What are the filing deadlines for federal income tax returns for 2019?
The deadline for individual tax returns (Forms 1040, 1040NR, 1040A, and 1040EZ) is April 15, 2020. You may request a six-month extension which will extend the filing deadline to October 15, 2020. Extensions apply only to filing deadlines. All tax payments due to the IRS are due April 15, 2020.
Trust and Estate income tax returns (Form 1041) are due April 15, 2020. Trusts and Estates can request a five and half month filing extension. The extended deadline is September 30, 2020.
S Corporations (Form 1120S) have an initial filing deadline of March 15, 2020. The corporation my file a request to extend the deadline to September 15, 2020. S Corporations with a fiscal year end other than a calendar year must file by the 15th day of the third month following the end of the corporation’s fiscal year.
During 2016, Congress passed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. As part of the Act, the filing deadlines for partnerships and C Corporations were changed. The change in filing deadlines takes place beginning with the December 31, 2016 tax year.
As part of the change, Partnership returns (Form 1065) are now due March 15, 2020. You may file a six-month extension request and extend the filing deadline to September 15, 2020.
C Corporations (Form 1120) tax returns are initially due April 15, 2020. The corporation may request a six-month extension and extend the filing deadline to October 15, 2020. As noted for the individual extensions, tax payments cannot be extended and must be made by April 15, 2020.
C Corporations * with a fiscal year end other than a calendar year must file by the 15th day of the fourth month following the end of the corporation’s fiscal year. A six month extension may be requested.
Please refer to the calendar section of our website for all tax related deadlines.
*There is an exception for corporations with a fiscal year from July 1 to June 30 whose initial filing deadline will remain September 15th, with an option of a five month extension to February 15. Beginning July 1, 2027, the filing deadline will be October 15, with an option to file a six-month extension until April 15th.
How long should I keep my tax records?
Generally, tax records related to federal income taxes should be kept for three years from the date you filed your tax return. The IRS requirements for record keeping are listed below:
- If you owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
- If you do not report income that you should report, and it is more than 25 percent of the gross income shown on your return; keep records for 6 years.
- If you file a fraudulent return; keep records indefinitely. If you do not file a return; keep records indefinitely.
- If you file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
- If you file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
Employment tax records should be maintained for at least four years after the date that the tax becomes due or is paid, whichever is later.
Who qualifies as my dependent?
The IRS identifies two types of dependents and they are each subject to their own rules. The first is a qualifying child and the second is a qualifying relative. See below for the rules for each type of dependent.
- Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, adopted child or an offspring of any of them.
- Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
- Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
- Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
- Are you the only person claiming them? This requirement commonly applies to children of divorced parents.
- Do they live with you? Your relative must live at your residence all year or be on the list of “relatives who do not live with you” in Publication 501. About 30 types of relatives are on this list.
- Do they make less than $4,000? Your relative cannot have a gross income of more than $4,000 and be claimed by you as a dependent.
- Do you financially support them? You must provide more than half of your relative’s total support each year.
- Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claim him.
How does the Tax Cuts and Jobs Act of 2017 affect me?
The Tax Cuts and Jobs Act (TCJA) made significant changes to tax laws for individual taxpayers as well as businesses, beginning January 1, 2018.
The new law changed individual tax brackets and tax rates, which included reducing the top tax rate from 39.6% to 37% and increasing the taxable income subject to the higher tax rate from $480,050 for married filing jointly ($426,700 for single filers) to $600,000 for married filing jointly ($500,000 for single filers).
Personal exemptions are no longer deductible under TCJA, however there is a new $500 nonrefundable tax credit for dependents not eligible for the child tax credit.
The child tax credit, available for those with qualified dependent children under the age of 17, was also increased from $1,000 to $2,000 per child, subject to income phase-outs.
