New Partnership Rules

Gear up for new partnership rulesnew-partnership-rules

No one likes to hear “audit” and “IRS” in the same sentence. But when the rules change, you need to be prepared — and change is definitely what has happened to IRS partnership audit rules. Here’s an overview.

Under the old rules, the IRS audited partnerships using three sets of procedures based primarily on the number of partners. Those procedures have been replaced with a single set of rules that apply to all partnerships. The major change: Under this new approach, adjustments made by the IRS during an audit of a partnership will be applied to the partnership instead of the individual partners. That means your partnership will have to pay any amount due related to the adjustment. Since the tax will be payable in the year the audit is completed, the current partners will bear the burden.

If your partnership is made up of 100 or fewer partners, you can elect out of the new rules when you meet certain requirements. Once you opt out, your partnership and partners will be audited under the rules that apply to individual taxpayers.

The new rules take effect for returns you file for your partnership beginning after 2017, though you can choose to apply many of them for tax years beginning after November 2, 2015.

What do you need to do now? One smart move is to update your partnership agreement to reflect the changes.

Contact us for information. We’ll work with your attorney to make sure you’re in compliance with the new rules.

Tax, Business Resources, Financial Strategies & Tips

Check the Harvey & Caldwell Resource Page

Updated weekly with tips for business owners, taxes and financial strategies to help you make money and keep it. If you have questions please contact us @ (913) 451-4400.


Business Tip of The Month

Online Advisor Taxes, Business & Financial Strategies

Online Advisor Taxes, Business & Financial Strategies

Tax Tip Of The Week

Tax Tip Of The Week

Tax Planning Letter

Tax Planning Letter

2016 Tax Guide

2016 Tax Guide

Tax Refund Tracker

Tax Refund Tracker

Mobile Banking Requires Vigilance

According to a Federal Reserve Board study, over the course of a year, 43% of mobile phone owners with a bank account used mobile banking. Of smartphone owners, 53% used mobile banking. At the same time, 24% of all mobile phone users believed personal information was “somewhat unsafe” when using mobile banking. If you’re one of them, you understand that no system is perfect, and you’re wise to be vigilant. How can you protect yourself against mobile banking fraud? Here are tips.

Secure your device. Don’t provide an opportunity for thieves. Aside from physical safeguards to keep your phone or tablet safe, use password protection that prevents access to the device itself. Customize your privacy preferences and set your keypad to lock when you’re not using your phone. Consider restricting location-tracking apps.

Beware of bogus apps. Before downloading and installing a banking application to your smartphone, make sure it’s genuine. Confirm that the developer’s name matches the name of your financial institution. Beware of unauthorized third party applications.

Make use of defensive measures. Update and use your anti-virus software. Install a security app so you can locate, disable, and erase a phone that’s stolen. Make secure backups of your phone’s data to online storage or your home computer.

Protect your logins. Don’t share user IDs, passwords, or banking account numbers. Keep such information in a secure place. Don’t respond to text messages or emails asking you to provide or confirm confidential data.

Monitor your accounts. Review all mobile banking transactions on a regular basis to detect suspicious activity. If something seems amiss, give your financial institution a call. And if your smartphone is lost or stolen, have the device’s number removed from your mobile banking profile.

Need more fraud prevention suggestions? Contact us for assistance.

Save on Business Travel Costs

While nurturing relationships

You may view corporate travel as a necessary evil. But you also know that successful companies thrive on relationships, and nurturing those relationships can require face-to-face contact with clients, vendors, and potential customers. So when you have to cut travel costs, you may struggle with a balancing act. If you cut too much, business relationships may deteriorate. Cut too little and profits may suffer. Here are five ideas that can help bridge the gap.

