What Do You Do If You Did Not Receive Your 1099?

Have you ever worked as an independent contractor and you were not given a 1099 form to report your income? What do you do? Do you report it or ignore it?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

If that ever happened to you, my recommendation is to report your 1099 income. It does not matter if the one that hired you did not issue you a 1099, it’s still your responsibility to report the income. You might be thinking: “But the IRS did not receive a copy of the 1099, that means, I got tax-free income! No need to report it!”
Unfortunately, here are the tax traps that you need to consider:
1. Longer audit periods – if you did not report more than 25% of your income, the IRS have 6 years to audit your returns instead of 3 years.

2. Multiple-year audits – if you get audited, there is a potential that the IRS will go back three years or six years, if applicable to determine that you did not omit any income.

3. Interest & Penalty assessment – you will be assessed various interest and penalties based on the amount that you omitted. For every dollar that you saved from omitting the income, the IRS wants around $1.70 or more.

To summarize, not reporting your income can expose you to longer audit periods, multiple-year audits and penalty assessments. So please, report your income.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Five Items To Consider When Starting A New Business

Are you starting or planning a new business this year? If yes, make sure you consider these five items into account.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

• Business plan. You need to outline who will own the business and what the legal structure will be, your qualifications to run the business, the competitive market you face, the products or services you will sell, and how you intend to advertise to prospective customers. Also, how much cash will you need to start up and where will those funds come from? These are important questions that you need to answer and address before starting your business. Keep this in mind: no answer, no business!

• Legal form. You can form a corporation, or operate as an LLC, a partnership, or a sole proprietorship. However, you need to consider both tax and non-tax reasons for selecting a given business structure. These means, you need to know your priority. Do you want to maximize tax deductions? Is the priority legal protection? Are you going to sell the business to a competitor in the next few years? Do you want to minimize your estate tax? Are you going to go public? So make sure you know the goal in mind.

• Location. If your business will consist only of online sales, then your corporate office can be wherever you are. However, if your business needs foot traffic to thrive, you’ll need to research rents and other costs such as utilities, as well as zoning and traffic restrictions.

• Taxes. You’ll have to work with the IRS, state tax agencies, and local governments to obtain permits and business licenses.

• Advisors. You need to create a business financial team that includes a banker, an insurance agent, an attorney, and yours truly, your favorite accountant. So make sure you involve your advisors early and frequently.

To recap, starting a new business can be very challenging, but by considering these five items, you can put yourself on the path of an aspiring business owner. Good luck!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

More Info Needed For Certain Tax Credits

Do the following three items apply to you?
• Are you claiming your dependent children?
• Did you pay for any education expenses?
• Did your family income situation change and it’s lower than $50K?
If yes, then IRS would want to know and want to have more information.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

When you are claiming your children for tax credit purposes, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives or other guardian.
Now for education purposes, which can give you up to $2,500 of tax credit, you are now required to provide Form 1098-T from the college or university. You will also need receipts for related expenses. No Form 1098-T, no tax credit.
Lastly, if your family income drastically changed and it’s under $50K and as a result, you were entitled to earned income credit (EIC), you may be asked additional questions regarding your dependents’ social security numbers and dates of birth. Why? Because these two items were the major source of what the IRS calls “improper payments or refunds.”
IRS estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter or $16.5 billion were collected by filers who didn’t qualify to receive them. As a result, the IRS is requiring tax preparers aka “yours truly” to ask more questions.
So starting this year, if we don’t document the compliance with these new requirements, I could face fines of up to $510 per return. What?
To summarize, if I asked you more questions than usual or if I requested for additional documents, be aware that it’s just a new requirement to claim the above credits.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

New Repair Rules That You Need To Know

Are you aware that the IRS did a major overhaul in regards to determining repair versus improvements?

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Since there were a lot of changes, I will just talk about one specific topic for now and the rest will be in my next video blogs. Okay? So, last November 2015, the IRS issued a notice increasing the amount of repair that you can expense out from $500 to $2,500 for tax years beginning 2016.

That is great news! However, I recommend that you have an accounting capitalization policy in place to document the $2,500 that you will expense out. This accounting policy needs to be in place at the beginning of every tax year.

Why am I telling you all of this? Because, in case you get audited, the IRS auditor will be reviewing their 220-page (yes, 220 pages!) repair audit tax guide and will be looking for your policy to determine the following:

• Was it in writing
• Was it in effect beginning of the year
• Was the policy changed to reflect the expense amount from $500 to $2,500

To recap, make sure you have the accounting policy in place to audit-proof the expense items that you are claiming.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Business Returns Due Dates Changing

Due to recent law change, the due dates for some of the business and information returns have changed.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here’s what you need to know.

For C-corporations, the new due date will be April 15 (three and one-half months after the end of the taxable year). However, C-corporations with tax years ending on June 30 will continue to have a due date of September 15.

For partnership & LLC returns, the new due date will be March 15. Partnership returns will be allowed a six-month extension. So the extension due date will be September 15.

For S-corporations, the due date continues to be March 15. S-corporations may also request a six-month extension with the same extension due date of September 15.

Lastly, for FBAR (Form 114) re: foreign asset reporting, the new due date will be April 15 and you will be allowed to request a six-month extension up to October 15. However, you need to request an extension since it’s not automatic.

