[IMGCAP(1)]For tax preparers getting ready for tax season, the environment has changed, according to Annie Schwab, tax manager at Padgett Business Services.
“In the past, the focus was on tax law, new legislation and tax strategies,” she observed. “But now, it’s more than just the Internal Revenue Code that impacts the preparation business. Preparers must now be familiar with requirements from Health and Human Services and the Department of Labor, and must know the ins and outs of shielding their business from scammers and protecting taxpayers from identity theft.”
“It is your legal responsibility to protect client’s business and personal records from unauthorized access,” she reminded preparers. “Internal controls should be put in place to protect sensitive data from dishonest employees and outside thieves. This includes information that is on paper as well as in computerized format.”
Schwab recommends that tax business owners check their E&O [errors and omissions, or malpractice, insurance] policy to see if it covers data breach. If it doesn’t, consider adding to it, she advised.
Schwab cited the new overtime rules, slated to go into effect on Dec. 1, 2016, as a potential cause of headaches for many business owners. Practitioners should be prepared to discuss them with their clients, she advised.
They require employers to pay their workers earning less than $47,476 per year overtime pay when they work more than 40 hours per week, with certain exemptions. “Among the exceptions are individuals who own at least 20 percent of the equity interest and actively participate in the business,” she observed.
“Not only do startups have to consider the tax implications when forming a business, but also the implications of the FLSA [Fair Labor Standards Act] rules when paying owner-employees,” she pointed out.
For example, she said, six individuals may want to form a corporation in which each will actively participate and own an equal share of the business. As a startup, the corporation will not have money in the first year to pay wages to any of the shareholders so no distributions will be made. Under the IRS rules for reasonable compensation, the corporation has no risk of audit since no distributions were made to the shareholders. However, according to the DOL, the corporation is in violation of the FLSA. Since each shareholder’s ownership was less than 20 percent, the owners are not exempt from the new rules and the corporation should have paid them at least the minimum wage, including overtime pay, for the services they provided, she said.
Taxpayers who claim the Earned Income Tax Credit or Additional Child Tax Credit early during tax season may not be receiving their refunds as early as they expect, Schwab said. Beginning in 2017, the IRS will hold refunds on EITC and ACTC returns until February 15, she noted. “The delay results from the Protecting Americans from Tax Hikes Act of 2015 [PATH Act], which is intended to help prevent revenue lost due to identity theft and refund fraud,” she said. “Under the law, the IRS cannot release the part of the refund that is not associated with EITC or ACTC.”
In addition to learning how the new rules might affect their clients, Schwab offered this checklist for preparers who want to be ahead of the game before year’s end:
• Order Forms W-2, 1099, transmittals and envelopes.
• Identify any missing employee or vendor information for W-2/1099 preparation.
• Consider hiring a marketing representative and/or tax assistant for tax season.
• Order holiday gifts.
• Purchase tax software and tax research materials.
• Purchase office and computer supplies.
• Schedule routine maintenance for your copier and printer.
• Set up client tax files and backup and archive your 2015 tax software files.
• Renew your PTIN.
• Notify clients about the open enrollment period for buying health insurance on the Marketplace for 2017.
• Remind clients who purchased their health insurance on the Marketplace in 2016 to retain a copy of Form 1095-A, Health Insurance Marketplace Statement.
• Prepare and distribute tax organizers to help clients gather information to prepare their personal returns.
• Consider distributing a year-end package to small business clients to help them gather account balances, business mileage, employee and vendor information, confirm asset purchases or dispositions, insurance information, etc.
• Issue email reminders to clients prompting them to get caught up and organized before tax season.
• Schedule year-end planning meetings with clients to discuss strategies to reduce their tax liability and to assess any major changes, both business and personal.
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