Reimbursing employee education expenses can both strengthen the capabilities of your staff and help you retain them. In addition, you and your employees may be able to save valuable tax dollars. But you have to follow IRS rules. Here are a couple of options for maximizing tax savings.

Employee Education Expenses – A Fringe Benefit

Qualifying reimbursements and direct payments of job-related education costs are excludable from employees’ wages as working condition fringe benefits. This means employees don’t have to pay tax on them. Plus, you can deduct these costs as employee education expenses (as opposed to wages), and you don’t have to withhold income tax or withhold or pay payroll taxes on them.

To qualify as a working condition fringe benefit, the education expenses must be ones that employees would be allowed to deduct as a business expense if they’d paid them directly and weren’t reimbursed. Basically, this means the education must relate to the employees’ current occupations and not qualify them for new jobs. There’s no ceiling on the amount employees can receive tax-free as a working condition fringe benefit.

Employee Education ExpensesAn Educational Assistance Program

Another approach is to establish a formal educational assistance program. The program can cover both job-related and non-job-related education. Reimbursements can include costs such as:

  • Undergraduate or graduate-level tuition,
  • Fees,
  • Books, and
  • Equipment and supplies.

Reimbursement of materials employees can keep after the courses end (except for textbooks) aren’t eligible.

You can annually exclude from the employee’s income and deduct up to $5,250 (or an unlimited amount if the education is job related) of eligible education reimbursements as an employee benefit expense. And you don’t have to withhold income tax or withhold or pay payroll taxes on these reimbursements.

To pass muster with the IRS, such a program must avoid discrimination in favor of highly compensated employees, their spouses and their dependents, and it can’t provide more than 5% of its total annual benefits to shareholders, owners and their dependents. In addition, you must provide reasonable notice about the program to all eligible employees that outlines the type and amount of assistance available.

Train and Retain

If your company has employees who want to take their professional skill sets to the next level, don’t let them go to a competitor to get there. By reimbursing education costs as a fringe benefit or setting up an educational assistance program, you can keep your staff well trained and evolving toward the future and save taxes, too. Please contact us for more details.

Like many business owners, you might also own highly appreciated business or investment real estate. Fortunately, there’s an effective tax planning strategy at your disposal: the Section 1031 “like kind” exchange. It can help you defer capital gains tax on appreciated property indefinitely.

How it works

Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” In fact, these arrangements are often referred to as “like-kind exchanges.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.

Personal property must be of the same asset or product class. But virtually any type of real estate will qualify as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.

Executing the deal

Although an exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.

When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.

An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.

The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. Be sure to contact us when exploring a Sec. 1031 exchange.

If you exploring to defer captal gains, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

 

private benefit

Not-for-profits that ignore the IRS’s private benefit and private inurement provisions do so at their own peril. These rules prohibit an individual inside or outside a nonprofit from reaping an excess benefit from the organization’s transactions. Violation of such rules can have devastating consequences and could cause the loss of tax exempt status.

Defining terms

A private benefit is any payment or transfer of assets made (directly or indirectly) by your nonprofit that’s beyond reasonable compensation for the services provided or the goods sold to your organization, or that’s for services or products that don’t further your tax-exempt purpose. If any of your nonprofit’s net earnings inure to the benefit of an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

The private inurement rules extend the private benefit prohibition to your organization’s “insiders.” The term “insider” or “disqualified person” generally refers to any officer, director, individual or organization (as well as their family members and organizations they control) that’s in a position to exert significant influence over your nonprofit’s activities and finances. A violation occurs when a transaction that ultimately benefits the insider is approved.

Tax exemption refers to a monetary exemption which reduces taxable income. Tax exempt status can provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.

Tax exemption generally refers to a statutory exception to a general rule rather than the mere absence of taxation in particular circumstances, otherwise known as an exclusion. Tax exemption also refers to removal from taxation of a particular item rather than a deduction.

Never too careful with your tax exempt status

Of course, the rules don’t prohibit all payments, such as salaries and wages, to an insider. They simply require that a payment be reasonable relative to the services or goods provided — and that it be made with your nonprofit’s tax-exempt purpose in mind.

To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith, in your organization’s best interest, and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties.

Protect your private benefit and tax exempt status

Any amount of private benefit or inurement is enough to cause the loss of your organization’s tax-exempt status. And individuals involved may be subject to significant excise tax penalties. Contact us if you have questions about how to maintain your exempt status.

