Related Party Haunted House. A young couple purchased a home to rent to their parents who were in need. The couple charged $500 per month in rent for the first few years, and filed Schedule E reporting the income and expenses from the activity. After an audit, the IRS ruled that the parents’ use of the property was considered personal use by the taxpayers because the rent charged was less than the fair market value for that property. Thus, while the income from the activity was still required to be reported, all of the expenses claimed were disallowed resulting in additional taxes owed with interest and penalties. If you are in a similar situation don’t let it come back to haunt you! Contact your preparer to discuss the steps you need to take.
I-9 Nightmare. Form I-9 requires employers to verify that each employee hired after Nov. 6, 1986 is eligible and legally authorized to work in the US in accordance with the Department of Homeland Security and US Citizenship and Immigration Services. The form requires that identification be obtained fromall employees, both US citizens and noncitizens. Failure to maintain correct and updated I-9 information can result in significant penalties and, in certain cases, criminal prosecution! One company found out the hard way. The company had 24 employees, and all 24 Forms I-9 were on file. However, 13 of the Forms I-9 were invalid for various reasons (missing information, information written in the wrong place, expireddocuments, etc). The company was found in violation and assessed a $12,155 fine (13 violations at $935 each!). Don’t let something as simple as having properly completed Forms I-9 become a nightmare for your business!
2106 Mockingbird Lane. The deduction for unreimbursed employee business expenses is suspended between 2018 and 2025. The disallowed expenses include items such as tools, required uniforms, dues and subscriptions, unreimbursed travel and mileage, meals, entertainment, lodging, and license fees as well as the home office deduction. This change has prompted many to question whether the employer-employee relationship could be redefined so that the employee could fully deduct some business expenses on Schedule C. Until further clarification becomes available, we recommend you speak with your employer about the possibility of reimbursement for any such expenses.
Not Just Another Halloween Slasher. The Tax Cuts and Jobs Act (TCJA) has slashed miscellaneous itemized deductions subject to the 2%-of-AGI limit. As mentioned above,unreimbursed employee business expenses are now disallowed. However, investment expenses, union dues, tax preparation fees, and other professional fees have also fallen victim to the TCJA and are no longer deductible on Schedule A. We will cover otherchanges under the Tax Cuts and Jobs Act in future posts.
The Nightmare Before Christmas. Many of you have received a letter from the State of Colorado regarding new sales tax rules that become effective December 1, 2018. Any business located in Colorado that delivers taxable goods to a jurisdiction outside its current sales tax jurisdiction will now be required to charge and remit sales tax to the state based on the point of delivery for those taxable goods. The state collects tax for many counties and special districts in Colorado; these taxes will also have to be charged and remitted where applicable. We will be sending a more detailed compliance briefing in the next week so this change does not become your nightmare!
The Haunting. Auditors from various taxing entities are coming back to haunt employers that have misclassified workers as 1099 contractors rather than W-2 employees. Failure to properly classify workers can result in severe penalties and fines. Employers can be held responsible for paying back-taxes and interest on employee’s wages as well as FICA taxes that weren’t originally withheld. Failure to make these payments can result in additional fines. Employers may also face criminal and civil penalties and sanctions if they have intentionally misclassified workers. Additional penalties and fines can be applied depending on the severity of the misclassification. Please watch how you define employee vs contract labor as the Department of Labor and state unemployment auditors are getting aggressive in their audits. Don’t let them come to haunt you! We will be covering worker classification in depth in a later blog.
Boo! We hope we have not frightened you too much! Stay tuned as we will be covering these topics in further detail in upcoming blog posts. Until then, have a very safe and happy Halloween!