Archive for the ‘due date’ Tag

It’s Friday April 15 and Taxes Aren’t Due?

Originally published in the Cedar Street Times

April 15, 2016

If you were (or still are!) a last minute tax return filer, you may have some pleasant news this year – you have three more days to procrastinate!  If you are reading this article on April 15, you might be wondering, “Why is it a normal workday, and my taxes are not due?”

The answer is “Emancipation Day.”  No, we are not talking about emancipation from taxation, but emancipation from slavery.  On April 16, 1862, President Lincoln signed the District of Columbia Compensated Emancipation Act.  This act freed slaves in Washington, D.C., and compensated the prior slave owners for having to give up what was perceived as a financial loss.  This was the only instance were prior slave owners were compensated by the federal government.

The importance of the District of Columbia Compensated Emancipation Act is that it was seen as the first major victory that led to the abolition of slavery.  There had been attempts in the past to accomplish similar feats, but they had all failed.  In fact, when Abraham Lincoln was still a Senator, he tried in 1849 to accomplish this task, but it did not get enough votes to pass the legislature.  Even the decade prior to that saw several failed attempts spearheaded by others.

The District of Columbia Compensated Emancipation Act served as a precursor to the much broader Emancipation Proclamation, nine months later, that freed all slaves in Confederate territories.  Whereas the District of Columbia Compensated Emancipation Act freed about 3,000 enslaved people, the Emancipation Proclamation freed about three million enslaved people!

The Emancipation Proclamation, although often thought of as abolishing slavery, did not actually do so.  It was a wartime power instituted by Lincoln (not voted on by Congress), and it only freed slaves in the Confederate territories that were rebelling.  There were still four non-Confederate states in the South where slavery was legal, even after the Emancipation Proclamation.  It was not until the 13th Amendment to the Constitution was passed, and then ratified on December 6, 1865, that slavery was officially abolished in the United States.

The District of Columbia Compensated Emancipation Act, although celebrated in various capacities since 1862, did not become an official legal holiday in Washington D.C. until 2005.  The first year the tax return filing deadline was changed was for the 2006 tax returns due April 17, 2007.  Since the Emancipation Day Celebration fell on a Monday, and the IRS deadline is always the next business day if the 15th falls on a nonbusiness day, the due date was bumped to Tuesday the 17th.  That year, only Washington D.C. residents received an extra day, and everybody else still had to file on April 16.

Tax year 2011 was the next conflict, and the first time the whole country received an extra day, and is just like this year where April 15 falls on a Friday.  Whereas, the IRS moves their due date to the next business day when April 15 falls on a nonbusiness day, the Emancipation Day celebration moves to the prior business day.  Since April 16 was a Saturday in 2011, as it is now, Emancipation Day moves its celebration to Friday April 15, and then the IRS turns around and says, “Okay, today is a holiday, so we move our due date to the next business day,” which results in Monday the 18th!  Phew!  And fortunately California says, “We will just do whatever the IRS does,” – a rare but appreciated concession in a state that enjoys nonconformity.

Prior articles are republished on my website at www.tlongcpa.com/blog .

Travis H. Long, CPA, Inc. is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. Travis can be reached at 831-333-1041. This article is for educational purposes.  Although believed to be accurate in most situations, it does not constitute professional advice or establish a client relationship.

Property Taxes on Equipment, Furniture, Tools, Etc. Due April 1

Originally published in the Cedar Street Times

March 7, 2014

Many people starting up a small business for the first time are surprised to learn that there are business personal property taxes due each year on the value of everything from the chair they sit in, to their computer, to the pads of paper in the supply closet.  Most people are familiar with property taxes assessed on their home each year, but a business is also taxed on all of its personal property.  When I say personal property, I mean anything that is tangible, but is not real property (real estate).  Intangible assets like copyrights, patents, goodwill, or even software are generally not subject to tax.

This business property tax is established in the California Constitution and the Revenue and Taxation Code.  It falls under the jurisdiction of the California Board of Equalization (the same group that handles sales tax), but it is administered by and filed with the assessor’s office of each county.  For most businesses, the form to file is BOE-571-L (BOE-571-A for agricultural businesses), and it is due on April 1st of each year.  Even though the form is due on April 1st, there is a grace period, and you technically have until May 7th to postmark the form so it will not be delinquent.  (This is much appreciated by CPAs that are working to get income tax returns completed by April 15!)  It is also important to note that the reporting covers your property that existed as of January 1st, and not as of the date you fill out the form.

Maybe you have been in a business for a few years, or maybe 20 years in unusual cases and have never seen a request for this form.  Are you in trouble?  There is an interesting rule that states if the total cost of your business personal property is under $100,000, you do not have to voluntarily start filing the form.  That would cover a lot of small businesses.  However, if you receive a request from the assessor’s office to file the form, you must file every year going forward.  As information sharing has become more mainstream among various government agencies, it is fairly common to get a request in the first year or two you operate, even as a tiny sole proprietor.

