[IMGCAP(1)]With the New Year right around the corner, business owners are likely scrambling to identify tax credits they can take advantage of or a tax professional to help them ensure they’re properly reporting their tax information for 2013.
Here are a few year-end tax tips and a checklist accountants can share with their clients to help them avoid late fees, fines and frustration in the New Year.
Tips vs. Service Charges
Businesses with tipped employees need to be aware of the Internal Revenue Service’s intent to enforce guidelines that clarify the taxability of tips and service charges. This enforcement effort is expected to begin in January 2014. Guidance from the IRS offers the following clarification regarding tips and service charges: a tip is subject to special withholding rules, while a service charge is treated as any other taxable wage. Service charges should be characterized as wages and not included with tips when calculating the FICA tip credit.
The current levels for transportation fringe benefits are set to expire at the end of 2013. If this happens, the new transportation limits for 2014 would decrease from $245 to $130 for mass transit benefits and increase from $245 to $250 for qualified parking. However, it is possible that the issue could be addressed by Congress in the New Year, and current levels could be reinstated retroactively to January 1. Keeping an eye on legislative and regulatory changes in the coming weeks could prove valuable to your clients.
If a client is considering starting a retirement plan for his or her employees, doing so before the end of the year will enable them to write off some of the setup expenses, as well as enjoy the tax advantages of any plan contributions. Remember to advise your clients that they don’t have to start contributing until next year.
By offering year-end planning tips to clients, especially focused on payroll and tax changes, you are opening the door to a discussion focused on the year ahead and how you can best work together to ensure the growth and prosperity of their business.
Tax Reporting Checklist
One of the most important services accountants can provide their clients each year is to help them ensure the proper tax information has been reported and that it’s done on time.
The following is a checklist of items to reference when advising your clients:
Has this information been reported?
All in-house payroll
Employee pension information
Group term life adjustments
Tax deposits made for an amount other than the amount on the deposit notice
Tip allocations for TEFRA
Compensation adjustments paid to employees that need to be included on employee Form W-2 (i.e., charitable contributions, union dues)
Other amounts in Form W-2, Box 14
Any premiums for health and accident insurance paid by an S corporation on behalf of 2 percent shareholders/employees
Taxable cash and non-cash fringe benefits (i.e., personal use of a company car)
Third-party sick pay insurance benefits
Educational assistance reimbursements
Any dependent care services provided to employees under an employer-sponsored program
Identification numbers for every tax agency
Has this information been verified?
Employees’ names and addresses
Employees’ social security numbers (SSNs)
1099 payees’ SSNs or taxpayer ID numbers
Identification numbers for state and local agencies on each return
The items in these lists may seem basic, but year after year, we see that not reporting or providing inaccurate information for one or more of these items results in some of the most commonly made mistakes.
Going over these checklist items and tax tips with your clients can save them time, money, and headaches and sends the message that you are there to help your clients navigate the maze of taxes and regulations that come with running a business.
Mike Trabold is director of compliance at Paychex, Inc.