The IRS announced it is opening the 2019 individual income tax return filing season on January 27. Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing as soon as you can this year. The reason: You can potentially protect yourself from tax identity theft — and you may obtain other benefits, too.
In a tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund. The legitimate taxpayer discovers the fraud when he or she files a return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the valid one, tax identity theft can cause major headaches to straighten out and significantly delay a refund. Filing early may be your best defense: If you file first, it will be the tax return filed by a would-be thief that will be rejected, rather than yours. Note: You can get your individual tax return prepared by us before January 27 if you have all the required documents. It’s just that processing of the return will begin after IRS systems open on that date.
To file your tax return, you must have received all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2019 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2019 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors). If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.
Besides protecting yourself from tax identity theft, another benefit of early filing is that, if you’re getting a refund, you’ll get it faster. The IRS expects most refunds to be issued within 21 days. The time is typically shorter if you file electronically and receive a refund by direct deposit into a bank account. Direct deposit also avoids the possibility that a refund check could be lost or stolen or returned to the IRS as undeliverable. And by using direct deposit, you can split your refund into up to three financial accounts, including a bank account or IRA. Part of the refund can also be used to buy up to $5,000 in U.S. Series I Savings Bonds.
What if you owe tax? Filing early may still be beneficial. You won’t need to pay your tax bill until April 15, but you’ll know sooner how much you owe and can plan accordingly. Be an early-bird filer If you have questions about tax identity theft or would like help filing your 2019 return early, please contact us. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.
A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.
- Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
- There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
- There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.
These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.
In 2018, businesses reported losing over $7 billion dollars to fraud schemes. Small businesses reported losing a median $200,000 due to fraud, while businesses with more than 100 employees reported $104,000 in loses due to fraud. This presents a big issue when it comes to small businesses and what can be done to prevent becoming a victim to fraud. This article will delve into what a fraudster looks like, the reasoning behind committing fraud, common frauds plaguing small businesses and prevention methods that could be put into place for a small business owner.
So, what does a fraudster look like you may ask? There is no way to answer that question because fraudsters take many forms. Fraud can be committed by your most trusted employee, your best friend, and even a relative. The fraud triangle is a tool used by many forensic accountants to determine why someone commits fraud. There are three elements that must be met for a fraud to occur. The first element that must be met is perceived unshareable financial need on the part of the fraudster. This could be unexpected medical bills, car maintenance, or simply just living paycheck to paycheck. The next element that must exist is perceived opportunity. This means that an employee feels that he or she can reasonably commit the fraud and not get caught. And lastly, an employee must be able to rationalize the fraud. This is as simple as saying “the company makes enough money,” or “I don’t get paid enough.” These three elements form the fraud triangle, and have been noted in every fraud case brought to light.
Small businesses encounter many challenges in day-to-day operation. Fraud can easily slip through the cracks. Some of the most common frauds to watch out for are payroll fraud, cash theft, online banking, and fake vendors or invoices. Due to the increasing reliance on technology, paychecks are directly deposited into the employees account without the owner ever signing off. This allows for a payroll preparer to alter his or her pay, click submit, and no one is the wiser. Another fraud plaguing mostly cash businesses is skimming, which is when an employee takes cash paid to the business and puts it directly in their pocket without the owner’s knowledge. This can create a cash flow vs. inventory problem, but it likely won’t be detected until it’s too late. Online banking allows funds to be transferred from the company account to other bank accounts. An employee with access to the bank account can easily send him or herself money from the company account, and without watchful oversight, the transfer would likely go undetected. Lastly, companies should spot check invoices being paid out. Anyone with a computer can put a fake logo on an invoice template and make it seem like a legitimate business expense. Know your vendors and know what products you are actually receiving versus what you are being invoiced for.
Though it may seem impossible for a small business to deter and detect fraud, there are internal controls that can be put in place to ensure that you are not the next victim of the 2,500 plus cases of fraud committed annually. One of the best internal controls in my opinion is the separation of duties. The person that approves invoices to be paid should not be the one writing the check to pay the vendor. Ideally a business should have a third person involved to sign the check before it is sent out. Another internal control is to create a control environment. Basically, promote ethical values and integrity within your business at all times. This could even include a way to discreetly report fraud as 40% of all reported frauds in 2018 were discovered because of an employee tip. A final internal control is an internal audit. Randomly select work done by employees with financial roles within your business to ensure accuracy and that company procedures are being followed.
One of the most important sayings I was taught throughout my tenure at Georgia Southern University (Go Eagles!) is “Trust but verify.” Trust that your employees are being honest and ethical, but verify by setting up internal controls and having appropriate checks and balances within your organization. Although you may think you know and fully trust your employees, you never know what their true ulterior motive may be.
All statistics taken from the 2018 Report to the Nations published by the Association of Certified Fraud Examiners. A copy is available for download at https://www.acfe.com/report-to-the-nations/2018/default.aspx.
T. Chase Matthews
Chase is a Certified Fraud Examiner with KRT, CPAs and is double jointed in his hands and arms.
Here are some key tax-related deadlines affecting businesses and other employers during the first quarter of 2020. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. If you have any questions. contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
January 31: File 2019 Forms W-2, “Wage and Tax Statement”, with the Social Security Administration and provide copies to your employees. Provide copies of 2019 Forms 1099-MISC, “Miscellaneous Income”, to recipients of income from your business where required. File 2019 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS. File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return”, for 2019. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return. File Form 941, “Employer’s Quarterly Federal Tax Return”, to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2019. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return”.) File Form 945, “Annual Return of Withheld Federal Income Tax”, for 2019 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
February 28: File 2019 Forms 1099-MISC with the IRS if 1. They’re not required to be filed earlier and 2. You’re filing paper copies. (Otherwise, the filing deadline is March 31.)
March 16: If a calendar-year partnership or S corporation, file or extend your 2019 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2019 contributions to pension and profit-sharing plans
If you’re starting to fret about your 2019 tax bill, there’s good news — you may still have time to reduce your liability. Three strategies are available that may help you cut your taxes before year-end, including:
1. Accelerate deductions/defer income. Certain tax deductions are claimed for the year of payment, such as the mortgage interest deduction. So, if you make your January 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize). Pushing income into the new year also will reduce your taxable income. If you’re expecting a bonus at work, for example, and you don’t want the income this year, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay your invoices until late in December to divert the revenue to 2020. You shouldn’t pursue this approach if you expect to land in a higher tax bracket next year. Also, if you’re eligible for the qualified business income deduction for pass-through entities, you might reduce the amount of that deduction if you reduce your income.
2. Maximize your retirement contributions. What could be better than paying yourself instead of Uncle Sam? Federal tax law encourages individual taxpayers to make the maximum allowable
contributions for the year to their retirement accounts, including traditional IRAs and SEP plans, 401(k)s and deferred annuities. For 2019, you generally can contribute as much as $19,000 to 401(k)s and $6,000 for traditional IRAs. Self-employed individuals can contribute up to 25% of your net income (but no more than $56,000) to a SEP IRA.
3. Harvest your investment losses. Losing money on your investments has a bit of an upside — it gives you the opportunity to offset taxable gains. If you sell underperforming investments before the end of the year, you can offset gains realized this year on a dollar-for-dollar basis. If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income. Any remaining losses are carried forward to future tax years. We can help The strategies described above are only a sampling of strategies that may be available.
Contact us if you have questions about these or other methods for minimizing your tax liability for 2019.