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As pen and paper become mouse-clicks and keyboard strokes, understanding the importance of E-File authorizations and electronic signatures is critical for ensuring proper electronic tax return filing. Signatures, though not simply signing on the dotted line with a pen, are of equal significance when completed electronically.

We understand that electronic signatures are confusing, and it is easy to sign using unauthorized means, sign in the wrong place, or forget to sign somewhere. To make this process easy, Woodruff Accounting utilizes Citrix RightSignature, a secure program that clearly shows where clients need to sign a document or return and provides the proper signature security and authorization. RightSignature also allows you to sign a document on any device, and it clearly walks you through the places to sign a document. Simple, safe, secure.

Let us know if you have any questions about RightSignature or electronic filing!

Over the next few weeks, we will be posting some “Tips for Taxes” here on the Woodruff Accounting blog to help clients and prospective clients become more aware of some of the tools and tips we suggest to make Tax Season as easy for our clients as possible.

Today’s tip is about Citrix ShareFile: an online file-sharing system that we use to securely share documents between our firm and our clients. We love ShareFile because it is secure, straightforward, and provides for maximum visibility of your documents before, during, and after filing your taxes. Each client receives their own personal ShareFile login that allows them to easily share files with top-notch security and encryption.

We have a link to our ShareFile on the right sidebar of our website, so that it is easy to access from any page. Be sure to bookmark woodruffaccounting.com for easy access to ShareFile!

Image via “Americans for Tax Reform.”

One of the many recent governmental changes that affects business taxes is a change in bonus depreciation passed by Congress in December 2017. The new changes increase the bonus depreciation percentage from 50% to 100% for qualified assets purchased and put into service after September 27, 2017, and before January 1, 2023.

The bonus depreciation decreases in 2023 to 80%, 60% in 2024, 40% in 2025, 20% in 2026, and will not be available in 2027.

Contact us for more information or to discuss if you have assets that qualify for bonus depreciation.

If you are the owner of an S Corporation, how do you calculate what to pay yourself and other shareholders? The Watson CPA Group put together an article on this topic with wonderful illustrations to help you calculate shareholder salaries. Keep reading for an excerpt, or click here for the full article.

“Determining a reasonable shareholder salary is the hardest part of running an S corporation. What the heck do I pay myself? Before we get into that, let’s discuss why a reasonable S Corp wage needs to be just above bar napkin quality and just below NASA precision. The Watson CPA Group has been computing officer compensation since 2007, and we believe we have it dialed in as well as anyone can.

Scattered throughout our website and book we’ve stressed that the only tax savings an S Corp provides is the reduction of self-employment taxes, and in the case of S corporation compensation we are talking about Social Security and Medicare taxes (payroll taxes). When your company, or any company, pays you $10,000 in shareholder wages, 7.65% is withheld from your pay check for the employee’s portion of payroll taxes. This is broken down into 6.2% Social Security and 1.45% Medicare. Your company must also pay 7.65% for a combined percentage of 15.3%. Adding on 25% in income taxes equates to a 40% tax rate… yuck!

Therefore, a $10,000 shareholder salary costs you $1,530 in additional taxes beyond income taxes. Said in a different way, if you pay yourself $50,000 when $40,000 could have been a reasonable shareholder salary, you just wasted $1,530. Even a $5,000 delta equates to $765. As such, your S Corp officer compensation needs to be reasonable, sure, but it also needs to be as low as reasonableness and not-so-common sense will allow.

IRS S Corp Stats

Let’s jump right into some numbers first before going through reasonable S Corp salary theory developed from IRS revenue rules and tax court cases. The following table is a summary generated from IRS statistics on S corporation tax returns for the 2013 tax year. Yes, this is the most current. No, we do not know why a room full of servers can’t crunch this in real-time. So here we are-

First some quick observations. Officer compensation is added back to net income to determine officer comp as a percentage of net income. Next, this is all industries from capital intensive manufacturing to personal services business such as attorneys, doctors, consultants, engineers and accountants. Also, this includes S Corps who lost money, and whether they lost money and continued to pay a reasonable shareholder salary (officer compensation) is unclear. In other words, if losses were teased out would officer compensation be reduced as a percentage of net income? We cannot quickly determine.

Here is the same data grouped by gross receipts but detailed by selected industries. First one is $100,000 to $249,999 in gross receipts-

And now for $250,000 to $499,999 in gross receipts-

There you go. Remember that officer compensation includes all fringe benefits such as self-employed health insurance and HSA contributions, and it might be influenced (increased) by those who want to maximize 401k deferrals and / or defined benefits pensions.”

