Tax Regulations

If you own or manage a food or beverage business, your employees probably receive tips from your customers as part of their income. They can receive tips from customers who pay by credit card, debit card, cash or even gift cards and other non cash tips. Employees must report tips as taxable income to both the IRS and their employer. However, you may also have to allocate tips to your employees in some situations.

About Allocated Tips

These tips are additional tips that an employer allocates to employees on top of the tips that the employees have already reported to the employer. This happens only in certain conditions:

• the employees work in a large food or beverage establishment, like a restaurant, cocktail lounge (to see the definition of a large establishment) and
• the total tips that all employees reported to the employer were less than 8% of the total establishment’s sales of food and drinks.

In simpler terms, if you own a tip-based establishment, like a restaurant, and the total tips reported by all employees are less than 8% of the total food and drink sales they served, you, as an employer will allocate additional tips among all employees who received tips to make up for that difference. These additional tips are called “allocated tips”.

How To Report These Tips?

When an employer allocates extra tips to an employee, the employer reports these tips separately in box 8 of Form W-2. The employer does not include these allocated tips in box 1, where the employer reports wages. Therefore, if box 8 of Form W-2 is empty, it indicates that the employer did not allocate any extra tips.

As an employer, you can use Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to calculate and report allocated tips for your establishment. You must file this form by the last day of February of the following year.

The purpose of allocating tips is to ensure that your employees report their tip income correctly to the IRS and pay their fair share of taxes. However, allocated tips are not considered wages for FICA tax purposes, since the employee did not report the amount to the employer, so you do not need to withhold or pay any Social Security or Medicare taxes on them and you do not report them in boxes 5 and 7 of Form W-2. You also do not need to include allocated tips in the regular rate of pay for calculating overtime pay.

If your employees disagree with the amount of tips you allocated to them, they can request a correction from you. They can also show a different amount of allocated tips , if they have adequate records, when filling Form 4137, Social Security and Medicare Tax on Unreported Tip Income, with their tax return.

You can find out more details regarding “Tips Reporting for Restaurants” here.

Lower Rate

If an employer wants to calculate allocated tips using a tip rate less than 8% (but not less than 2%), the employer needs approval from the IRS. Either the employer or a majority of the employees can ask the IRS for this approval. You can request the lower rate by filing a petition that includes specific information about the establishment to justify this lower rate. For details on how to file this petition, refer to the instructions for Form 8027, which is the Employer’s Annual Information Return of Tip Income and Allocated Tips.

Allocated tips are a complex and often a confusing topic for employers and employees alike. If you have any questions or doubts about how to handle them, you should consult a tax professional or the IRS for guidance.

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

About Tips

Tips and wages, while both taxed similarly and subject to income tax, as well as subject to employer and employee withholding for Social Security and Medicare taxes, do have some differences.

Tips reporting for restaurants is a crucial aspect of tax compliance for both employers and employees.

A restaurant employee must include the gross amount of tips they receive as part of their income. Tips can be in the form of cash, credit card payment, debit card payment or non-cash (such as gift cards or free meals).

In this blog post, we will try to explain the basics of tips reporting, the benefits of doing it correctly, and the consequences of failing to do so.

Reporting the Tips

If you are an employer, you are responsible for withholding and paying payroll taxes on tips, as well as reporting them to the IRS and the employees.

Employers must collect a written statement from each employee who receives tips of $20 or more  in a calendar month, showing the total amount of tips received. This statement is due by the 10th day of the following month. If your employees receive less than $20 in tips in a single month from a particular job, they don’t need to report these tips to you.  You must also report the total amount of tips received by all your employees on Form 941, Employer’s Quarterly Federal Tax Return, and on Form W-2, Wage and Tax Statement. You must deposit the taxes you have withheld according to your federal tax deposit requirements.

Every year, some employers are required to report to the Internal Revenue Service their total sales and the employees’ tips received. You need to use Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, for this purpose. This form is also used to calculate the allocated tips for employees who receive tips. In simpler terms, for example, if you own a restaurant, you need to tell the IRS how much you sold and how much your employees got in tips every year using Form 8027.

Penalties

Tips reporting for restaurants also has serious consequences for both employers and employees if done incorrectly or not at all. The IRS can impose penalties and interest on employers who fail to withhold and pay payroll taxes on tips, or who fail to report tips to the IRS. The IRS can also impose penalties and interest on employees who fail to report their tips to their employers or on their tax returns. In addition, both employers and employees can face criminal charges for tax evasion or fraud if they intentionally underreport or conceal tips. The IRS may charge a penalty of 50% on the Social Security, Medicare, additional Medicare, or railroad retirement taxes owed on any unreported tips.

Both employers and employees must legally report tips in restaurants. This represents a legal obligation, not an optional task.

If you need help with your business tax and accounting, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Starting with 2023, there is a new deduction available for energy efficient commercial buildings. You may qualify for the Energy Efficient Commercial Buildings Deduction if you own a building and install energy-efficient property. Higher deductions could be available if your installations save more energy or meet certain standards. As a result, making your building more energy-efficient could help you save money on taxes.

