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NYC Small Business Tax Deduction for Meals and Incidental Expenses Paid to Leased Employees

admin — Sat, 21 Aug 2010 12:00:03 +0000

Dear Client:

It has recently come to the attention of our NYC LLC CPAs that the IRS has issued a ruling addressing which party is subject to the percentage limitation for the deduction of meal and incidental expenses paid to leased employees. The ruling holds that the percentage limit applies to the party that ultimately bears the per diem expense, regardless of which party is the employer. This could potentially be a boon for your small business taxes in New York.

Generally, a NYC LLC’s deduction for business and entertainment expenses, including reimbursed amounts, is limited to 50 percent of the expenses paid during the tax year (80 percent in the case of certain transportation workers). However, the limitation does not apply if the expenses are paid in connection with the performance of services for another person under a reimbursement or other expense allowance arrangement. In the case of an employee, the exception to the limit only applies to the extent the reimbursement is not reported and deducted as compensation paid by the employer. In the case of an independent contractor, the exception to the limit applies only to the extent the independent contractor substantiates the reimbursed expenses to the payor.

In applying these rules to amounts paid to leased employees for meal and incidental expense, the IRS has agreed that the limit should apply to the party that ultimately bears the per diem expense. Thus, if an employee or independent contractor incurs meals and incidental expenses in connection with the performance of services for another person and is not reimbursed, then the limit applies to any deduction claimed by the employee or independent contractor. However, if an employee or independent contractor accounts for the expenses to a leasing small business in New York City, they are reimbursed under an allowance arrangement, and the payment is treated as compensation, then he or she is not subject to the limit. Instead, the NYC LLC or small business bears the expense and is subject to the limit. On the other hand, a leasing company will not be subject to the limit if, in connection with its performance of services for a third party, it is reimbursed under an allowance arrangement with the third party, and accounts to the third party in the same manner that the employee accounted for the expenses. In such circumstance, the third party bears the expenses and is subject to the limit for the deduction that it claims.

If you would like more information about this ruling and how it affects your small business taxes in New York, or if you would like to discuss your reimbursement plan, please call our team of Manhattan LLC and small business tax CPAs at your earliest convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Club Dues: Understanding Small Business Fringe Benefits on your Manhattan Income Taxes

admin — Tue, 17 Aug 2010 12:00:21 +0000

This article is in response to questions our Manhattan small business income tax CPAs have received about deducting club dues from your federal income taxes. The IRS distinguishes between dues paid to clubs, which often are not deductible, and dues paid to professional organizations, which are deductible.

Generally, you cannot deduct dues paid to social, athletic, sporting, airline, hotel, and luncheon clubs on your small business income taxes in New York. The IRS views these organizations as providers of entertainment for their members. In contrast, dues paid to professional associations, trade associations, and public service groups may be deductible if you paid the dues for a business purpose and the organization’s purpose is not entertainment. However, other business expenses paid at a club, such as meals, may be deducted to the extent they satisfy the other requirements for a business deduction on your NYC small business income tax return. If you take your client to your club for lunch during which a substantial and bona fide business discussion takes place you may deduct 50 percent of the cost of the lunch.

Remember that to be deductible on your new York City small business income taxes, club dues must not only escape this loss disallowance rule, they must also be an ordinary and necessary business expense.

For tax consequences, a club’s activities, not its name nor your reason for joining, control whether the IRS determines if it exists to entertain its members or if it has a business or social service purpose.

