is classified as an employee. For instance, a plumber or electrician who makes repairs in your home will generally be a licensed contractor; the government does not classify contractors as employees.

On the other hand, the IRS has conclusively ruled that nannies, housekeepers, senior caregivers, some gardeners and various other domestic workers are employees of the people for whom they work. It makes no difference if you have a written contract with the worker; similarly, the number of hours worked, and the amount paid do not matter.

You are probably thinking, “Wait a minute” – perhaps everyone you know pays in cash, and none of them has paid payroll taxes or issued a W-2 for a household employee. However, if a worker gets injured on your property or if you dismiss the worker under less-than-amicable circumstances, it’s a pretty sure bet that your household employee will be the first one to throw you under the bus by reporting you to the state labor board or by filing for unemployment compensation.

Generally, an unemployment insurance claim form requires the worker to list all employers and wage amounts to get benefits. That, in turn, creates a letter audit to collect state employment taxes and a referral to the IRS to collect federal employment taxes (FICA and FUTA).

Some individuals try to circumvent the payroll issue by treating a household employee as an independent contractor, incorrectly issuing the household employee a Form 1099-NEC.

The easiest way to comply with the law, both federal and state, is to engage a payroll company to make the payroll payments and take care of the paperwork and required filings.

If you are a do-it-yourselfer, here are the correct actions you should take for domestic employees:

Obtain a Federal Employer Identification Number (FEIN), which you will use in lieu of your Social Security Number when filing the required reporting forms. Note: If, as the owner of a sole proprietorship business, you already have a FEIN, you should use that number instead of requesting a separate one as a household employer.
Obtain a state ID number for unemployment insurance and state tax withholdings.
Withhold Social Security and Medicare taxes from the employee’s pay if it exceeds the annual threshold ($2,600 for 2023).
Withhold income tax from the employee if requested by the worker and if you agree to do so.
File state employment tax returns as required – generally quarterly (although beware that some states require monthly returns) – and make the required deposits for state employment taxes.
Prepare a W-2 for the employee and a W-3 transmittal; file them by the end of January.
File Schedule H with your federal individual income tax return and pay all the federal payroll and withholding taxes (i.e., the federal taxes that you withheld from the employee’s pay, plus your matching share of Social Security and Medicare taxes plus federal unemployment tax, which is entirely your responsibility). Limited exception: If you operate a sole proprietorship with employees, you may include the payroll taxes of your household workers with those of the business’s employees, but you cannot take a business deduction for those taxes. Generally, it is better to keep the personal and business reporting separate.

Some additional issues to consider are as follows:

Overtime – Under the Fair Labor Standards Act, domestic employees are nonexempt workers and are entitled to overtime pay after working 40 hours in a week. Live-in employees are an exception to this rule in most states.

Hourly Pay or Salary – It is illegal to treat nonexempt employees as if they are salaried.

Separate Payrolls – If you own a business with a payroll, you may be tempted to include your household employees on the company’s payroll. The payments to the household employees are personal expenses, however, and are not allowable deductions for a business. Thus, you must maintain a separate payroll for household employees; in other words, you must use personal funds to pay household workers instead of paying them from a business account.

Eligibility to Work in the U.S. – It is illegal to knowingly hire or continue to employ an alien who is not legally eligible to work in the U.S. When hiring a household employee who works on a regular basis, you and the employee each must complete Form I-9 (Employment Eligibility Verification). You will need to examine the documents that the employee presents to establish the employee’s identity and employment eligibility.

Other Issues – Special situations not covered in this overview include how to handle workers hired through an agency, how to gross up wages if you choose to pay an employee’s share of Social Security and Medicare taxes, and how to treat noncash wages.

Please call this office if you would like assistance with your household employee tax and reporting requirements or with any special issues that apply to your state.

Can’t Pay Your Taxes? Here Are Some Options

Article Highlights:

If You Can’t Pay
Automatic Extension in Federally Declared Disaster Areas
Family Loans
Home Equity Loans and HELOCs
Credit Card
Short-term Payment Plan
IRS Installment Agreement
Retirement Funds
Filing Extensions
Enforced Collections
Offer-in-Compromise

About 3 out of 4 American taxpayers receive a refund each year when they file their income tax returns, but there are those who for one reason or another end up owing. Of those who owe Uncle Sam many don’t have the means to pay what they owe by the return due date (usually in April).

NOTE: If you live in a federally declared disaster area the due date may have been automatically extended. The extension will apply if you reside in the disaster area, and you need not be directly affected by the disaster to qualify. Check the IRS website at Tax Disaster Relief Situations for areas that have disaster filing relief extensions. For example, taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments. Thus if you owe federal income tax, you have until Oct. 16, 2023, to pay your tax liability. Call this office to confirm you qualify and for information related to state disaster relief due date postponements.

Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual failed to make adequate estimated tax payments during the year. This can be a huge problem for those who are unable to pay their liability.

It is generally in your best interest to make other arrangements to obtain the funds for paying your 2022 taxes rather than be subjected to the government’s penalties and interest for payments made after April 18, 2023. Here are a few options to consider.

Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
Home Equity Loans and HELOCs – Use the equity in your home—that is, the difference between your home’s value and your mortgage balance—as collateral. As the loans are secured against the equity value of your home, home equity loans offer extremely competitive interest rates—usually close to those of first mortgages. Compared with unsecured borrowing sources, such as credit cards, you’ll be paying less in financing fees for the same loan amount. Unfortunately, obtaining these loans takes time, so if you anticipate that you’ll need funds from such a loan to pay your taxes that are due in April, you should get the application process started right away.
Rob a Bank – If you don’t get caught you don’t have to pay back any loan. Just kidding.
Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the fees due and pay the higher credit card interest rates.
Short-Term Payment Plan – If you can fully pay the tax owed within 180 days and owe less than $100,000 including tax, penalties, and interest, you can apply for a short-term payment plan online at the IRS web site. You won’t be charged a set-up fee but will still have to pay penalties and interest until the balance owed is fully paid. Set-up fees will be charged if you apply for a payment plan by phone, mail, or in person instead of online.
IRS Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.
Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement lifestyle and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.

Filing Extensions – Don’t mistake the ability to apply for an extension of time to file your tax return as also being an extension to pay any tax liability. It is not and does not grant you an extension of time to pay. The penalties and interest on the amount due will continue to apply as of the original due date of the return.

Enforced Collections – If the taxes cannot be paid timely, and the IRS is not notified why the taxes cannot be paid, the law requires that enforcement action be taken, which could include the following:

Issuing a Notice of Levy on salary and other income, bank accounts or property (IRS can legally seize property to satisfy the tax debt).
Assessing a Trust Fund Recovery Penalty for certain unpaid employment taxes.
Issuing a Summons to the taxpayer or third parties to secure information to prepare unfiled tax returns or determine the taxpayer’s ability to pay.

Note: To collect delinquent tax debts, certain federal payments (vendor, OPM, SSA, federal salary, and federal employee travel) disbursed by the Department of the Treasury, Bureau of Fiscal Service (BFS)) may be subject to a levy through the Federal Payment Levy Program (FPLP).

Fresh Start Initiative – The IRS also has what is called the “Fresh Start” initiative to offer more flexible terms in its existing Offer-in-Compromise program which, under certain circumstances allows taxpayers to settle their tax debt for reduced amounts. This enables financially distressed taxpayers to clear up their tax problems faster than in the past. While resolving tax problems might previously have taken four or five years, taxpayers may now be able to resolve their problems in as little as two years.

If you have questions about the payment options or an offer-in-compromise, please call this office for assistance. Don’t just ignore your tax liability because that is the worst thing you can do.

Tilman Fertitta and the Journey Towards Becoming One of the Wealthiest Restaurateurs on Earth

According to one recent study, the global food service market size was valued at an impressive $2.3 trillion as of 2021. That number is expected to grow to an incredible $5.1 trillion by the end of the decade.

In recent years, many restaurateurs in the United States in particular have become almost as notable as their creations themselves. Decades ago, you’d be hard-pressed to point out at least one person who owned a restaurant or one “celebrity chef,” let alone multiple. After amassing a $5 billion restaurant empire (along with casinos and sports), Tilman Fertitta is one person who has been able to breathe that rarified air.

But he didn’t always start out as one of the most successful (not to mention one of the most wealthy) restaurateurs in the world. Once upon a time, he was just a young kid with a simple dream… and a briefcase to match.

The Life and Times of Tilman Fertitta: Breaking Things Down

Tilman himself was born in Texas in 1957. From the time that he was a young man, he always seemed destined to be an entrepreneur of some kind. It just took him a while to turn that natural business savvy into a veritable empire.

After graduating from both Texas Tech University and the University of Houston, Tilman started out selling vitamins. Then, in the 1980s, he founded and ran his own construction and development business. Here, he was so successful that he was actually behind a notable property in Galveston – the Key Largo Hotel.

But still, something wasn’t quite right with where he ended up. Most other people would be overwhelmed and overjoyed by the success. But Tilman Fertitta wanted something more.