I bet you are thinking right now: “Why did they make these changes?” Honestly, the IRS got good intentions why they are changing the due dates. The goal is to line up with the business tax reality. Partnership & LLC returns were changed from April 15 to March 15 to give you time to prepare your personal returns. And that’s the same reason why the S-corporations continue to have a March 15 due date. On the other hand, for C-corporations, which are normally for bigger companies, they moved it forward to April 15 to give them additional time to prepare their returns.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

2017 Mileage Rate Reimbursements & Deductions

If you are going to use your car for business, charity, medical appointments, or moving during 2017, please be aware that the standard mileage rates for computing the deductible costs have changed.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Effective January 1, 2017, here are the rates to use to calculate reimbursements and deductions for the year:

• Business. The rate is 53.5¢ per mile for business miles driven (down from 54 cents in 2016).
• Charitable. For charitable services, it remains at 14¢.
• Medical and moving. The rate for medical and moving mileage is 17¢ per mile (down from 19 cents in 2016).

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Be Aware of These New Filing Payroll Deadlines

Happy New Year! Well, with new year comes with new rules.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

As you begin preparing your final payroll tax returns for 2016, take into account earlier due dates for two common reporting forms.

Forms W-2 for 2016 are due January 31st. The January 31 deadline applies to forms given to employees, as well as those submitted to the Social Security Administration. IRS late penalties will range from $50 – $530. Ouch! While CA will charge $50 per return. So watch out!

Forms 1099-MISC with non-employee compensation in Box 7 are due January 31st. The January 31 due dates applies to forms given to the recipients, as well as paper and electronic copies filed with the IRS. Please note that this due date applies only to 1099s that report amounts in box 7. The due dates (end of February) remain unchanged for the other boxes. Now, if you don’t have the proper information of the recipients, make sure you provide them a copy of the W-9 Request for Taxpayer Identification Number so they can fill it out and return it to you ASAP.

Why? Well, there is a $260 per return federal penalty for failure to file the 1099s. If filed within 30 days of the due date, the federal penalty is reduced to $50 per return. To make it worse, California conforms to these due dates. And they have their own applicable penalties. For 1099s it’s $100 for failure to file, $30 if filed within 30 days of the due date.

So watch out! Make sure you file the W-2s and 1099-Misc with non-employee compensation by January 31st to avoid incurring penalties.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

You’ve Received A Gift…What Now?

Imagine your rich parent or relative gives you a real estate property, vacant lot or stocks. And then a number of years later, your parent or relative dies and you decide to sell the gift. Your tax preparer says you’ll need to calculate capital gains on the sale, and asks for your basis to offset it with the sale. So here’s the question: “What’s your basis?”
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Basis is the amount of capital investment in the property which is commonly called the purchase costs. So when you sell a property or stocks received as a gift, the general rule is that your basis is the donor’s cost basis or purchase costs. So if you sell it for a gain, you need to use the donor’s basis or costs. But if you sell at a loss, your cost is the lower of the donor’s basis or the fair market value on the date you received the gift.
But without cost records, you have no way of proving the donor’s basis and no way of saving yourself tax dollars.
So what do you do? So next time, when you receive a gift, explain why you need the cost basis to make the conversation less awkward. No one likes to pay unnecessary taxes. So I recommend having the same conversation about the cost of valuable gifts you received in prior-years. That’s very important!
Now conversely, if you’re the gift-giver or the one giving the gifts, offer the additional gift of presenting the cost records to your recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of…unnecessary taxes.
There you have it. So next time, when you receive a valuable gift like a property, vacant lot or stocks, ask and inquire about the cost records so that at the time of sale, you will avoid unnecessary taxes.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

To Convert or Not To Convert…That Is The Question!

A tax client asked me: “Should I convert my IRA or retirement plan into a Roth IRA? That is a great question! However, as with any tax questions, it is impossible to have a definite answer when deciding whether to convert a traditional IRA or retirement plan into a Roth IRA.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

You will generally benefit from the Roth IRA conversion if ALL of the following applies to you:
• You don’t need to take withdrawals from your Roth IRA for at least 15 to 20 years;
• Your future tax rate when you take out withdrawals is the same or greater than the rate during the conversion and
• You can pay the tax on the conversion with non-retirement funds

If you meet all the criteria, congratulations! This is one powerful tax strategy that if you apply correctly, will definitely, build you tax-free wealth!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How Will Trump’s Tax Plan Affect You?

Donald Trump was elected the 45th President of the United States last night. You might be wondering: “How would that impact me tax-wise?”

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

If Trump makes good on his promises, here are the expected tax changes:

Reduce federal tax brackets – from seven to three tax brackets with rates of 12, 25 and 33%. Likewise, the top rate would fall from 39.6 to 33 %.

Standard deduction increase – from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for married couples filing jointly. And there will be no more personal exemptions.

Itemized deductions limit – will be capped at $100k for single filers and $200k for married couples filing jointly.

Take out the 3.8% Medicare tax – this additional tax impacts high income taxpayers who have income over $200k for single filers and $250k for married couples filing jointly or taxpayers who sold appreciated real estate.

Cancel alternative minimum tax and estate tax – if this estate tax plan holds true, then you can make some arrangements the next 4 years to pass away accordingly.

Reduction of business tax rate – from 35% to 15%

15% business income tax rate – S-corporation, partnership or sole-proprietorship income reported on the personal tax will be taxed at 15%. What does that mean? High wage earner will be paying the 33% tax rate while self-employed will be paying 15% tax rate! That’s a huge difference! You better start working for yourself!

While all these changes look good on paper, this will increase our national debt by $7 trillion dollars because of tax revenue reduction. So the trillion dollar question then is, “what gives”? In order to offset this massive debt increase, the tax plan would require huge reductions in tax benefits from several industries. Which one? Your guess is as good as mine. One thing is for sure though, since the Republican party controls both House and Senate, Trump will be pushing for tax changes, it’s not an if, but when. Stay tuned.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.