Please contact our team of Manhattan small business CPAs anytime if you have any questions on how club dues may affect your small business income taxes in New York.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Seven Facts about the Nonbusiness Energy Property Credit and NYC Income Taxes

admin — Mon, 16 Aug 2010 12:00:59 +0000

The following NYC income tax information is courtesy of the IRS:
Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger Manhattan income tax savings next year. The Nonbusiness Energy Property Credit, a New York income tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things the IRS wants you to know about the Nonbusiness Energy

Property Credit:
1.       The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2.       The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3.       To qualify as “energy efficient” for purposes of this New York City income tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4.       Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5.       Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6.       The improvements must be made to the taxpayer’s principal residence located in the United States.
7.       To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 NYC income tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

If you would like to know more about the Nonbusiness Energy Property Credit and how it could benefit your NYC Income Taxes, please contact our Manhattan CPAs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

New York Income Tax Update: Closing Deadline Extended to Sept. 30 for Eligible Homebuyer Credit Purchases

admin — Sun, 15 Aug 2010 12:00:30 +0000

Our team of income tax CPAs in Manhattan would like you to know that eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.

The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit on their income taxes in NYC. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:
•   A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
•   For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
•   For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

Besides providing a tax benefit to first time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit on their income tax return in New York City can avoid refund delays by attaching documentation covering the five-consecutive-year period:
•   Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
•   Property tax records or
•   Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
•   If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
•   If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
•   Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.
•
If you have any questions about the Homebuyer tax credit, our team of New York income tax CPAs are here to help you.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Independent Contractor vs. Employee Part 1

admin — Wed, 11 Aug 2010 12:00:56 +0000

Currently, the likelihood of your NYC small business being involved in a worker classification or employment tax audit is increased because the IRS is aggressively attempting to reduce the “tax gap,” which is the annual shortfall between taxes owed and taxes paid. Employment tax noncompliance is estimated by the IRS to account for approximately $54 billion of the tax gap. Under-reporting of FICA makes up $14 billion; under-reporting of self-employment tax accounts for $39 billion; and under-reporting of unemployment tax accounts for $1 billion in lost revenue. Our Manhattan S-corporation CPAs know that this may affect many LLCs, S-corps, and other Small Businesses in New York City.

As a result of the Questionable Employment Tax Practice (QETP) initiative, in 2007 the IRS entered into agreements with workforce agencies in 29 states to share the results of employment tax examinations. These agreements provide a centralized, uniform means for the IRS and state employment officials to encourage compliance with federal and state employment tax requirements. In addition, for the 2008 through 2010 tax years, the IRS plans to examine 6000 randomly selected employers’ Forms 941, Employer’s Quarterly Federal Tax Return, as part of the National Research Program (NRP). This means that now more than ever your New York small business needs CPA who specializes in S-corporations and LLCs in Manhattan.

Because the existing worker classification rules are complex and ambiguous, much uncertainty surrounds their interpretation and application. The lack of a single, definitive test for classifying workers as either employees or independent contractors contributes significantly to the worker classification problem, and this could very well affect your small business in New York.

Therefore, understanding the difference between an employee and an independent contractor is very important. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC (Miscellaneous Income). Our small business CPAs in Manhattan know that failing to make the right classification could cost your NYC s-corporation or LLC lots of money.

If you have workers who make substantial financial investments in tools, equipment, or a place to work, or undertake some entrepreneurial risks, they are probably independent contractors. However, when you control and direct the workers who perform services for you as to the end result and how it will be accomplished, you are probably involved in an employer-employee relationship.
Unless there is a reasonable basis for treating your employees as independent contractors, failing to withhold New York income and employment taxes from their wages can result in severe penalties and interest, in addition to the back taxes owed. Of course, penalties for intentional worker misclassifications are harsher than they are for inadvertent mistakes.

Your benefit plan may also be in jeopardy if any eligible employees have been misclassified as independent contractors. Since these employees have been excluded from plan participation, your retirement plan may lose its tax-favored status. The problem is compounded when excluded employees seek restitution for lost benefits not only due to their exclusion from the benefit plan, but also for health coverage and other employee benefits.

