January 2016
Dear Clients and Friends:
Holiday season, football season and yes, another Tax Season are now here. We look forward to seeing you. One of the best parts of this job is meeting with our clients and reviewing their experiences of the past year. We want to hear about your successes and even your failures, because we want to be sure that we prepare a return that accurately reports what took place this past year. The ever-complex and changing world of tax law has taught us to be as detailed as possible when accumulating data and information to be incorporated as part of a taxpayer's year-end tax records. This past year has certainly seen its share of tax legislation changes and there are more to come in the future.
Repair & Capitalization Regulations - Small businesses have lost the battle to change the new Repair & Capitalization Regulations. The IRS has decided through the new Regulations that we have three possible choices for handling repairs, supplies, and asset purchases going forward and the choice must be made annually and attached every year to the tax return! Do nothing and the new Regulations require us to examine EVERY repair, supply and asset purchase costing more than $0 (yes zero) to determine proper tax treatment under the new regulations. This will affect every sole proprietor, farmer, small S or C Corporation, LLC, partnership, every rental property owner, and every employee that has unreimbursed business expenses. If we do nothing, zero is our threshold – ridiculous, I know. Please don’t shoot the messenger. To help offset these rules, we have enclosed a policy that you may adopt for the coming tax year to increase that zero threshhold.
Please complete the attached questionnaire. We will not be able to prepare any business schedules without a completed and signed self-employed questionnaire, a signed engagement agreement and the additional supporting documentation as indicated below. Your cooperation is most sincerely appreciated.
If our office has NOT reviewed your books and records during the year or provided you with any bookkeeping or tax planning services during the year, I encourage you to review the materials included in this packet. You may uncover some tax-saving opportunities that you may not have been aware of. In any case, there may be some things that we need to know from you during tax season that you may not have previously thought about. This material should help you get better organized. For more tax saving tips, please be sure to visit our websites at
Please note that if our office has reviewed your records during the year or if we already provide regular accounting and bookkeeping services, we simply want to make sure that you have the opportunity to let us know about any additional business expenses that you may have incurred outside of your business records and have the other necessary forms we need to complete your income taxes for the year. If we have NOT reviewed your books and records during the year, please be advised that we will need additional information from you in order to comply with new IRS regulations regarding “required due diligence” on the part of the tax preparer.
In addition to the attached questionnaire, we will need you to provide the following information:
1. Copies of your business bank statements for the entire year – if you do not have a separate business bank account, please provide documentation to support the income that you are reporting for your business.
2. Please let us know if you deposited any of your OWN money into the business bank account during the year.
3. Copies of your sales tax reports for the entire year (if sales tax is applicable to your business).
4. If you paid wages to employees during the year and we did NOT prepare your payroll tax reports, please provide copies of ALL quarterly Forms 941 and State Unemployment reports for the year. Also provide a copy of Form 940, Form W-3 and all related W-2 forms for the year.
5. If you paid more than $600 to anyone providing services to your business, you MUST issue Form 1099-Misc. If you paid Rent to anyone other than a real-estate agent or corporation, you MUST issue Form 1099- Misc to them for the total amount of the rent payments. If you paid ANY Attorney for legal services for your business (OF ANY AMOUNT), you MUST issue Form 1099-Misc for the total amount paid to the attorney. Please provide copies of all Forms 1099-Misc that you have issued, or contact us immediately if your need our assistance.
6. Copies of any 1099-K forms that you receive as a result of you accepting credit card payments from your customers. We know that the IRS will be reviewing these forms and comparing the information reported on these forms with the income data you report on your tax return. If the IRS feels that the ratio of credit card sales compared to the sales you have reported does not coincide with industry averages, you can expect a letter of inquiry from them.
If you need our assistance in preparing Forms 1099-Misc, you must get that information to our office NOW! We’ll be glad to prepare them for you if necessary. We will need the complete name, address and social security number of the persons you paid, as well as the amount paid during the year. All 1099-Misc forms must be distributed to the recipients on or BEFORE 1/31/16. Failure to file the appropriate information reporting forms could subject you to significant penalties assessed by the IRS as well as possible disallowance of the deductions by your business.
If you have shut down your business during the past year, the IRS (and state if applicable) will still expect a final return from you reporting any activity that did take place. They will also want to know what happened to any equipment, machinery and other assets that were being used in the business. We will need to know this information in order to complete that final Schedule C for you and report the disposition of any assets no longer used in the business.
Please keep in mind that there are a limited number of weeks, days and hours during tax season that we have available to close out the year, make the necessary tax adjustments to your records and prepare your tax returns. Therefore, we ask for your cooperation in filling out the questionnaire and providing as much detail as possible with regard to your business. We want to do the best job we can for you, and we do appreciate your cooperation.
All my best and I look forward to working with you. Thanks again!
YEAR END SELF-EMPLOYMENT INCOME TAX DATA – Tax Year 2015
Business Name
Owner
Phone Number ( )
Fax Number ( )
Email Address
Business Address
(if different from your Home Address)
[ ] Yes [ ] No Is your business located Inside City Limits? What City? ______
[ ] Yes [ ] No Was the primary purpose of the business activity to realize a profit?
[ ] Yes [ ] No Did you materially participate in the operation of this business?
[ ] Yes [ ] No Has the business reported any losses in prior years? Please list:______
[ ] Yes [ ] No Did you pay any family members for services?
[ ] Yes [ ] No Did you make, or do you plan to make, any contributions to a self-employed retirement plan?
Type of Plan:______Amount Contributed:______
[ ] Yes [ ] No Do you use an area of your home exclusively for business operations or business storage? If yes, please complete the home office section of this form.
