Things to Tell Your Small Business Clients for Year-End Tax Planning

Roger Russell for AccountingToday.com writes: Among his end-of-year suggestions to his clients is the advantage of doing business as an S corporation. “We like to see the primary business taxed as an S corporation,” he said. “There are all sorts of legal benefits to an LLC, but it can still be taxed as an S corporation.”

Most LLCs are operating partnerships or sole proprietorships, according to Wheelwright. They get the limited liability protection while being taxed as a pass-through. “However, the downside is that the owners will be subject to self-employment tax,” he added. “If they’re a partnership or sole proprietor, then they probably report 100 percent of earnings from the business as subject to self-employment tax.”

“We’ve found the IRS to be very forgiving,” he added. “If we can make a retroactive S corporation election to the beginning of the year, we can considerably reduce self-employment tax for this year and going forward. Only the portion of earnings paid out as salary is subject to self-employment tax, while distributions are not.”

This is particularly so for medical professionals, Wheelwright noted.

“Prior to 1986 it made sense for them to be C corporations in order to maximize pensions,” he said. “Since then the rules have changed so you can get the same pension benefits contributions amount as the owner of an S corporation, so there’s no longer any tax reason for a physician to be a C corporation. It also causes headaches at the end of the year because you’ll have to pay out all of earnings as salary in order to avoid paying the high C corporation taxes.”

“If someone is considering whether to change to an S corporation, they have to look at the built-in gains issue, but most doctors are still better off making an S election as soon as possible, and getting rid of the downside of being a C corporation.”

Of course, not everything is shielded from the self-employment tax. The owner must be paid a reasonable salary, which is subject to the tax. Wheelwright observed that reasonable can mean “what you would pay someone else to do the same job.” For example, he said, “If the client is a chiropractor, they routinely hire other chiropractors on an hourly basis, some as low as $50 per hour. Of course, we want to pay ourselves as low as possible, but we don’t want it to be too low because then the IRS will come in and re-characterize distributions as salary.”

Wheelwright advises self-employed clients who regularly visit clients at their offices in varying locations to consider a home office. Accountants often portray the home office deduction as raising a red flag for the IRS, he observed. “But there’s no reason for a good tax professional to be afraid to take a deduction that’s specifically allowed in the code, as long as you’re following the rules,” Wheelwright said.

“A lot of people miss the fact that the home office deduction can serve to increase your deductions for automobile expenses, because it allows you to essentially eliminate your commute,” he said. “If you visit a number of clients at their offices, under the normal rule, the first and last trips would be nondeductible commuting expenses. But if you start from a home office, your first trip of the day is not a commute because your commute is 30 feet down the hall.”

Wheelwright recommends that accountants sit down with their clients and develop a tax strategy that is a long-term plan. “Don’t just tell them to max their IRA or 401(k), which just serves to postpone taxes to a later date,” he said. “Rather, look at how we can help clients permanently reduce taxes by changing expenses from non-deductible to deductible. For example, by changing the fact pattern, they can change the cost of dining out from a nondeductible expense to one that provides a legitimate deduction.”

“It can be with your spouse if it has a business purpose, and is ordinary and necessary,” he said. “There has to be a discussion with a business purpose, and it has to be ordinary, meaning it’s typical. It could be with your spouse, or someone not in the business. Just bouncing ideas off someone is an ordinary situation. The purpose is to increase the profitability of the business so there has to be a real business discussion. And it has to be substantiated. Keep track of who, what, when, where and why. This can all be done on the receipt itself, or in a diary.”

UK: Quickbooks intuit unpaid invoice fake PDF malware

MyOnlineSecurity writes: Quickbooks intuit unpaid invoice with  a zip attachment pretending to come from Elena.Lin@intuit.com <Elena.Lin@quickbooks.com> is another one from the current bot runs which try to download various Trojans and password stealers especially banking credential stealers, which may include cridex, dridex, dyreza and various  Zbots, cryptolocker, ransomware and loads of other malware on your computer. They are using email addresses and subjects that will entice a user to read the email and open the attachment. A very high proportion are being targeted at small and medium size businesses, with the hope of getting a better response than they do from consumers.

Almost all of these also have a password stealing component, with the aim of stealing your bank, PayPal or other financial details along with your email or FTP ( web space) log in credentials. Many of them are also designed to specifically steal your Facebook and other social network log in details.