Since the potential liability is considerable, we feel that it would be beneficial for you to verify that your workers are properly classified by meeting with our team of S-corporation CPAs in Manhattan. It is also important that your employment tax records are in compliance with IRS guidelines, especially in the event of an audit. Please contact our team of small business CPAs in New York at your earliest convenience to make an appointment.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Audits – New IRS Audit Initiatives

admin — Fri, 30 Jul 2010 17:14:32 +0000

Our Manhattan small business CPA firm would like to alert you to some significant changes in the way the IRS targets small businesses, LLCs, S-corps and C-corps for New York tax audits, and how it conducts them. When you read statistics about the percentage of returns that are audited, you might feel justified in playing the odds that your business won’t be among those selected by the IRS for scrutiny. But the numbers are very misleading, because the IRS is getting a lot smarter about how it chooses returns for audit and how its examiners conduct their audits. Our team of New York City CPAs can help your small business avoid this.

Over the past few years, the IRS has dramatically stepped up its efforts to study specific industries, and to educate its examiners about business practices, terminology, accounting methods, and common industry practices. It has also identified areas of inquiry that produce audit results. Examiners are told specifically to look out for certain red flags to get at what is really going on in a business or transaction. The IRS is also updating its tax gap figures (the estimated $300 billion difference between what taxpayers owe and what they pay). Several research studies are underway into various segments of the taxpayer population.

The result is that examinations are more sharply focused on potential areas that will generate increased taxes, penalties, and interest. Fortunately, there is a positive side to all of this. The IRS has made public a number of its Industry Specialization Program papers and Market Segment Specialization Program manuals. These help us keep up on the areas that the IRS will be targeting in its audits. So far it has issued detailed audit guide information on a range of industries, from general ones, such as retailing, to more specific ones, such as law firms, restaurants, entertainment, communications and petroleum. Much more information on specific industries is expected to be issued as the IRS continues to devote resources to the development of these programs.

Another IRS initiative tries to improve compliance by meeting with representatives of various industries to work out understandings with them about specific tax problems. For example, the IRS and the food service industry have come to an understanding about properly determining and reporting employee tips. Employers that comply will face reduced IRS scrutiny on this issue.

A review of your small business practices done by our NYC CPAs, with a view toward making some changes in light of the new IRS audit and compliance initiatives, may help keep your Manhattan income tax returns from being selected for examination, or help you survive if your return is audited. Please call one of our CPAs today if you feel that we can be of assistance to your LLC, S-corp or other small business in these matters.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Acquisition Cost Analysis For NYC Small Businesses

admin — Fri, 23 Jul 2010 12:00:20 +0000

Congratulations on your recent acquisition of your new small business in New York. Acquiring a small business is often an emotionally exhausting, confusing and exhilarating experience. Further, acquiring a business can put a strain on the new company’s cash flow. As Manhattan CPAs experienced in working with S-corps, C-corps and LLCs in NYC, we can advise you on ways to improve your cash flow.
One way to improve cash flow is to reduce the amount of New York income taxes your small business is currently paying. One possible way to reduce NYC income taxes is to accelerate the deduction of costs currently capitalized as acquisition related costs. Generally, professional fees and other costs associated with the purchase of a business are “capitalized” in the stock or assets that are purchased. For income tax purposes, deduction of these costs may be over 15 years, on sale of the business, or the costs may never be deducted. Because invoices often do not clearly allocate fees among all the services performed by professionals, or costs associated with travel and other miscellaneous expenses, costs that are not associated with the purchase can be capitalized as acquisition costs.

If costs unrelated to the acquisition have inadvertently been capitalized, then properly re-characterizing these costs can permit them to be deducted in the year they were incurred. Further, in certain instances, costs incurred to expand your business can be deducted over 5 years, rather than 15 years. A thorough analysis of capitalized acquisition costs often results in a significant New York tax refund and/or a decrease in the Manhattan income tax paid in the years immediately following the acquisition.

Our CPAs would like to talk to you about the potential for accelerating the deduction of some of the costs you currently have capitalized, to better help your New York City LLC, S-corp, C-corp or other small business. Please contact one of our NYC LLC CPAs at our office to arrange a convenient meeting time.