For businesses, TCJA reduced the Corporate tax rate to a flat 21% and introduced a deduction for qualified pass-through entities. Additional changes, such as the new standard deduction, Qualified Business Income Deduction for pass-through entities, and increased depreciation expensing, are discussed in more detail below. Most of the new provisions will expire after 2025, but some are permanent.
Should I itemize or take the standard deduction?
As part of TCJA, the standard deduction was increased to $24,000 for married filing jointly, $18,000 for head of household and $12,000 for single. This almost doubled the standard deduction that was available prior to the Act. As a result, many taxpayer’s who previously reported itemized deductions can receive a higher deduction, and save time gathering the additional documents needed, by taking the standard deduction.
In addition to increasing the standard deduction, the Act limited several itemized deductions. Under the new Act, a taxpayer can only deduct up to $10,000 for state and local taxes, previously there were no limits.
The Act also reduced the amount of interest that is deductible on acquisition debt for a primary and secondary residence to interest paid on debt of up to $750,000. Prior to TCJA interest expense on debt of up to $1 million was deductible. The reduced limit only applies to acquisition debt for a primary or secondary residence which was incurred after December 15, 2017.
For some taxpayers, the decision to take the standard deduction is easy. But for those taxpayer’s whose itemized deductions may exceed the standard deduction it will be beneficial to provide all of the information to your tax preparer and the decision will be based on which deduction provides the greatest benefit for you.
How much can you contribute annually to an IRA? Are my contributions deductible?
The annual contribution limit for 2019 is $6,000, or $7,000 if you’re age 50 or older. Your Roth IRA contributions may also be limited based on your filing status and income.
Traditional IRA contributions may be deductible on your tax return. If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full. ROTH contributions are not deductible.
What are self-employment taxes?
Self-employment tax is a social security and Medicare tax primarily for self-employed individuals. Individuals who are self-employed and earn over $400 during the year are subject to the self-employment tax. Income up to $132,900 is taxed at a rate of 15.3% (12.4% Social Security tax and 2.9% Medicare tax). Income over $132,900 is taxed at the 2.9% Medicare tax rate. One-half of your self-employment taxes are deductible from your adjusted gross income on your tax return.
Your self-employment tax payments contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Will I be subject to the additional Medicare tax?
You are liable for Additional Medicare Tax if your wages, compensation, or self-employment income (together with that of your spouse if filing a joint return) exceed the threshold amount for the individual’s filing status. For those with a filing status of married filing jointly the threshold amount is $250,000 (married filing separately is $125,000). The threshold is $200,000 for those filing as single, head-of-household, or qualifying widow(er) with a dependent child. If wages are paid to you (including your spouse income if filing a joint return) in excess of the threshold amounts then you are subject to the Additional Medicare tax. The Additional Medicare tax is .9%.
What is the Net Investment Income Tax?
Taxpayers whose income is greater than the established threshold amounts are subject to a 3.8% tax on certain types of investment income.
Generally, investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities and income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer.
For those with a filing status of married filing jointly the income threshold amount is $250,000 (married filing separately is $125,000). The threshold is $200,000 for those filing as single, head-of-household, or qualifying widow(er) with a dependent child.
What is the Qualified Business Income Deduction?
As previously mentioned, the TCJA (Tax Cuts and Jobs Act) created a deduction for qualified pass-through entities.
The Qualified Business Income Deduction (QBID) is a 20% deduction for qualified business income, certain income limitations apply and are discussed later.
The deduction is taken at the individual level and is available for taxpayers who have ownership in a pass-through entity such as a sole proprietorship, partnership or S Corporation.
Partnerships and S Corporations will include the necessary information for the deduction on the taxpayer’s Schedule K-1. To be eligible for the deduction your business must be a qualified trade or business.
Exceptions under the Act include specified service trades or businesses, which includes any trade or business whose principal asset is the reputation or skill of one or more of its owners such as accounting, law, investment management, financial services, athletics, trading or dealing in certain assets. Under TCJA these types of businesses do not qualify for the deduction if the taxpayer’s income exceeds the income limitations described below.
