If you pay attention to the financial news, you’ve likely heard that we may — or may not — be in the midst of a recession. While experts argue over whether or not two consecutive periods of falling gross domestic period necessarily confirm an overall decline in economic activity, small business owners have more pressing questions, like, “How is a recession going to affect my business?” and “What can I do to make sure my business survives?”
If you are an employee who works for tips and received more than $20 in tips during July, you are required to report them to your employer on IRS Form 4070 no later than August 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
For small business owners, in particular, growing a business has always been something of a challenge. On the one hand, you don’t want to grow too quickly – doing so can significantly damage the trajectory that you’ve set out on. But at the same time, you also don’t want to grow too slowly as this too can cause you to remain stagnant and get passed by some of your competitors.
August 10 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during July, you are required to report them to your employer on IRS Form 4070 no later than August 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
August 1 – Social Security, Medicare, and Withheld Income Tax
File Form 941 for the second quarter of 2022. Deposit or pay any un-deposited tax under the accuracy of deposit rules. 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 August 10 to file the return.
The United States economy is nothing if not cyclical – which can be a good thing or a bad thing depending on when, exactly, you’re trying to operate a business.
According to one recent study, roughly 57% of small business owners say that they fear the U.S. economy will only get worse over the last year. Many are worried that if something doesn’t change, things could get as bad as they were in April 2020. Keep in mind that many of these small business owners are still very much feeling the impact of the onset of the COVID-19 pandemic that took place during that period of time.
This is the time of year for many couples to tie the knot. When you marry, here are some post-marriage tips to help you avoid stress at tax time.
Taxpayers often question how long records must be kept and the amount of time IRS has to audit a return after it is filed.
It all depends on the circumstances! In many cases, the federal statute of limitations can be used to help you determine how long to keep records. With certain exceptions, the statute for assessing additional tax is 3 years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal limitation. The reason for this is that the IRS provides state taxing authorities with federal audit results. The extra time on the state statute gives states adequate time to assess tax based on any federal tax adjustments that also apply to the state return.
If you have a second home in a resort area, or if you have been considering acquiring a second home or vacation home, and with summer just around the corner, you may have questions about how rental income is taxed for a part-time vacation-home rental. The applicable rental rules include some interesting twists that you should know about before you begin renting. Although some individuals prefer to never rent out their homes, others find such rentals to be a helpful way of covering the cost of the home. For a home that is rented out part time, one of three rules must be considered, based on the length of the rental:
- Home Rented for Fewer Than 15 Days – If a property is rented out for fewer than 15 days in a year, the property is treated as if it were not rented out at all. The rental income is tax-free, and the interest and taxes paid on the home are still deductible as part of itemized deductions and within the usual limitations. In this situation, however, any directly related rental expenses (such as agent fees, utilities, and cleaning charges) are not deductible. This rule can allow for significant tax-free income, particularly when a home is rented as a filming location or during a major sports event such as the Super Bowl.
- Home Rented for At Least 15 Days with Minor Personal Use – In this scenario, the home is rented for at least 15 days, and the owners’ personal use of the home does not exceed the greater of 15 days or 10% of the rental time. The home’s use is then allocated as both a rental home and a second home. For example, if a home is used 5% of the time for personal use, then 5% of the interest and taxes on that home are treated as home interest and taxes; these costs may be deductible as itemized deductions. The other 95% of the interest and taxes, as well as 95% of the insurance, utilities, and allowable depreciation, count as rental expenses (in addition to 100% of the direct rental expenses). If the rental income less the expenses result in a loss, the loss is limited to $25,000 per year for a taxpayer with adjusted gross income (AGI) of $100,000 or less and is ratably phased out when AGI is between $100,000 and $150,000. Thus, if a taxpayer’s income exceeds $150,000, the rental loss cannot be deducted; it is carried forward until the home is sold or until there is rental profit in a future year or the taxpayer has gains from other passive activities that can be used to offset the loss.
- Home Rented for At Least 15 Days with Major Personal Use – In this scenario, a home is rented for at least 15 days, but the owner’s personal use exceeds the greater of 14 days or 10% of the rental time. With such major personal use, no rental-related tax loss is allowed. For example, consider a home that has personal use 20% of the time and is a rental for the remaining 80%. The rental income is first reduced by 80% of the combined taxes and interest. If the owner still makes a profit after deducting the interest and taxes, then direct rental expenses and certain other expenses (such as the rental-prorated portion of the utilities, insurance, and repairs) are deducted, up to the amount of the remaining income. If there is still a profit, the owner can take a deduction for depreciation, but this is also limited to the remaining profit. As a result, no loss is allowed, and any remaining profit is taxable. The interest and taxes from the personal use (20% in this example) are deducted as itemized deductions, which are subject to the normal interest and tax limitations.
Vacation Home Sales – A vacation-home rental is considered a personal-use property. Gains from the sales of such properties are taxable, and losses are generally not deductible.
Unlike primary homes, second homes do not qualify for the home-gain exclusion. Any gain from a second home is taxable unless it served as the taxpayer’s primary residence for two of the five years immediately preceding the sale and was not rented during that two-year period. In the latter scenario, the taxpayer does qualify for the home-gain exclusion, if he or she has not used that exclusion for another property in the prior two years. As a result, the home-gain exclusion can offset an amount of gain that exceeds the depreciation previously claimed on the home; this amount is limited to $250,000 for an individual or $500,000 for a married couple filing jointly (if the spouse also qualifies).
There are complicated tax rules related to the home-gain exclusion for homes that are acquired in a tax-deferred exchange or converted from rentals to primary residences. Homeowners may require careful planning to utilize the home-gain exclusion in such cases.
As an additional note, when a property is rented for short-term stays or when significant personal services (such as maid services) are provided to guests, the taxpayer likely will be considered a business operator rather than just an individual who is renting a home. If so, the reporting requirements will differ from those outlined above.
As with all tax rules, there are certain exceptions to be aware of. Please call this office to discuss your situation in detail.
June 15 – Employer’s Monthly Deposit Due
If you are an employer and the monthly deposit rules apply, June 15 is the due date for you to make your deposit of Social Security, Medicare, and withheld income tax for May 2022. This is also the due date for the non-payroll withholding deposit for May 2022 if the monthly deposit rule applies.
June 15 – Corporations
Deposit the second installment of estimated income tax for 2022 for calendar year corporations.
If you have any questions, please give us a call.