All the alleged senders, companies, names of employees and phone numbers mentioned in the emails are all innocent and are just picked at random. Some of these companies will exist and some won’t. Don’t try to respond by phone or email, all you will do is end up with an innocent person  or company  who have had their details spoofed and picked at random from a long list that the bad guys have previously found.  The bad guys choose companies, Government departments and organisations  with subjects that are designed to entice you or alarm you into blindly opening the attachment or clicking the link in the email to see what is happening.

Please read our How to protect yourselves page for simple, sensible advice on how to avoid being infected by this sort of socially engineered malware.

The email looks like:

Please review the attached invoice and pay this invoice at your earliest convenience.  Feel free to contact us if you have any
questions.

Thank you.

4 December 2014 : invoice72.zip: Extracts to:    invoice72.scr           Current Virus total detections: 6/55

This is another one of the spoofed icon files that unless you have “show known file extensions enabled“, will look like a proper PDF file instead of the .exe file it really is, so making it much more likely for you to accidentally open it and be infected.

 Be very careful with email attachments. All of these emails use Social engineering tricks to persuade you to open the attachments that come with the email. Whether it is a message saying “look at this picture of me I took last night” and it appears to come from a friend or is more targeted at somebody who regularly is likely to receive PDF attachments or Word .doc attachments or any other common file that you use every day.

The basic rule is NEVER open any attachment to an email, unless you are expecting it. Now that is very easy to say but quite hard to put into practice, because we all get emails with files attached to them. Our friends and family  love to send us pictures of them doing silly things, or even cute pictures of the children or pets.

Never just blindly click on the file in your email program. Always save the file to your downloads folder, so you can check it first. Most ( if not all) malicious files that are attached to emails will have a faked extension. That is the 3 letters at the end of the file name. Unfortunately windows by default hides the file extensions so you need to Set your folder options to “show known file types. Then when you unzip the zip file that is supposed to contain the pictures of “Sally’s dog catching a ball” or a report in word document format that work has supposedly sent you to finish working on at the weekend,  you can easily see if it is a picture or document & not a malicious program. If you see .EXE or .COM or .PIF or .SCR at the end of the file name DO NOT click on it or try to open it, it will infect you.

While the malicious program is inside the zip file, it cannot harm you or automatically run. When it is just sitting unzipped in your downloads folder it won’t infect you, provided you don’t click it to run it. Just delete the zip and any extracted file and everything will be OK. You can always run a scan with your antivirus to be sure. There are some zip files that can be configured by the bad guys to automatically run the malware file when you double click the zip to extract the file. If you right click any suspicious zip file received, and select extract here or extract to folder ( after saving the zip to a folder on the computer) that risk is virtually eliminated. Never attempt to open a zip directly from your email, that is guaranteed way to get infected. The best way is to just delete the unexpected zip and not risk any infection.

Tapeke: The first personal finance application designed for Bitcoin with zero-knowledge privacy! / Something like Mint.com, for Bitcoin.

Tapeke writes: It’s been a long time since our last update, so let us say thank you for being patient while we have been working to deliver the first zero-knowledge (end-to-end encrypted) personal finance app for Bitcoin.

We are beyond excited to share our redesigned website with the world today, and on December 8th, the first few dozen invitation emails will be sent out to our private beta testing group.

Mission

It’s been almost one full year since Tapeke was first conceived. From day one, we set out to develop native Bitcoin software that would not only raise the bar for UX/UI design, but also held the security and privacy of our users in the highest regard. We committed to remain a completely bootstrapped, bitcoin-only startup and responsibly contain our enthusiasm for the project until we had a deliverable product. No lofty promises. No hype. No shenanigans. We just wanted to develop a tool that allows Bitcoin users to increasingly integrate Bitcoin into their regular financial life easily and securely. Our hope is that Tapeke can serve as an example that native Bitcoin apps can be practical and useful without neutering any of Bitcoin’s inherent strengths.