In the late 1980s, he took his existing success and purchased a small restaurant company based out of Houston. It was called Landry’s. From there, he almost immediately began to execute a straightforward “roll-up” strategy. Flash forward just a few years and that single restaurant had grown into 522. The company behind it owned not only the restaurants but also a massive number of notable brands including Saltgrass Steak House, Del Frisco’s, Bubba Gump Shrimp Company, and others.

One quality that sustained Tilman throughout the early days of his career – and that is still present to this day – is a sense of modesty. Yes, he’s aware of how successful he is and how much money is in his bank account. But while he likes to joke that he got this far because he’s the “smartest guy in the room,” in interviews he has admitted that this really isn’t the case.

What he may be is the most notable personality in the room, as his face is present on the website of just about every brand that the company owns. He’s also a noted television personality and the owner of an NBA basketball team.

Instead, Tilman just says that he does “more things better” than anybody else in the room. Whether you take that to mean that he’s a harder worker, a Jack of all trades, or some combination of these things doesn’t matter – the results speak for themselves.

At this point, it’s almost something of a misnomer to call Tilman Fertitta strictly a “restaurateur.” In addition to being the owner of Landry’s, Inc. and the Houston Rockets, he’s also the star of “Billion Dollar Buyer.” He’s been recognized by the International Hospitality Institute for his various hotels around the world. He bought his first Golden Nugget Casinos in 2005, notably in both Las Vegas and Laughlin. You’d be hard-pressed to find some type of industry that he doesn’t have his hand in, and that may very well indeed be the point.

He took the same passion that he had as a young man, fresh out of school and selling vitamins, and applied it to everything that he got involved in. When that perseverance finally paid off with the success of Landry’s, he proved that he was never one to rest on his laurels. He kept going.

He continued to build up that which he already had while also expanding into new enterprises and fields. Yes, he had significant losses along the way – the same is true of any entrepreneur. But every time he lost, he would try again. Every time he fell down, he would get back up.

In short, people have already learned a lot from the life and career of Tilman Fertitta, and they will continue to do so for years to come.

5 Tips for New and Confused QuickBooks Users

Brand new to QuickBooks? Or just struggling with it? Here are five things you can do to get more comfortable with the software.

Learning new software is always a challenge. You have to learn the lay of the land before you can start working with it. How do I do this? How does the menu system work? How can I enter data without making a mistake?

The learning process for financial software for your small business can be especially unnerving. Your livelihood depends on getting everything right. A mistake in an invoice you’re creating is more serious than using incorrect grammar or punctuation in a letter.

We recommend that you let us give you a good introduction to QuickBooks, so you get the program set up correctly and learn the most basic, often-used functions. In the meantime, here are five things you can do to start getting your feet wet.

Familiarize yourself with QuickBooks’ lists

You’ll consult and use lists a lot in QuickBooks. Transaction forms offer access to data you’ve already created and will use. When you need to select a customer, for example, you can just open a drop-down list and click on one.

QuickBooks also provides free-standing lists that you might need to use outside of transactions, though they’re often available there, too. Open the Lists menu to see them. They include Item List, Sales Tax Code List, and Class List. Click on one to open it, and you’ll see a series of menus running across the bottom of the window. They allow you to, for example, add or edit items, take actions like entering a sales receipt, and run related reports.

The Item List

Troubleshoot transactions

What do you do when you know you’ve entered a transaction but you can’t find it? QuickBooks has good search tools, but sometimes you don’t have enough details to hunt effectively for the missing invoice, bill, etc. There are two reports that can help.

It’s possible that the transaction you’re seeking was accidentally voided or deleted. Open the Reports menu and select Accountant & Taxes | Voided/Deleted Transactions Summary or Detail. If you have an idea of when the original transaction was entered, change the date range at the top of the screen. You really shouldn’t have many of these. If you do, let us help you determine why this is happening so frequently. You can get into some trouble if you void or delete transactions to solve a problem that should be resolved another way.

While you’re in the Accountant & Taxes report list, open the Audit Trail. This is a listing of transactions that have been entered or modified, when, and by whom. If you have multiple users accessing and working with QuickBooks data, you should get to know this report.

Work with windows

Every time you open a window in QuickBooks, it stays open. You can always close it by clicking the X in the upper right corner of the window – not the program X in the farthest upper right corner. If you have a lot of windows open, all of that clicking can become tiresome.

Open the Window menu to see your options there. You’ll see a list of all the windows that are open. Click on one to go there. You can also “tile” the windows vertically or horizontally so they overlap each other on the screen or “cascade” them, which places them on top of each other with only the window label showing. And you can close all of them at once by clicking Close All.

