June Tidbits
Form W-9
Form W-9 should be obtained from all vendors who provide services for your business. Have your vendors complete Form W-9 BEFORE any payments are made.
Failure to obtain a Form W-9 before paying someone for services comes at a severe price. The IRS can fine you a 28% backup withholding for failure to obtain signed Form W-9s for payments of $600 or more, a $100 penalty for failure to file each Form 1099 for payments of $600 or more, and a $100 penalty for failure to furnish each Form 1099 to recipients of payments of $600 or more. This has happened to businesses in New England whereby they have been fined thousands of dollars for dereliction of filing. The W-9 forms should be retained in your office and used to prepare your 1099s in January.
Child and Dependent Care Tax Credit
If you pay for childcare or day camps in the summer while you work, this tax credit may apply to you. Your costs may qualify for a federal tax credit that can lower your taxes. Below are 10 facts that you should know about the Child and Dependent Care Credit:
- Your expenses must be for the care of one or more qualifying dependent child or children under age 13. For more about this rule see Publication 503, Child and Dependent Care Expenses.
- Your expenses for care must be work-related: so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student or, if they are physically or mentally incapable of self-care.
- You must have earned income, such as from wages, salaries, tips or self-employment. If you file jointly, your spouse must also have earned income. Your spouse is considered as having earned income for any month that they are a full-time student or incapable of self-care. See Publication 503 for more details.
- If you are married, you must file a joint return to take the credit. This rule does not apply if you are legally separated or if you and your spouse live apart.
- You may qualify for this credit whether you pay for care at home, a facility or at a day camp.
- The maximum credit is 35 percent of the qualified expenses you pay depending on your income.
- The total expense that you can use for the credit in a year is limited to $3,000 for one qualifying person or $6,000 for two or more.
- Overnight camp or summer school tutoring costs do not qualify for this tax credit. Additionally, you can not include the cost of care provided by your spouse or your child who is under age 19 at the end of the year or a person you can claim as your dependent. There are special rules that apply if you get dependent care benefits from your employer.
- Keep all your receipts and records, noting the name, address and Social Security number or employer identification number of the care provider. You will need to report this information when you claim the credit on your tax return.
- Remember, you may be able to claim this credit for care you pay for throughout the year not just a summer tax benefit.
Prepare for Hurricanes or Other Disasters by Safeguarding Tax Records
With the start of hurricane season this month, the Internal Revenue Service encourages individuals and businesses to safeguard their records against natural disasters by taking a few simple steps.
Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place away from the original set.
Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies, etc. –– is easier now that many financial institutions provide statements and documents electronically. If original records are provided only on paper, they can be scanned into an electronic format. With documents in an electronic form, taxpayers can: save to the cloud, download to a backup storage device, or burn them to a CD or DVD.
Document Valuables
Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of their home. The IRS has a disaster loss workbook, see Publication 584, which can help taxpayers compile a room-by-room list of belongings.
Photographic records can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored outside the area.
Update Emergency Plans
Emergency plans should be reviewed periodically since personal and business situations change over time as do preparedness needs. For example, when employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask their provider if it has a fiduciary bond in place. This bond could protect the employer in the event of default by the payroll service provider.
IRS
An affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. We encourage our clients to call us with any questions.
Foreign Investments Filing
Report of foreign bank and financial accounts (FBAR) is due June 30, 2014.
If a taxpayer has a foreign bank or brokerage account, they may have a reporting requirement. Federal Form FIN CEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR) is used to report financial interest, signature authority or other authority in any foreign account valued at over $10,000. This form must be filed by June 30th and may not be extended. Please contact our office if an FBAR filing is required.
Spring 2014 Statistics of Income Bulletin
The Internal Revenue Service announced earlier this month that the spring 2014 issue of the Statistics of Income (SOI) Bulletin is now available, featuring information on high-income individual income tax returns filed for tax year 2011.
Taxpayers filed almost 5 million returns with adjusted gross incomes of $200,000 or more for 2011, up over 9 percent from 2010. These high-income returns represent about 3 percent of all returns filed in 2011.
Articles included in the quarterly publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers. Below are some interesting topics included in this most recent publication:
Individual Income Tax Rates and Shares, 2011: Of the 145 million individual tax returns filed in tax year 2011, almost 92 million were classified as taxable returns or returns with a total income tax greater than $0. Adjusted gross income (AGI) for taxable returns was nearly $7.7 trillion, up 6 percent from the prior year. Total income tax was more than $1 trillion. To be included in the top 1 percent of returns for 2011 required an AGI of $388,905.
Individual Noncash Contributions, 2011: For tax year 2011, there were more than 22 million individual taxpayers who reported a total of $43.6 billion in deductions for noncash charitable contributions. About a third (7.5 million) of these taxpayers reported nearly $39 billion in deductions for charitable contributions of $500 or more.
Individual Foreign-Earned Income and Foreign Tax Credit, 2011: Nearly 450,000 U.S. taxpayers reported $54 billion of foreign-earned income for tax year 2011. This represented growth in real terms of over 32 percent since the last study in 2006.