  • Video conferencing. You may remember early issues with this technology, including hardware and software glitches and slow internet connections. However, today’s advanced systems and networks have reduced the incidence of low-quality graphics and choppy audio and video feeds. You don’t need your own video conferencing studio to take advantage of high-definition systems. Look into pay-by-the-hour rental options instead.
  • Discounts. Investigate price reductions for corporate customers offered by hotels, car rental companies, and airlines. The savings can be significant when your staff regularly travels to the same destinations. Make sure your employees know about and use these vendors.
  • Cost-cutting ideas. If your travel plans are flexible, take advantage of mid-week flights and less-frequented airports. In some cases, train transportation may be a viable alternative. When possible, purchase tickets at least two weeks in advance to get better deals. Research hotels at your destination, and book rooms at those that offer complimentary breakfasts and free internet service.
  • Employee surveys. Employees who spend a lot of time on the road tend to develop definite opinions about everything travel-related. Your sales staff and other travelers can be a valuable resource when you’re reworking travel policy.
  • Travel audits. Don’t cut costs or change policies haphazardly. First make sure you understand how much you’re spending and where the money’s going. Get a firm grasp on the details behind the numbers. Then act.

Need more business cost-saving and budgeting advice? Contact our office for suggestions.

Tax Tip | Claiming Education Benefits

Track your tuition expenses for the most benefit under new rules

Do you have the receipt for your fall semester tuition? Keeping track of your tuition and other qualified education costs may be more important than ever. That’s because several laws enacted over the past few years, including the PATH Act from last December, made changes to the requirements for claiming education benefits such as the American Opportunity Credit. One change to note: In order to claim an education tax credit or deduction when you file your 2016 federal income tax return, you’ll generally need a copy of the information statement sent by your school.

You may be familiar with Form 1098-T, Tuition Statement. If you’re a student, you’ve probably received this information form from a college or other school. In the past, schools could choose to report amounts you actually paid or amounts that were billed to you. Beginning with your 2016 return, schools are generally required to report only the tuition and qualified expenses that you actually paid.

While the new reporting requirement may make claiming the credit easier, you’ll still want to track your actual expenses. Why? In some cases, you may buy books and credit-eligible materials from a supplier other than your school. Those costs would not be on the Form 1098-T that you receive. To include the expenses in the calculation of your tax benefit, you need to have proof of your payments.

If you have questions about what costs are considered qualified educational expenses and how the rule changes will affect you, please contact us.

Plan For the Future

Do you have a plan for the future of your business?

Is your company a statistic? If you operate a family-owned business, the answer may be yes. According to the U.S. Small Business Administration, over 50% of all small business owners are aged 50 or older. If you’re included in that group, you might be wrestling with the question of selecting and training a successor. Think you’re too young to retire? Getting an early start helps you avoid “crisis mode” decisions that may damage your company’s future prospects. Early planning also provides opportunities for helping your successor learn the business and get prepared to assume full responsibility.

Here are two initial steps to consider.

  • Choosing a successor. Do you expect a family member — perhaps one of your kids — to take over the company when you’re ready to retire? Be sure to align your company’s best interests with your child’s dreams, skills, knowledge, and passion for success. The decision can be an emotional one, so it makes sense to involve an objective third party such as a financial advisor, attorney, board member, or trusted friend. Be open to considering a long-term employee or an outsider with more extensive experience in your industry.
  • Establish a training plan. Identify the critical functions of the company and provide the opportunity for your chosen successor to gain experience in operations, sales, and accounting. Establish a timetable for training, allow for mistakes, and resist the temptation to override routine decisions. Let your successor develop a management style that fits both the company’s mission and your successor’s temperament.

Succession planning takes time and effort. For assistance, put us on your team.

Establish these retirement plans

You still have time !

The problem with time is that you always think you have enough. And yet fall is already here, and the time for establishing a retirement plan for your business is ticking down to the deadline. Here are two plans with upcoming due dates.

  • Savings Incentive Match Plan for Employees (SIMPLE). The deadline for setting up a SIMPLE for your business is October 1. SIMPLEs are easy to establish and maintain. You can use an IRS “model” document to set up your plan, and you’re not required to file an annual retirement plan return with the IRS. Your business can deduct contributions made on behalf of employees. In addition, you may be eligible for a credit of up to $500 to offset the cost of establishing a plan and getting your employees enrolled.

    The maximum contribution for SIMPLE plans in 2016 is $12,500, plus an extra $3,000 when you’re over age 50.