In 15 words or less, please describe your business activities: ______
______
Please indicate your accounting method: [ ] Cash [ ] Accrual
If we may be of assistance to you when preparing this form, please do not hesitate to call our office at
(863) 295-9895. This form may be completed and faxed to us at (863) 298-8299.
Would you like our office to prepare your 2016 FL Tangible Personal Property Tax Return? □ Yes □ No
(This form is due BEFORE 4/1/2016) Please forward the forms from the applicable Counties to our office.
You May be Exempt from filing this form. Please be sure to forward all forms or exemption notices to our office.
If your Business is an LLC, please be aware that the State of Florida is NO LONGER sending out paper forms or postcards to remind you to file your LLC Annual Report which must now be electronically filed by visiting www.Sunbiz.org We will no longer be filing these forms for you. Be sure to visit the above website and complete your LLC Annual Report on or before 5/1/2016. Failure to do so will subject you to a stiff late filing penalty of $400 and/or possible dissolution of your LLC.
INFORMATION APPLIES TO BUSINESS ACCOUNTS ONLY
1. Do you feel that your expenditures for sales, travel and entertainment expenses
are properly substantiated: i.e. Date, Name, Amount, Place, Business Purpose? □ Yes □ No
2. INVENTORY OF MERCHANDISE HELD FOR RESALE (Do not include equipment or operating supplies to be used within your business.)
a. Inventory must be taken in a manner consistent with method used in previous years. b. Physical Inventory count MUST be taken at year-end.
The IRS has placed an increased emphasis in court cases regarding actual physical inventory on hand at December 31. Please make sure to physically count your inventory, retain the records, and provide us with the accurate total cost of inventory on hand at December 31. Do not include consignments you are holding from other people in this number. In the event of an audit you must be able to provide copies of physical count sheets.
Inventory On Hand Valued at (Your Actual Cost) $
Inventory Taken From Business During the Year for Personal Use
(Your Actual Cost) $
1
ACCOUNTS RECEIVABLE (Customers who owe you money)
NOTE: ONLY REPORT ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE IF YOU ARE AN ACCRUAL BASED TAXPAYER. GENERALLY, YOU ARE ACCRUAL BASED IF YOU HAVE INVENTORY. PLEASE CALL OUR OFFICE IF YOU ARE NOT SURE.
Accounts Receivable Including Bad Debts $
List Uncollectible Customer Bad Debts to be charged off this year that ARE, and/or have previously been, included in your Accounts Receivable amount above.
Name / How old is Amount Owing? / Amount of Bad Debt(attach additional list if necessary)
Less Total Bad Debts $
Net Collectible Accounts Receivable Year End, After Bad Debts (your detail must agree with amount shown)
$
ACCOUNTS PAYABLE – Accrual Taxpayers only
(Bills your business owes as of year-end)
PERTAINS TO BUSINESS DEBTS ONLY - - - NO PERSONAL DEBT SHOULD BE INCLUDED
(Do Not Show Payroll Taxes, Sales Tax, or Loan Balances Here)
Owed to Whom? / AccountCode/Title / Description
(Mdse., Supplies, Truck. Exp., Etc.) / Amount
Total / $
(attach additional list if necessary)
INSURANCE
Premiums paid for health insurance for you and your family $ ______
Were you eligible to participate in an employer sponsored health plan at any
time during the year (either your employer OR your spouse's employer)? □ Yes □ No
2
REPAIR AND CAPITALIZATION RULES FOR FIXED ASSETS
The below information is to provide some guidance regarding the deductibility of certain renovations to real property or with regard to new assets you may have or will purchase in the course of running your business.
Whether an expenditure qualifies as a currently deductible repair or is required to be capitalized is a factual determination. The burden of proof rests with the taxpayer, and sufficient contemporaneous records must be maintained. It is important to correctly characterize such expenses from the beginning. Otherwise, amended returns may have to be filed and that may require a change in accounting method request which could result in an IRS audit.
Generally, no deduction is allowed for amounts paid out for new buildings or for permanent improvements or betterments made to increase the value of property. Similarly, no deduction is allowed where an expenditure restores property to a "like new" condition.
Where a company constructs an addition to its building, the direct and indirect costs of construction must be added to the building's basis. The amount added to the building's basis also includes construction period interest. Capitalization is also generally required for installations of material components to buildings or equipment.
Under IRS regulations in effect before 2014, a taxpayer may generally deduct the cost of incidental repairs that neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition. Repairs in the nature of replacements, however, to the extent they arrest deterioration and appreciably prolong the life of the property, must either be capitalized and depreciated or charged against the depreciation reserve if such an account is kept. The subjective nature of these standards resulted in considerable controversy between taxpayers and the IRS on the issue of repairs vs. capitalization.
In an effort to reduce this uncertainty and controversy, the IRS issued new regulations - first in the form of temporary regulations issued in 2011, and then in the form of new final regulations issued in 2013 (and still being clarified by Revenue Rulings and updates) - regarding the deduction and capitalization of expenditures related to tangible property (ie Fixed Assets).
These new rules provide simply that a taxpayer may deduct amounts paid for repairs and maintenance to tangible property if the amounts paid are not otherwise required to be capitalized. Determining if they are to be capitalized or not is where the time consuming process comes in. Under the rules, a taxpayer generally must capitalize the related amounts paid to improve a unit of property owned by the taxpayer - and a unit of property is improved if the amounts paid for activities performed after the property is placed in service by the taxpayer are for a betterment to the unit of property, restore the unit of property, or adapt the unit of property to a new or different use, or of course, purchase a new item (ie tools or equipment) that must also be capitalized.