If you need a hand estimating quarterly taxes, tracking mileage and expenses and paying or collecting invoices, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

For most people, September 15th marks the tax deadline to get your taxes in to IRS or face penalties. While that may be true for most americans, there are other tax deadlines for businesses you must take note of if you run a company.

For businesses, tax deadlines can vary depending on the type of business entity. Corporations, partnerships, and sole proprietorships often have different tax deadlines to file their tax returns. It is also important to note the tax deadline dates for mailing out certain information forms and paying quarterly estimated taxes.

This tax calendar has the tax deadline dates for 2017 that most taxpayers will need. Employers and persons who pay excise taxes also should use the Employer’s Tax Calendar and the Excise Tax Calendar .

Fiscal-year taxpayers.   If you file your income tax return for a fiscal year rather than the calendar year, you must change some of the dates in this calendar.

First Quarter

 The first quarter of a calendar year is made up of January, February, and March.

Second Quarter

 The second quarter of a calendar year is made up of April, May, and June.

Third Quarter

 The third quarter of a calendar year is made up of July, August, and September.

Fourth Quarter

 The fourth quarter of a calendar year is made up of October, November, and December.

Here are some of the key tax-related deadlines affecting businesses and other employers during the thurd quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), and pay any tax due. (See exception below.)
  • File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

  • If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
  • File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
  • Make contributions for 2016 to certain employer-sponsored retirement plans.

What are the advantages of using a tax cal­endar?

The following are advantages of using a calendar.
  • You don’t have to figure the due dates yourself.
  • You can file or pay timely and avoid penal­ties.
  • You don’t have to adjust the due dates for Saturdays, Sundays, and legal holidays.
  • You don’t have to adjust the due dates for special banking rules if you use the Employer’s Tax Calendar or Excise Tax Calenda
Which calendar(s) should I use?
To decide which calendar(s) to use, first look at the General Tax Calendar and highlight the dates that apply to you. If you’re an employer, also use the Employer’s Tax Calendar. If you must pay ex­cise taxes, use the Excise Tax Calendar. De­pending on your situation, you may need to use more than one calendar.

Reminders

Online IRS Tax Calendar.
The IRS Tax Cal­endar for Small Businesses and Self ­Employed is available online at www.IRS.gov/taxcalendar. This calendar is also available in Spanish.

If you need a hand estimating quarterly taxes, tracking mileage and expenses and paying or collecting invoices, My Small Business Accountants can help. Click here to schedule a free, no obligation consultation, or give us a call at: (703) 534-6040

Is your non profit budget offering enough (or the right) programs to keep members active and engaged? New programs require time, effort and money. So when you commit to developing one, you want to get the biggest bang for your buck.

Here are some simple non profit budget dos and don’ts to get the most out of your budget sheet.

DO consult your members. Through focus groups, surveys and informal conversations, gather information about issues your membership is facing. Note gaps between your budget sheet, current program offerings and members’ wants and needs.

DON’T support foregone conclusions. Spinning member feedback to match what you think your organization needs is a big mistake.

DO target specific outcomes that align with your non profit budget. Identify the intended outcomes of proposed programs and attach to them strategic, realistic and timely goals within your budget sheet.

DON’T lose focus. Consider only program ideas that will directly contribute to your association’s mission, vision and overall goals.

DO protect your creation. If your new program is unique, protect it with appropriate trademarks, service marks, copyrights, and patents.

DON’T go it alone. Whenever possible, share expenses and resources by partnering with other organizations. Alliances can lend depth, breadth and impact to programs. Your budget sheet will thank you for it.

DO keep your promises. Deliver new programs on time, on target and on your non profit budget for the greatest impact.

DON’T overspend. Come up with a reasonable budget and stick to it. Make adjustments only when absolutely necessary.

DO start small. Launch new programs slowly and thoughtfully — and then build on initial success as your budget sheet grows.

DON’T worry about perfection. Take chances and try new strategies.

The best ideas often are those most different from what you’ve done in the past. If you seek tools for building your organization’s non profit budget and listing revenue sources on a programmatic/functional basis, we are here to guide you through. We will assist you with budget sheet items including allocation of personnel, direct and indirect non-personnel expenses and more.  For more tips on making the most of your non profit budget, please click here to contact us or give us a call at (703) 534-6040. Our cloud base solution serve clients all over the nation.