As your CPA, we are trusted to help you navigate challenges and mitigate risks. The top risk individuals and business face today is Cybersecurity. With cyber attacks, malware, phishing emails, and more on the rise, it is more important than ever to be alert and informed on how to stay protected from cyber theft and crimes.

October is National Cybersecurity Awareness Month, which is a great time to reflect on ways to protect yourself and/or your company from cyber crime. Below are links provided by the American Institution of Certified Public Accountants (AICPA) that give you a glimpse of information we are focusing on regarding your business security challenges.

• The AICPA Cybersecurity Resource Center is your hub for all things cybersecurity. Whether you’re looking to keep your business safe, or you are an experienced technology professional interested in offering cybersecurity services, the tools you need are here.
• Need information about protecting your organization? Check out the CGMA Cybersecurity Tool for risk, response and remediation strategies.
•  The AICPA Insights blog contains articles and information that we reference for protecting our clients’ tax data.
• The AICPA is releasing new resources from leading experts all month long on their Facebook page, Go Beyond Disruption podcast, and Insights blog.

Image: NASA

In the wake of Hurricane Florence, the IRS has announced tax relief for South Carolina residents and businesses affected by Hurricane Florence. As of October 3, 2018, eligible South Carolina counties include Chesterfield, Darlington, Dillon, Florence, Georgetown, Horry, Marion, and Marlboro.

According to the IRS announcement, “certain deadlines falling on or after Sept. 8, 2018 and before Jan. 31, 2019, are granted additional time to file through Jan. 31, 2019. This includes taxpayers who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018. It also includes the quarterly estimated income tax payments due on Sept. 17, 2018 and Jan. 15, 2019, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2018. It also includes tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15, 2018.

“The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.”

An article by Drake Software explains, “If a qualified taxpayer gets a late filing or late payment notice from the IRS with a due date within the postponement period, the taxpayer should call the telephone number given on the written notice to have the IRS abate the penalty.”

Read more from the IRS and Drake Software for additional information.

The Child Tax Credit is an important tax credit that may save you up to $1,000 for each eligible qualifying child. Be sure you qualify before you claim it. Here are four useful facts from the IRS on the Child Tax Credit:

1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:

• Age. The child must have been under age 17 at the end of 2015.
• Relationship. The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, or half sister. The child may be a descendant of any of these individuals. A qualifying child could also include your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
• Support. The child must have not provided more than half of their own support for the year.
• Dependent. The child must be a dependent that you claim on your federal tax return.
• Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
• Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
• Residence. In most cases, the child must have lived with you for more than half of 2015.

2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate your credit depending on your filing status and income.

3. Additional Child Tax Credit. If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the Additional Child Tax Credit.

4. Schedule 8812. If you qualify to claim the Child Tax Credit, make sure to check if you must complete and attach Schedule 8812, Child Tax Credit, with your tax return. For example, if you claim a credit for a child with an Individual Taxpayer Identification Number, you must complete Part I of Schedule 8812. If you qualify to claim the Additional Child Tax Credit, you must complete and attach Schedule 8812. You can visit IRS.gov to view, download or print IRS tax forms anytime.

ALERT!!! SC refunds are starting to come in!  The SC refunds are coming in the mail instead of being Direct Deposited into your bank account… Please be on the lookout for your refunds!! We were not given an explanation as to why this is happening only that it is!!

Thanks,                                                                                                                                                                Woodruff Accounting

Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

• Dependents.  In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.
• Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see Schedule 8812 and Publication 972, Child Tax Credit.
• Child and Dependent Care Credit.  You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or look for work. SeePublication 503, Child and Dependent Care Expenses, for more on this credit.
• Earned Income Tax Credit.  You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify with or without children. Use the 2015 EITC Assistant tool at IRS.gov to find out if you qualify. See Publication 596, Earned Income Tax Credit, to learn more.
• Adoption Credit.  You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
• Education Tax Credits.  An education credit can help you with the cost of higher education.  Two credits are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim them. Visit the IRS’sEducation Credits Web page to learn more on this topic. Also, seePublication 970, Tax Benefits for Education.
• Student Loan Interest.  You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.
• Self-employed Health Insurance Deduction.  If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. SeePublication 535, Business Expenses, for details.

You can get related forms and publications on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

The Affordable Care Act includes the individual shared responsibility provision and the premium tax credit that may affect your tax return. This year marks the first time that certain taxpayers will receive new health-care related information forms that they can use to complete their tax return and then keep with their tax records.