  • Simplified Employee Pension plan (SEP). If you’re a sole proprietor and you requested an extension of time to file your tax return, the last day to establish and fund a SEP is October 17. You set up a SEP by signing a plan document such as IRS Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. Contributions are deductible, and you don’t have to file an annual return with the IRS.

    For 2016, the maximum contribution is $53,000.

Not sure which plan will suit your business? Contact us for a detailed comparison.

Check your financial fitness

How can you become financially fit? Here are suggestions for improving your fiscal muscles.

Get your budget in shape. Use your spending history to create a meaningful budget, then stick to it. Resolve not to spend more than you make, and remember that what you “make” is your take-home pay, not your gross salary. Budget for savings too. Pay yourself first. Set up a minimum monthly amount that you put into savings at the same time you pay your other bills.

Slim down your debts. Where possible, consolidate or refinance existing debt with more favorable terms. Concentrate on eliminating personal debt first because interest you pay on personal loans generally has no tax benefit.

Build up your benefits. Review your employer’s benefit package. Are you participating in every program that you can? Employer plans generally have favorable tax benefits that will make your dollar go further.

Tone your investment portfolio. Do your investments fit your current financial situation, age, and risk tolerance?

Strengthen your insurance coverage. Do you have adequate coverage for property, disability, life, and health? Avoid overlapping or excessive coverage.

Coordinate your estate plan. Does your will allow your assets to pass according to your wishes? Have you provided for guardianship of your minor children if something happens to you? Do you have a power of attorney that will give a person of your choice the ability to act for you in the event you are unable to act on your own behalf? Have you completed a health care proxy or living will?

Maintain your recordkeeping. Set up a recordkeeping system that tracks the income and deductions reported on your tax return so you can capture all deductions you are entitled to take.

Maintaining financial wellness, like physical wellness, is a continuous process. The sooner you start, the more likely you are to succeed. Schedule a meeting with us for assistance in reviewing your tax, financial, and estate plans.

Is S corporation status right for your business?

When you incorporate your business, one decision is whether or not to make an election to become an S corporation. By choosing to make the election, you switch from a regular corporation, known as a C corporation, which is taxed as a separate entity, to an S corporation, where profits and losses are taxed on the individual tax returns of shareholders. Put another way, an S corporation retains the limited liability feature of a corporation, but transfers the tax treatment on income and losses to the individual level.

When does the election make sense? In cases when your individual tax rate is lower than the corporate rate, passing income to your personal federal income tax return means less overall tax. Another example: The difference in the way losses are handled. In a C corporation, losses can offset future profits. Unfortunately, in a start-up business, generating a profit may take years. Shareholders in an S corporation can use losses to offset other income, as long as they have basis in the business.

So what is the downside? From a tax standpoint, C corporations may be able to provide more tax-free fringe benefits to shareholder-employees than S corporations can. In addition, S corporations must meet certain rules to avoid terminating the election. For example, the S corporation can have only a limited number of shareholders, all shareholders must be U.S. residents, and shareholders must generally be individuals.

Do you have questions about whether S corporation status is right for your business? Contact us. We can help guide you through the tax benefits and drawbacks.

What’s in a number? Understand your EIN

The Internal Revenue Service has your number – your employer identification number, or EIN, that is. Your EIN is a nine-digit number that you use to identify your business when filing tax returns or making tax payments.

Who needs an EIN? You could need an EIN even if you don’t have employees, and entities you might not think of as businesses, such as employee benefit plans, estates, or trusts, may need one. For instance, say you’re appointed as trustee of an irrevocable trust that receives or distributes income. If the trust is required to file a tax return, you’ll need an EIN.

When does your EIN change? Generally, your EIN lasts for the life of your business, and you can keep the same number when you change the name of your business. But a change from one form of business to another – incorporating your partnership or sole proprietorship, for example – means you’ll have to request a new identification number.

Can you have more than one EIN? When you own more than one corporation, each needs an EIN, even if you’re the sole owner. Partnerships also need separate EINs. However, when you conduct your sole proprietorship as a limited liability company and you have no employees, you can use your social security number instead.

You have our number, so give us a call. We’ll be happy to determine whether you need an EIN, and to help you complete the forms to request one if you do.

  • September 20, 2016
  • Taxes