The BOE-571-L asks you to break down your property into various categories and by year of purchase.   As the property gets older, it is assessed less each year.  (Tip: retain a copy of your submitted form for reference when filing for the next year.)  Each form is processed by hand.  The assessors appreciate having attached lists that identify more specifically the property you list in the various categories and years.  As you will see on the form, it is not always clear which category to put things in.  For instance, the word equipment is used in four different categories, and you might not be sure where it should be included.  Categories are assessed and depreciated at different rates, so the assessor has a better chance of assessing you the correct tax if you provide more information.  If you have questions, you can call the Monterey County Assessor’s office at 831-755-5035 and ask for the business property tax department.  They are generally available to answer any questions you may have.

It is probably fairly obvious that computers, printers, copiers, furniture, equipment, machinery, and tools are assessed.  In addition, the supplies you have on hand for your business are assessed.  If you do not have a good idea of this value, one approach, or instance, may be to take your office supplies account in your accounting records and divide by 12 if you think you keep about a month of supplies on hand.

Leased property such as a copy machine, is an area that people sometimes overlook.  Your lease agreement will indicate whether you, or the company you lease from is responsible for the property taxes.  If you are responsible, you need to report it on your BOE-571-L.  Licensed vehicles through the Department of Motor Vehicles (DMV) do not need to be reported here whether owned or leased, as they are being taxed through the DMV.

Structural improvements, fixtures, land improvements, construction in progress, and land development are required on the form as well.  Generally, however, structural improvements, land improvements, and land development information is not assessed by the business property tax division and is passed along to the real property division for them to decide whether or not to assess it, or wait for the next time the property as a whole is assessed. Construction in progress would be assessed by the business property tax department: i.e. – you have spent $200,000 in construction on a building that is not complete at the end of the year.  Once the building was completed, the business property tax department would stop assessing it, and the real property department would start assessing it.

Fixtures such as counters, sinks, lights, bolted down equipment, etc. would generally be assessed by the business property tax department.  If you are a tenant and pay for any leasehold improvements, you should report and will be assessed on those as well.  Most leases are written that the property becomes the landlord’s after the tenant moves out of the space.

One final issue that often comes up in an audit is whether or not the business has property that was purchased and immediately expensed on its books and tax returns, and therefore do not show up on depreciation schedules, which is often the main source for reportable property.  In the code, there is no immateriality exclusion for something as small as a stapler, but in practice the auditor is not going to assess you on those items.  You should look for more significant items, however, such as the $400 in books you bought for your business library.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

SIMPLE IRA Salary Deferrals Due Jan. 30 for Self-Employed

Originally published in the Cedar Street Times

January 24, 2014

One commonly used retirement plan by small business owners is a SIMPLE IRA plan.  SIMPLE IRA is simply an acronym for “Savings Incentive Match Plan for Employees Individual Retirement Account.”  The plan is, well, fairly simple to set up and operate as well.  You simply fill out the simple SIMPLE form by October 1 and find a custodian such as Vanguard, Schwab, Fidelity, or others to handle the money and you are in business.

There are generally no costs or nominal costs to setup and operate the plan, depending on the custodian and amounts invested, and there are no required annual plan filings with the government.  This has made them appealing for many small companies with employees compared to a 401(k).  For 2013, participants can defer up to $12,000 of their earned wages plus another $2,500 catch-up contribution if over age 50.

The employer also agrees to make a three percent maximum matching contribution.  For example, if the employee defers nothing into the plan from his or her salary, then the employer has no match requirement.  If the employee defers two percent, the employer has to contribute two percent.  If the employee defers three percent, then the employer has to match three percent.  If the employee defers more than three percent, the employer still only has to contribute three percent. (The employer also has the option to select a two percent nonelective contribution in lieu of the three percent match.  This means the employer contributes two percent whether or not the employees contribute anything.)

The employer match portion is in addition to the $12,000 salary deferral and possible $2,500 catch-up contribution.  The three percent match also has a salary cap of $255,000.  So the maximum employer match is $7,650.  I know what most of you are thinking right now…”Gee, that means I will only get a match on the first third of my salary. What a rotten deal!”  Ha!  If you have one of those jobs paying over $750,000 a year, your company is in the wrong plan!

The employer has to remit the employee’s salary deferral portion to the SIMPLE custodian as soon as reasonably can be done, but  in any case no later than thirty days after the end of the month in which the employee’s paycheck was dated.  If the deferral is sent to the custodian within seven days of the paycheck date, it is a safe harbor and will always be considered timely deposited.  The employer match portion, however, can be paid as late as the tax return due date for the employer, including extensions.

So how does it work with the business owner and his or her deferrals?  What about the match?  If the business is setup as an entity such as a corporation and the owner receives a paycheck like any other employee, then the same rules apply that apply to the other employees.

If the owner is self-employed however, such as a sole proprietorship, the net earning for the entire year are considered earned/paid on the last day of the year, and the owner must remit the salary deferral portion to the custodian by January 30th (30 days after month end) of the following year.  So 2013 salary deferrals for a self-employed individual are due in six days.  (This includes the $12,000 plus the $2,500 catch-up if applicable.)

The three percent match is not due until the tax return due date for the owner (generally April 15), including any extensions filed (generally October 15).  The employer match of three percent for the owner is calculated based on the amount of Schedule SE, section A, line 4, or Section B, line 6, before subtracting any contributions to the plan for the owner.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.