Vision

Tapeke is still very much a work in progress. We have so many plans for this product. Our features pipeline is just bursting at the seams with angst. We can’t wait to start sprints to add more cool features, but first Tapeke must prove it walks the walk. We are currently negotiating with respected members of the Bitcoin community who share our persistent advocacy for online privacy to independently audit the Tapeke code base and zero-knowledge process. Any vulnerabilities or issues uncovered by the audits, as well as their resolution, will be shared transparently with the community. We’ll learn how to make trustless apps and services together.

Growth

The concept and practice of learning is something we thought about deeply throughout the development process. Like anything else that’s new or one of a kind, Bitcoin has a distinct learning curve that’s fascinating in its own right. The process of ascending the curve is profoundly transformational. It can completely change a person. We’ve all seen it happen. Today, it’s easy to see dramatic changes in individuals who’ve been sprinkled with Satoshi’s pixie dust. It likely won’t be long until Bitcoin’s massive impact is seen across large groups. Bitcoin favors the curious, and it has some very important lessons to teach. One of the biggest lessons is that privacy actually does matter, and preserving one’s privacy is not abjectly suspicious.

As awareness of the dire importance of privacy and security online approaches critical mass, market demand for technologies that preserve privacy and choice is increasing and accelerating. Even the usually complacent tech giants are taking measures to give their users and their data the respect they deserve. Many people are attracted to Bitcoin because it puts them back in full control of their own wealth. The more people come to truly understand Bitcoin, the more they will grow a sincere appreciation for regaining control over the security and privacy of personal information too.

It’s not going to happen automatically or by random chance. We have to build today the world we want to live in tomorrow. The present conditions aren’t very habitable for autonomous control of digital information. The proper conditions need to be cultivated, and then fertilized with the economics of Bitcoin. Some special tools are required for this work, and we are super pumped to present Tapeke as one of these tools.

Gratitude

Thank you again for hanging in there with us. We’ve been so encouraged by our friends and colleagues checking in throughout our development to share their anticipation and support.

Stay tuned for those VIP Private Beta invites starting December 8th!

Please feel free to drop us a line anytime at team@tapeke.com, make sure you link up with us on social media, and share us with your friends.

Bitcoin & the IRS

John Weru Maina for Crytocoinnews.com writes: Benjamin Franklin once said that in life, nothing was certain save for death and taxes. That certainty has now extended to Bitcoin. In another sign of Bitcoin’s growing use, the USInternal Revenue Service has pronounced itself on how it is going to proceed vis-à-vis Bitcoin.

IRS to Treat Virtual Currency as Property

In a detailed notice posted on its website, the IRS said that it is aware that virtual currency such as Bitcoin may be used to pay for goods or services, or held for investment. The IRS sees virtual currency as a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

As a result of its lack of legal tender in any jurisdiction, the IRS has for the purposes of taxation elected to view bitcoin as property. This approach is likely to become problematic, especially as the volume of bitcoin transactions continues to grow.

Also read LibraTax Announces $500K Funding for IRS Compliant Bitcoin Tax Prep

Difficulties with Treating Bitcoin as Property

To illustrate why taxing Bitcoin as property might become problematic, let us consider the example of how the IRS would tax a barter transaction. If you were to work on a project, and are paid with a brand new sports car, the value of the sports car would be regarded as compensation for services rendered. The value of the sports car would be considered as income by the IRS. If say, for example, you went ahead and traded the new sports car for a laptop, the second trade would be a realized taxable transaction. In other words, the basis of the Bitcoin transferred to acquire the sports car is compared to the value of the item to which it is exchanged (the laptop), and any value increase would be viewed as income.

With the IRS’ decision to treat Bitcoin as property, the most problematic element becomes the method that the taxpayer would use to maintain adequate records so as to calculate the correct tax rate. Say, for example, a taxpayer has a cyber-wallet with Bitcoin from numerous transactions. The numerous transactions would in all likelihood have a different basis due to the fluctuations in the value of Bitcoin against fiat currencies such as the US dollar. The question that arises is how to identify the Bitcoin that the taxpayer uses and the method that will be used to reflect the basis.

However, that is not the only problem. There are other tax compliance issues to consider. For example, the IRS stipulates that its general tax principles that apply to property transactions, apply to transactions using virtual currency. Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by the employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules apply. Normally, payers must issue Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Many employers that are not very keen on withholding and reporting, will likely find it much easier to pay employees in virtual currency so as to fly under the radar. It is likely that this may be happening already.