Sincerely yours,
Jonathan Medows, CPA

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Recovery Act: American Opportunity Education Credit and Income Taxes in NYC

admin — Sat, 17 Jul 2010 12:00:59 +0000

The American Recovery and Reinvestment Tax Act of 2009 (2009 Recovery Act), which provides billions of dollars of tax relief, includes a New York City tax credit for individuals seeking a college education. This provision may benefit your income taxes in Manhattan as a parent of a child working toward a college degree.
There are many federal tax incentives available to help reduce the costs of higher education. Some of these incentives offer tax breaks for current educational expenses, such as the above-the-line deduction for qualified tuition and related expenses, and the Hope scholarship and lifetime learning credits. In lieu of claiming the Hope scholarship credit, the 2009 Recovery Act provides an “American Opportunity” tax credit for 2009 and 2010. This credit may be able to help you save money on your income taxes in New York if you qualify.

Eligible Manhattan taxpayers may claim an American Opportunity tax credit up to $2,500. The credit is determined as 100% of the first $2,000, and 25% of the next $2,000 of tuition and related expenses paid during the year. Forty percent of the credit is refundable.

Unlike the Hope credit, the American Opportunity credit is not limited to the first two years of post-secondary education. Also, the American Opportunity credit covers “course materials” such as books. This credit phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).

Educational incentives can provide significant New York City income tax relief for families. The American Opportunity credit is one of several tax options related to saving and paying for higher education. Some may be more beneficial than others in your specific circumstances. Maximizing the benefits of the education tax breaks requires careful planning, particularly because of the interrelationship between the rules that apply to each provision. It is important to go to a CPA who is experienced in dealing with income taxes in New York. At MEDOWS CPA,We can help you sort through the options. Please call our office of income tax CPAs in Manhattan to arrange an appointment at your earliest convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Don’t Take Our Word For It– a NYC Client Income Tax Testimonial

admin — Mon, 12 Jul 2010 12:00:11 +0000

We like to tell you about how great we are over here in the office of Manhattan CPA Jonathan Medows, but we thought we should share with you a for-real first-hand account from one of our New York income tax clients, a NYC small business owner who works in multiple fields.

When I met Jonathan Medows I had outstanding New York income tax issues. I was behind by three years, thanks to a previous accountant who wasn’t very responsible. The problem with taxes is that it’s intimidating. The documents aren’t hard to read—they’re just not fun. This is the least pleasant stuff in the world. With Jonathan Medows, you know you’re taken care of, and that takes a load off your back because you don’t have to worry about the government taking everything you own. And this gives you time to focus on your business, which is crucial to its growth.

I know this because I own multiple small businesses in New York City, each of which has thrived since Jonathan Medows got me straightened out. After cleaning up all the old stuff, he got me on a schedule and taught me how to legitimize myself. As far as Manhattan small business income tax CPAs go, he’s the best.

A lot of people worry about New York income taxes, especially the legal issues around them, and this fear holds them back. Maybe you think the numbers are too much, or you won’t have the opportunity to keep up with everything. It’s a myth that it’s good to pay and get paid in cash, and just keep quiet about it. There’s a danger in avoidance, and in the long run it prohibits you from expanding as an entrepreneur and embarking on new projects. You can do so much better by being legitimate than by avoiding the issue. Don’t worry if you don’t know how to do it—Manhattan income tax CPA Jonathan Medows does.

At this point I just give him a stack of paperwork that the government sends to me and he deals with it. He does all the Manhattan tax planning, delivers everything, and keeps track of deadlines—and is professional about getting back to me via email or phone. He’s totally web friendly, so you can make an appointment online and know that it’s going to go through and be kept. Some accountants aren’t that organized—Jonathan Medows just takes care of stuff. You never hear any excuses or runarounds from the guy, which is almost unheard of from income tax CPAs in NYC.

So yeah, Jonathan’s there to help you out with all of your New York income tax needs. You can do it. There’s no danger. If you have money issues, he’ll work out a payment plan. Spend a little money now on his NYC income tax CPA services to set a solid foundation for the future, and in the long run it’ll enable you to do a lot of the things you need to do to function and grow.

Jonathan Medows, CPA

MEDOWS CPA, PLLC