Use “local” menus

Most QuickBooks windows provide ways for you to take a related action. But most also offer “local” menus, or right-click menus. Open an invoice form to see how this works (Customers | Customer Center | Transactions | Invoices). Right click in the header of the invoice. Your menu options here include:

Duplicate Invoice
Memorize Invoice
Transaction History, and
Receive Payments.

You’ll also find these commands and more in the toolbar at the top of the window.

Table

Description automatically generated

A local menu in an invoice

Practice with a QuickBooks sample file

Before you start entering real data in QuickBooks, or if you’ve already done so and you want to try out a new feature without risking an error, use one of QuickBooks’ sample files. That’s why they’re there.

You can open one of these when you’re loading QuickBooks. You’ll see a window labeled No Company Open. Click the arrow in the box on the lower right that says Open a sample file. You can choose between a product- and service-based business.

Once you’re in QuickBooks, you can switch back and forth between your company file and a sample file by opening the File menu. Click Open Previous Company and select from the list. It should be obvious, but be sure you’re in the correct QuickBooks file before doing anything.

How’s It Going?

If you’ve been using QuickBooks for a while, how are you doing with it? Are you struggling with any functions? Feeling like you’re not using as much of the software as you should? Thinking that you’re outgrowing it and need to move up to a more senior version? Or are you having a hard time upgrading to QuickBooks 2023? We can help in all of these situations. Contact us, and we can set up a meeting or a series of them to make your accounting experience more productive and effective, and faster.

April 2023 Individual Due Dates

Disaster Area Extensions:

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations
IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

For example, disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

April 10 – Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during March, you are required to report them to your employer on IRS Form 4070 no later than April 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

April 18 – Taxpayers with Foreign Financial Interests

A U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114. The form must be filed electronically; paper forms are not allowed. The form must be filed with the Treasury Department (not the IRS) no later than April 18, 2023, for 2022. An extension of time to file of up to 6 months is automatically allowed. This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2022. Contact our office for additional information and assistance filing the form.

April 18 – Individual Tax Returns Due

Although April 15 is on a Saturday in 2022, and individual income tax returns would normally be due that day, because the Washington, D.C. Emancipation Day holiday is observed on Monday April 17, the due date is pushed to Tuesday, April 18.

File a 2022 income tax return (Form 1040 or 1040-SR) and pay any tax due. If you want an automatic six-month extension of time to file the return, please call this office.

Caution: The extension gives you until October 16, 2023, to file your 2022 1040 or 1040-SR return without being liable for the late filing penalty. However, it does not avoid the late payment penalty; thus, if you owe money, the late payment penalty can be severe, so you are encouraged to file as soon as possible to minimize that penalty. Also, you will owe interest, figured from the original due date until the tax is paid. If you have a refund, there is no penalty; however, you are giving the government a free loan, since they will only pay interest starting 45 days after the return is filed. Please call this office to discuss your individual situation if you are unable to file by the April 18 due date.

April 18 – Last Day to Establish a Keogh Account for 2022

If you are self-employed, April 18, 2023, is the last day to establish a Keogh Retirement Account if you plan to contribute for 2022. However, the last day can be extended until October 16, 2023, with a valid six-month extension of time to file your individual 2022 tax return.

April 18 – Household Employer Return Due

If you paid cash wages of $2,400 or more in 2022 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040 or 1040-SR), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2021 or 2022 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office.

April 18 – Estimated Tax Payment Due (Individuals)

It’s time to make your first quarter estimated tax installment payment for the 2023 tax year. Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

Payroll withholding for employees;
Pension withholding for retirees; and
Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

CAUTION: Some state de minimis amounts, safe harbor estimate rules, and the dates estimate payments are due are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

April 18 – Last Day to Make Contributions

Last day to make contributions to Traditional and Roth IRAs for tax year 2022.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

April 2023 Business Due Dates

Disaster Area Extensions:

FEMA: https://www.fema.gov/disaster/declarations

IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

April 18 – Household Employer Return Due

April 18 – C-Corporations

File a 2022 calendar year income tax return (Form 1120) and pay any tax due. If you need an automatic 6 -month extension of time to file the return, file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns, and deposit what you estimate you owe. Filing this extension protects you from late filing penalties but not late payment penalties, so it is important that you estimate your liability and deposit it using the instructions on Form 7004.

April 18- Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in March.

April 18 – Non-Payroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in March.

April 18 – C-Corporations

The first installment of 2023 estimated tax of a calendar year corporation is due.

April 18 – Fiduciary Returns

Last day to file a 2022calendar year fiduciary return (Form 1041, U.S. Income Tax Return of Estates and Trusts) or file an extension.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.