Download to read offline
More Related Content
DHLS_DEC_2016_Newsletter
- 1. Dworken, Hillman, LaMorte& Sterczala, P.C. December 2016 Issue In this issue: • Partner versus Employee in the eyes of the IRS • Take Note of these Filing Deadline Changes Now! Being GREEN = Emailing future issues! Please send your current email address to Lynn at lynnb@dhls.com (Addresses of colleagues friends are also welcome.) continued on page 2 continued on page 2 Partner versus Employee in the eyes of the IRS By Robert Vieira nd Taxes Employment Benefits Bookkeeping Services Non Profit Partnerships are formed when two or more people agree to combine knowledge, labor, assets, and/or money for the purpose of lessening the risk to the partners by sharing the profits and losses. As a reminder, most LLC’s are taxed as partnerships, so LLC members are treated as partners for tax purposes. As with many partnerships, they start out with just friends or colleagues and the partners do the majority of the work, from running the partnership to doing the bookkeeping. As the business grows and becomes more profitable, partners may decide to take on employees so they can spend their time running the business and making it grow. Now that the partnership is employing people, the partners may want to reward the employee a percentage of the partnership for equity-oriented compensation or other various reasons, like retaining or attracting em- ployees. Maybe you’re the partner and want to be treated as an employee because the services you provide would normally be expected from an employee. There is no issue with giving an employee a percentage of your partnership. The problem comes into play as soon as that employee receives a percentage of the partnership; at that point, the employee is no longer considered an employee and is now treated as a partner. Similarly, a partner cannot be treated as an employee. In the eyes of the Internal Revenue Service, an individual cannot be both an employee and a partner in that partnership. You can be one or the other, but not both. No matter how small the percentage is, a partner with a .001% ownership that partner cannot be treated In 2017, there will major changes to some of the tax filing deadlines for 2016 fiscal calendar year-end. These changes will affect most non-individual tax return filing dates. If you have questions as to other tax filings that you file, please contact us to see if you will be affected. The reason for the changes, according to the American Institute of CPAs (AICPA), is to: • improve the accuracy of tax and information returns by allowing corporations and individuals to file using current data from flow-through returns that have already been filed rather than relying on estimates; • better facilitate the flow of information between taxpayers (i.e., corporations, partnerships, and individuals); as an employee. The reason is that the IRS has a no de minimis exception. The same rule applies to a partner in a partnership with a disregarded entity. A partner cannot be an employee of the disregarded single- member LLC (SMLLC). When a partner is being treated as an employee, the partnership opens itself up to major tax consequences with the IRS and state tax agencies. In this case, the Take Note of these Filing Deadline Changes By Robert Vieira Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Real Estate
- 2. Dworken, Hillman, LaMorte Sterczala, P.C. Certified Public Accountants / Business Consultants Four Corporate Drive, Suite 488, Shelton, CT 06484 (203) 929-3535 • www.dhls.com 2 continued from page 1 Partner versus Employee in the eyes of the IRS individual is probably going to receive a Form K-1 and a Form W-2. With that being said, the partner is probably going to have self- employment taxes listed on their K-1 and will have FICA, FUTA and state tax withholdings taken out of their W-2 as long as they didn’t opt out of having taxes withheld. This will cause the individual to have FICA, FUTA and state taxes to be un- derpaid or overpaid and the partner- ship can risk having their cafeteria benefit plan disqualified. If you are a business that takes advantage of the Qualified Production Activities Deduction, this could be miscalculated because the deduction is limited to 50% of Form W-2 wages. The IRS makes it very simple, if you are a partner you cannot be treated as an employee and if you give an employee a percentage of the partnership that employee cannot be considered an employee any longer no matter how small the percentage of ownership is. There is talk that the IRS may change its stance on this issue, but until the IRS can find a way to prevent abuses of allowing employee treatment in certain cases, the rule will stand. If there are any updates on this matter we will keep you informed. Anytime you are thinking about changing the ownership of your partnership it’s always a good idea to contact your tax professional to make sure it is not going to have any tax