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Archives for December 2019

Do You Need to File Information Returns?

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Do you need to file information returns or are you expecting to receive these forms to file your taxes? Every January we receive a series of questions related to the requirement to file information returns and what qualifies.

Below is an overview of whether you should prepare and remit information returns or if you should plan to receive one prior to filing.

If you made or received a payment in a calendar year as a small business or self-employed individual, you most likely are required to file an information return to the IRS.  BGMF CPAs assists clients in preparing the necessary forms to ensure compliance with the IRS.  Contact us if you need help in January with form filings or have questions.

If you engaged in certain financial transactions during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS.

Below are some of the transactions that you have to report.

  • Services performed by independent contractors — those not employed by your business.
  • Prizes and awards, as well as certain other payments — termed other income.
  • Rent.
  • Royalties.
  • Backup withholding or federal income tax withheld.
  • Payments to physicians, physicians’ corporation or other suppliers of health and medical services.
  • Substitute dividends or tax-exempt interest payments, and you are a broker.
  • Crop insurance proceeds.
  • Gross proceeds of $600 or more paid to an attorney.
  • Interest on a business debt to someone (excluding interest on an obligation issued by an individual.
  • Dividends and other distributions to a company shareholder.
  • Distribution from a retirement or profit plan, or from an IRA or insurance contract.
  • Payments to merchants or other entities in settlement of reportable payable transactions — any payment card or third-party network transaction.

Review the IRS guide to information returns.

Being in receipt of a payment may also require you to file an information return. Some examples include:

  • Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals.
  • Sale or exchange of real estate.
  • You are a broker and you sold a covered security belonging to your customer.
  • You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others.
  • You released someone from paying a debt secured by property, or someone abandoned property that was subject to the debt or otherwise forgave their debt to you (1099-C).
  • You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than in a permanent retail establishment.

Keep in mind that information is for businesses and not all types of business entities are required to receive various information returns. You will not have to file an information return if you are not engaged in a trade or business. You also will not have to file an information return if you are engaged in a trade or business and 1) the payment was made to another business that’s incorporated, but wasn’t for medical or legal services or 2) the sum of all payments made to the person or unincorporated business was less than $600 in one tax year.

In addition, a question that arises often is what if I don’t receive a 1099 for income earned because it was less than the thresholds?  The answer is you are still required to report the income on your tax return whether you receive an information form (i.e. 1099-Misc) or not.

Finally, if your company does business in a foreign country, has a bank account or assets outside the United States, there may be additional informational filing requirements that must be completed. The new tax laws brought many changes to foreign filing requirements.

This is just an introduction to a complicated topic, and the mechanics of filing such a return are filled with essential details. If you’re running a business, even a small one, be sure to discuss the details with one of our qualified professionals today!

Tax Planning and Strategies to Pay Less Tax

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tax saving strategiesYear-end is upon us again! Time to celebrate the holidays with family and friends, set those new year resolutions and of course do some tax planning!

Is tax planning a must? That is an excellent question and depends on your strategy to expand and grow your business and wealth.  BGMF CPAs always recommends tax planning in your strategy.

Waiting to plan when you file your taxes is not a good course of action. There isn’t much to do at that point to ensure you don’t overpay. It’s your money, not the governments and the tax law is written primarily to reduce your taxes.

Taxes are stealing your money (sometimes up to 50% or more), time and future so now is the time to stop the bleeding. Ever wonder where your money goes? We’ve seen a lot of changes in tax laws the last decade and we find that many tend to ignore the realities. This is due to a variety of factors, such as not understanding the tax code and how to make it work for them or trying to plan alone.

I’ll have you consider that the tax law is a map to vast amounts of wealth. If you follow the law carefully, you will be shocked to uncover secrets within the code which can allow you to amass huge amounts of cash flow and wealth.  The reason for this relates back to the government wanting the economy to grow through investment and spending in various sectors.

What you make is important, but even more so is what you keep. That is where your advisors come into play. A high-quality advisor will help you navigate the tax code to keep more of your hard-earned money and make better investment decisions.

Taxes Are a Major Expense & What You Can Do to Save

Consider that taxes are one of your biggest expenses and too many people ignore taxes in their strategy. When you meet with our tax planning team, we’ll look at a variety of factors, but we’ve boiled tax savings into a few different categories; type of taxpayer, changing the year, type of income, changing the deductions.

As a business owner or investor, we’ll review entity structure and if changing the taxpayer makes sense (i.e. switch to a C Corporation). We’ll also consider the year in which income and expenses occur to plan accordingly for deductions and credits. In addition, we’ll review type of income and deductions that are either being taken or not utilized.  For example, are you truly taking advantage of all expenses that could be considered legitimate business deductions (i.e. travel, home office)?

As an individual, we’ll review your overall situation to determine where you can save in taxes. In addition, we’ll review any major changes in your life such as getting married, having children, buying a home, college planning, divorce, retirement or other.  We’ll also discuss potential opportunities that may not be as apparent such as areas to invest, starting a business or taking advantage of deductions and credits that you may be missing.

We also work with your other advisors so everyone on your team is working in unison to keep money in your pocket.

How to Hire a Tax Advisor

When hiring an advisor to review tax planning with you, beware of those who promise to lower your taxes and cross the line to cheating.  There are plenty of legal ways to reduce taxes with the right plan.

Tax advisors and CPAs come with a variety of skill sets and beware of advisors who aren’t willing to understand the code to utilize the tax saving strategies available. Ask a lot of questions and ensure you’re comfortable and confident with the team you’re working with.

In summary, we’ll leave you to consider this – taxes are unique to each individual and based on your specific facts and circumstances. Change those and you will change your tax!

In other posts, we’ll provide specific tax saving strategies, but this overview of why tax planning is important will help you take the right steps prior to year end to ensure you have the opportunity to save in taxes now!

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Schedule a consult with one of our advisors today