Are there income limitations for the Qualified Business Income Deduction?
As mentioned above the QBID is a 20% deduction on qualified business income. The 20% deduction is the taken on the lesser of the qualified business income or the taxpayer’s taxable income. If the taxpayer’s taxable income is less than the qualified business income, the deduction will be 20% of the taxable income.
Income limitations on the QBID applies to taxpayer’s whose taxable income is above certain thresholds. For 2019, the threshold amounts are $321,400 for married filing jointly and $160,725 for single, head of household and married filing separately. If the taxpayer’s taxable income is above the threshold amounts the QBID is subject to limitations. Limitations include a reduction in the amount available for the 20% deduction based on W2 wages paid and qualified assets owned.
For further questions on the QBI deduction please consult one of our accountants.
What is Section 179 and Bonus Depreciation?
The section 179 deduction is an election to recover all or part of the cost of certain qualifying property, up to $1,000,000 (increased from $500,000 by the TCJA – Tax Cuts and Jobs Act), in the year the property is placed into service. You can elect the section 179 deduction instead of recovering the cost by taking annual depreciation deductions. Section 179 is permanent at the $1,000,000 level. However, businesses exceeding a total of $2.5 million of purchases in qualifying equipment are subject to the Section 179 deduction phase-out dollar-for-dollar and the election is completely eliminated if total purchases exceed $3.5 million.
Bonus Depreciation allows you to elect to expense up to 100% of the cost of certain vehicles and equipment purchased and placed into service in the 2019 tax year. TCJA increased bonus depreciation from 50% to 100% and eliminated the rule that the asset be new. Bonus depreciation can be taken on new or used purchases with a useful life of 20 years or less. The ability to expense 100% of asset purchases goes through December 31, 2022. The deduction decreases to 80% for the 2023 tax year, 60% for 2024, 40% for 2025 and 20% thereafter.
Can I still deduct meals and entertainment expenses?
In prior years businesses could deduct 50% of the cost of business meals and entertainment on their tax return. The TCJA (Tax Cuts and Jobs Act) made changes to this deduction, eliminating the deduction for entertainment expenses, such as tickets to a sporting event, concert or golf game with a client.
The cost of business meals are still deductible at 50%. The cost of entertainment that includes food and drink must have an invoice showing the amount of the cost related to food and drink in order to take the 50% deduction for that portion of the cost. Meals and entertainment expenses that are provided to the general public as a way of advertising the business are deductible in full as advertising cost.
What are some of the types of assurance services you offer?
We offer a variety of assurance services including audit, review and compilation of business and personal financial statements. We can also perform audits of 401 (k)/qualified retirement plans, and perform agreed-upon procedures.
What is the difference between an audit and a review?
There are significant differences between an audit and a review.
An audit requires substantially more testing of accounting records and procedures than a review. Additional procedures such as third party confirmation of cash and construction contracts as well as testing of internal controls and documentation require substantially more time than a review.
Because a review is substantially less in scope than an audit, review procedures can be streamlined and tailored toward specific areas (i.e. construction contracts and collectability of accounts receivable). The focus just as in the case of an audit is always on striving for accuracy and proper presentation. However, the scope of documentation and testing can make the overall engagement less time consuming.
How do I know if I should get an audit or review of the financial statements?
The level of service is most often determined by the user of the financial statements. The majority of private companies choose compiled or reviewed statements, however, creditors, investors, and bonding companies may require an audit. We will typically talk a contractor out of doing an audit and instead performing a review if one is not required by their bonding company or the licensing board. The typical level that we have seen bonding companies push for obtaining an audit rather than a review is an aggregate bonding program exceeding $30 million. Certain regulatory agencies, such as the Tennessee Board of Contractors also have requirements for the level of service (see below for the Board of Contractors requirements).
What is a Compilation?