Information Forms – Forms 1095-A, 1095-B and 1095-C

Depending upon your specific circumstances, the Health Insurance Marketplace, health coverage providers, and certain employers may provide information forms to you early in 2016. These forms can help you accurately report health coverage information for you, your spouse and any dependents when you file your 2015 individual income tax return in 2016. The Marketplace, health coverage providers, and employers will also file these forms with the IRS.

The information forms are:

• Form 1095-A, Health Insurance Marketplace Statement: The Health Insurance Marketplace sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.  This is the second year in which the Marketplace is issuing Form 1095-A to enrollees.
• Form 1095-B, Health Coverage: Health insurance providers – for example, health insurance companies – send this new form to individuals they cover, with information about who was covered and when.
• Form 1095-C, Employer-Provided Health Insurance Offer and Coverage: Certain employers send this new form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.

The list below highlights key elements regarding these information forms:

• The deadline for the Marketplace to provide Form 1095-A is February 1, 2016.
• The deadline for coverage providers to provide Forms 1095-B and employers to provide Form 1095-C is March 31, 2016.
• If you are expecting to receive a Form 1095-A, you should wait to file your 2015 income tax return until you receive that form.
• Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. It is not necessary to wait for Forms 1095-B or 1095-C in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns
• These new forms should not be attached to your income tax return.

See our questions and answers that explain who should expect to receive the forms, how they can be used, and how to file with or without the forms, and that address various other questions you may have about these new forms.

Individual Shared Responsibility Provision

The individual shared responsibility provision requires everyone on your tax return to have qualifying health care coverage for each month of the year orhave a coverage exemption. Otherwise, you may be required to make anindividual shared responsibility payment.

The list below highlights key elements of the individual shared responsibility provision:

• If you maintain qualifying health care coverage for the entire year, you don’t need to do anything more than report that coverage on your federal income tax return by simply checking a box. Qualifying coverage includes most employer-sponsored coverage, coverage obtained through a Health Insurance Marketplace, coverage through most government-sponsored programs, as well as certain other specified health plans.

• If you go without coverage or experience a gap in coverage, you may qualify for an exemption from the requirement to have coverage. If you qualify for an exemption, you use Form 8965, Health Coverage Exemptions, to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.

• If for any month during the year you don’t have qualifying coverage and you don’t qualify for an exemption, you will have to make anindividual shared responsibility payment when you file your federal income tax return.
• The payment amount for 2015 is the greater of 2 percent of the household income above the taxpayer’s filing threshold, or $325 per adult plus $162.50 per child (limited to a family maximum of $975). This payment is capped at the cost of the national average premium for a bronze level health plan available through Marketplaces that would provide coverage for the taxpayer’s family members that neither had qualifying coverage nor qualify for a coverage exemption. The instructions for Form 8965, Health Coverage Exemptions, provide the information needed to calculate the payment that will be reported on you federal income tax return.
• Form 1095-B will be sent to individuals who had health coverage for themselves or their family members that is not reported on Form 1095-A or Form 1095-C. Form 1095-A will be sent to individuals who enrolled in health coverage for themselves or their family members through the  Marketplace. Form 1095-C will be sent to certain employees of applicable large employers.
• Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. It is not necessary to wait for Forms 1095-B or 1095-C in order to file. Taxpayers may instead rely on other information about their health coverage and employer offer to prepare their returns

Health Coverage Exemptions

Individuals who go without coverage or experience a gap in coverage may qualify for an exemption from the requirement to have coverage.

• You may qualify for an exemption if one of the following applies:

• You do not have access to affordable coverage
• You have a one-time gap of less than three consecutive months without coverage
• You qualify for one of several other exemptions, including a hardship exemption
• How you get an exemption depends upon the type of exemption. You can obtain some exemptions only from the Marketplace in the area where you live, others only from the IRS when filing your income tax return, and others from either the Marketplace or the IRS. For more information, visit IRS.gov/aca or see the instructions to Form 8965.
• If you qualify for an exemption, you use Form 8965 to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.

Premium Tax Credit

For an explanation of the Premium Tax Credit see IRS Fact Sheet 2016-05, entitled “Tax Credit Helps Make Health Insurance Affordable for Middle-Class Americans.”

More Information

Remember that filing electronically with tax preparation software is the quickest and easiest way to file a complete and accurate tax return, as the software guides you through the filing process and does all the math for you.

For more information about the premium tax credit or the individual shared responsibility payment, visit IRS.gov/aca. For more information about the Marketplace, visit HealthCare.gov. For more information on the new health care related information forms, see the Form 1095 questions and answers.