implications. If you have any questions, please contact us at 203-929-3535. continued from page 1 Take Note of these Filing Deadline Changes • reduce the need for extended and amended corporate and individual tax returns. The tax returns and extensions that did not change are the Individual tax return Form 1040, S-Corporation Form 1120S and Employee Ben- efit Plan Form 5500. The returns and extensions that did change are Corporate Form 1120 and Partnership Form 1065. The new IRS filing deadlines switches the due dates for Forms 1120 and 1065 as follows: • Corporate Form 1120 will now be due 3 ½ months after year end (April 15). Note: S-Corporation Form 1120S return and extension timing did not change. • Partnership Form 1065 will now be due 2 ½ months after year end (March 15). • Extended due date for calen- dar year-end (12/31) will still be September 15 for calendar year ends. Since we are dealing with the gov- ernment and taxes, there are, of course, exceptions to the new changes. For Corporate Form 1120 filers with fiscal year ending June 30, the filing change will not apply until tax years beginning after 2025, except for the extension time pe- riod. Starting in 2016, the extended due date will be seven months from the due date which means if you file an extension it will be due 4/15/2018. Other key filing dates to be changed include: • FinCEN Form 114 (Foreign Bank Account Reporting) will now be due April 15 and a six month extension (to October 15) will be allowed. This form is currently due June 30, with no extension period. • States are mostly following the federal changes but with some states there are some quirks to be aware of. For example, New York State C-Corp tax return will bedueApril15thbutthe Mandatory First Installment (MFI) of Estimated Tax is due March 15th. So it would be a good idea to review the filing dates for the states you file in. • Form W-2 and Form 1099 will be due to the taxpayer as they have been in the past but the IRS copy must be signed, post- marked and sent to the IRS by January 31 to avoid any late fil- ing penalties. ForclientsofourFirm,wehaveproce- dures in place to track these changes and you will be notified by our per- sonnel to remind you of these new due dates. If you have any questions about these changes, a federal filing deadline you don’t see listed or a state, please contact us at 203-929-3535.
- 3. Dworken, Hillman, LaMorte Sterczala, P.C. Certified Public Accountants / Business Consultants Four Corporate Drive, Suite 488, Shelton, CT 06484 (203) 929-3535 • www.dhls.com 3 DHLS Family News Eventsm • A heartfelt DHLS welcome to Erica Nadal, of Ansonia, who just joined the Firm as a Bookkeeping Professional in the Accounting and Auditing Department. • Our Thanksgiving Food Drive was a big success this year as we were able to donate 14 boxes of non-perishable items to needy families in our area. And, from cash donated, we were able to support the Denis Olson Lifeline Fund, which helps families who need immediate assistance to keep essential utilities like heat and electricity. • The partners and staff of DHLS generously donated holiday gifts for eight families this holiday season through New Reach’s annualAdopt-A-Familyprogramthatprovides gifts to needy clients. For most, including hundreds of children, these are the only gifts they will receive. • Jen Bull and Bill Lesko competed in the Pequot Runners Thanksgiving Day Race this year, an event that raises thousands of dollars to support local charities, including Fairfield Community Services, Domestic Violence Crisis Center, Westport EMS, the Keystone Club and many more.
- 4. Dworken, Hillman, LaMorte Sterczala, P.C. Certified Public Accountants / Business Consultants Four Corporate Drive, Suite 488, Shelton, CT 06484 (203) 929-3535 • www.dhls.com For more information on how we at DHLS can help with these and other tax planning and financial opportunities, please contact your tax specialist at 203-929-3535, or visit our website at www.dhls.com. Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Accounting and Auditing International Taxes Valuation and Litigation Taxes Em Be Advisory Services Health Care Personal Finances Bookkeeping Services Real Estate Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Real Estate Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Accounting and Auditing International Taxes Valuation and Litigation Taxes Advisory Services Health Care Personal Finances Bookkeeping Services Real Estate Accounting and Auditing Int Tax Advisory Services Hea Real Estate Accounting and Auditing International Taxes Valuation and Litigation Taxes Employment Benefits Advisory Services Health Care Personal Finances Bookkeeping Services Non Profit Real Estate Taxes Employment Benefits Bookkeeping Services Non Profit Taxes Fraud Interna- tional Taxes Advisory Services Health Care Personal Finances Bookkeep- ing Ser- Accounting and Audit- Employee Benefits Non Profit Valuation and Litiga- Real Estate