Unlike in an audit or review, a compilation does not include performing any procedures to verify accuracy and completeness of the financial statements. Management (or the individual if it is a personal financial statement) takes complete responsibility for the financial statements. The client represents the information to us and we assemble the financial information in the proper format. It is rare for a bonding company to accept a compilation at year end. However, sometimes in smaller bonding programs they can and do accept compiled financial statements.
Which type of financial statement is required by the Tennessee Board for Licensing Contractors?
The type of financial statement you need for a TN Contractors License application, renewal and/or monetary limit increase request depends mainly on the monetary limit of the license. Financial statements presented to the Board must be less than 12 months old.
When you initially apply for a contractor’s license a review is required for a monetary limit request of $3,000,000 or less. For limits over $3,000,000, an audit is required.
You must renew your TN Contractor’s license every two years. If the existing monetary limit is $3,000,000 or less than you are only required to submit a compiled financial statement with the renewal form. This can be prepared by either a CPA or you can internally compile the statement using the Board formatted financial statement found on their website. If however your existing monetary limit is greater than $3,000,000 you must submit a reviewed financial statement with your renewal form every two years. The review must be performed by a licensed CPA.
If you request an increase of the monetary limit on your existing contractor’s license, you must submit with the limit increase request audited statements for any request over $3,000,000 and a reviewed financial statement for requests of $3,000,000 or less.
What is an “agreed-upon procedure”?
An agreed-upon procedure is an engagement in which a client and/or other third party requests a specific test of certain business information and/or processes to be performed by an independent auditor. The auditor does not offer an opinion as part of an agreed-upon engagement; they simply present the results of the procedure(s). The end users then base their conclusions on the results of the tests run by the auditor. One of the most common agreed-upon procedures is the development of financial forecasts and projections.
How much will an audited or reviewed statement cost?
The higher the level of service required, the more time we will need to complete the engagement. Therefore, an audit, which requires substantially more procedures and documentation, is the more costly engagement. Our fees will be at our regular hourly rates for the individuals’ involved. Our initial proposal to a potential client will provide a range of anticipated fees based on the size and complexity of the Company as well as the level of service to be provided.
Why do I need to know the value of a business?
There are several situations that may require you to determine the value of a business, including:
- Sale or purchase of a business
- Debt financing support
- Mergers and acquisitions
- Estate and gift taxes
- Buy-sell agreements
- Property settlements in divorce
- Stockholder or partner buyouts
- Goodwill impairment
What types of business valuation are available?
There are two main types of business valuation engagements:
A Complete Valuation that results in an opinion of value that is admissible in court and is required for Federal estate and gift tax purposes.
A Calculation of Value results in an estimation of value and is best suited for planning transactions (purchase/sale of business); strategic or estate planning; or in divorce situations where there is a reasonable likelihood that the parties may settle. As a planning aid, a Calculation of Value, if needed, can be expanded into a Complete Valuation.
Is there a difference in cost between a Complete Valuation and a Calculation of Value?
Yes. The steps required for a Complete Valuation are much more extensive than those performed for a Calculation of Value. We work with you to assess the situation and scope our work to fit your needs and your budget.
What all is involved in a valuation?
A valuation requires considerable fact-finding related to the entity, including:
- Personnel interviews and site visits
- Review of the entity’s history and entity records
- Analysis of the entity’s financial performance over several years
- Analysis and comparison to similar companies
- Analysis of the economic environment in which the entity operates and other factors.
How long a period is a valuation report valid?
A valuation report is typically valid for a maximum of one year. After that, the report should be updated to reflect subsequent company performance and current economic/industry conditions. However, there could be some extreme dominant factors, such as a natural disaster, which could invalidate a valuation report prepared prior to the occurrence of the extreme event.
Do you appraise real property?
No. Our valuation work applies only to ownership interests and intangible assets. If your engagement requires an appraisal of real or tangible property, we will work with property appraisal professionals to develop our final opinion or calculation of value.
Do you comply with professional standards?
Yes. Our firm is bound by the professional standards of the American Institute of Certified Public Accountants (AICPA) and the Tennessee Society of Certified Public Accountants (TSCPA). Our valuation services comply in all respects with the Statement of Standards for Valuation Services (SSVS) as promulgated by the AICPA.
What is forensic accounting?
Forensic accounting, also called investigative accounting, is a detailed examination and analysis of documents for use as evidence in a court of law. The term “forensic accounting” can include the following areas:
- Fraud detection, documentation, and presentation of report.
- Calculation of economic damages.
- Tracing income and assets, usually to find hidden assets or income (such as divorce and bankruptcy cases).
- Reconstruction of financial statements that may have been destroyed or manipulated.
Who uses fraud and forensic services?
Forensic accountants are retained by law firms, corporations, banks, government agencies, insurance companies, and other organizations to analyze, interpret, summarize, and present complex financial and business related issues in an understandable manner.
Why would my accountant not discover fraud and financial manipulation when he prepares my year-end audited financial statements?
The difference between the public expectation of the purposes and objectives of an audit and the CPA’s responsibilities under Generally Accepted Auditing Standards (GAAS) is referred to as the “expectation gap.” Audits of financial statements are not designed to detect fraud. However, should fraud be discovered during the course of a financial statement audit, the CPA must notify the entity’s management of the findings. The client engagement letter and opinion for a financial audit states that the object of the audit is to obtain reasonable assurance that the financial statements are free of material misstatement, not the detection of fraud.
What are some possible red flags that my business may be the subject of fraud?
In many cases, the business owner or management may have a suspicion or feeling that fraud or accounting irregularities are happening. Some of the more frequent observations that lead to these “hunches” are:
- There is no clear separation of accounting duties.
- An employee with control or access to cash and accounting records does not take vacations or time-off.
- There are significant transactions with related parties or suppliers who are unknown.
- There is a distinct difference between an employee’s income and their lifestyle.
- There are significant and frequent adjustments made to the accounting records.
Our firm can provide a review of your company’s internal controls in order to make changes that would lessen the opportunities for irregularities to occur.
What might be the cost for a forensic accounting or economic damages analysis?
Our fees are typically based on hourly rates. The fees ultimately charged will depend upon variables such as the complexity of the case, the timing of the required analysis, and the purpose of the engagement. In non-litigated engagements we can offer fixed-fee arrangements under certain circumstances. Please contact our firm for specific information regarding our fee structure or to receive a proposal for a particular engagement.
Does a FAR (Federal Acquisition Regulation) audit include an opinion on my complete financial statements?
No. A FAR audit is designed to provide assurance that the indirect overhead is accurately computed. The audit opinion scope is limited and restricted to users of the FAR audit.
Do I need a FAR audit for every state in which I perform work?
Generally no. Usually the firm has a FAR audit performed for its home State DOT (Department of Transportation). The home State DOT then issues a “cognizant letter” that is accepted by other states. However, there are a few states, notably Florida, that do not recognize cognizant letters.
What is a “cognizant approved indirect cost rate”?
The term refers to the indirect cost rate established by an audit performed in accordance with GAGAS (Generally Accepted Government Auditing Standards) to test compliance with the FAR cost principles and accepted by a cognizant Federal or State agency such as the FHWA (Federal Highway Administration) or a State DOT.
What work should be performed by a State DOT to accept an audit performed by a CPA to issue an approved cognizant letter?
The State DOT performs a review of the CPA’s workpapers using the Review Program for CPA audits of Consulting Engineers’ Indirect Cost Rates identified in Appendix A of the AAHSTO Uniform Audit & Accounting Guide.
How long is an audited indirect cost rate valid?
One-year. The one-year applicable accounting period means the annual accounting period for which financial statements are regularly prepared for the consulting engineer firm.
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