This deduction is available for new buildings that produce energy efficiency of at least 25% or for improvements made to an existing building that improve the efficiency of it by at least 25%. For example, improvements to an office building that increase its efficiency.

Normally, the cost of a commercial building or the cost of a building improvement can not be claimed as an expense when actually made. Instead, when the building or the improvement is placed in service the cost has to be taken as an expense over 39 years starting with the year when the building/improvement is placed in service.

This new rule available starting with 2023, section 179D, allows to take a lot bigger expense in the first year when the building/improvement is placed in service, if the requirements of the deduction are met.

Are You Eligible?

Starting from January 1, 2023, the tax deduction is available to the following groups:

• owners of qualified commercial buildings,
• designers of energy-efficient commercial building property or energy-efficient building retrofit property that are installed in buildings owned by certain tax-exempt entities.

Previously, this deduction was only available to owners of qualified commercial buildings and designers of energy efficient commercial building property installed in buildings owned by certain government entities. So, this is a new expansion of the taxpayers that can claim the deduction.

Requirements

To summarize the requirements:

1. The energy efficiency improvement has to be at least 25%
2. The building has to meet the 90.1 ASHRAE Standard  (this is something to talk to with the engineer or architect)
3. The building has to be built with “qualified property”: qualified property includes depreciable property installed as part of interior lighting systems, heating, cooling, ventilation and hot water systems or the building envelope
4. Also, you must obtain a certification from an engineer or contractor licensed in your state that will have to use the computer modeling required by the government to issue the certification

Amount of the Deduction

For properties in service starting with 2023, the tax deduction for energy-efficient property is based on the lesser of two amounts:

• the cost of the installed property,
• the savings per square foot, which is calculated as follows:
  • $0.50 per square foot for a building with 25% energy savings,
  • an additional $0.02 per square foot for each percentage point of energy savings above 25%,
  • the maximum amount is $1.00 per square foot for a building with 50% energy savings.

Also a bigger amount of the deduction (5 times more) is available if the contractors/laborers are paid according to the Secretary of Labor guidance for the respective geographical area (the exacts rules can be found in this notice). This is not a requirement, is just that if you meet this criteria you get a much bigger deduction.

The amount of the deduction ranges from $0.50 times the square footage of the building, if the 25% efficiency is met, up to a maximum of $1.00 times square footage for a building with 50% energy savings. And if laborers are paid local prevailing wages and apprenticeship requirements are met, then the deduction is 5 times more.

Energy Efficient Commercial Building Property

• Energy Efficient Commercial Building Property:
  • this must be installed in a building located in the U.S. and should be within the scope of a specified Reference Standard 90.1 of the:
    • American Society of Heating, Refrigerating, and Air Conditioning Engineers, and
    • Illuminating Engineering Society of North America,
  • the property should be installed as part of the:
    • interior lighting systems,
    • heating,
    • cooling,
    • ventilation, and
    • hot water systems, or
    • the building envelope.
  • it should be eligible for depreciation or amortization,
  • the installation should be part of a plan to reduce annual energy and power costs by 25% or more compared to a reference building meeting the minimum requirements of Reference Standard 90.1.

Energy Efficient Building Retrofit Property

• Energy Efficient Building Retrofit Property:
  • the property should be installed as part of the:
    • interior lighting systems,
    • heating,
    • cooling,
    • ventilation, and
    • hot water systems, or
    • the building envelope.
  • a qualified building is one located in the U.S. and has been in service for at least 5 years before a retrofit plan is established,
  • in addition, the property should be eligible for depreciation or amortization and must meet certain energy-saving requirements.

In conclusion, if you meet some energy efficiency requirements you might qualify for the Energy Efficient Commercial Buildings Deduction. If you were to qualify for this deduction, it would mean that you can reduce your taxable income in the year you place the building in service by a lot more than with the regular depreciation over 39 years. This is something to keep in mind and maybe consult with your architect or engineer and your CPA.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

What Is Beneficial Ownership Reporting And Why Is it Important?

Beneficial ownership refers to individuals that directly or indirectly own or control a legal entity, such as a company, a trust, or a foundation. Beneficial owners are not necessarily the same as the legal owners, who are the registered shareholders or directors of the entity. For example, a legal owner may act as a nominee or a proxy for the real owner, or the entity may be owned by another entity that is itself owned by another entity, and so on.

Starting with January 1, 2024, many U.S. companies will need to submit a Beneficial Owner Report. They will share details about their beneficial owners – the people who really own or control them. This information has to be reported to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of the Treasury.

The information about beneficial ownership includes identification details of individuals who have direct or indirect control over a company. This requirement is part of the U.S. government’s initiative to prevent illicit activities by making it more difficult for individuals to hide behind shell companies or similar structures.

Federal, state, local, and tribal government officials, as well as certain foreign officials who request access through a U.S. federal agency, can see the beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions can also access this information under certain conditions, with the consent of the reporting company.

What FinCEN Is Planning?

The Financial Crimes Enforcement Network (FinCEN) plans to extend the deadline for certain companies to submit their initial beneficial ownership information (BOI) reports. The proposal changes the final BOI Reporting Rule, allowing companies established or registered in 2024 an additional 60 days, totaling 90 days, to file their initial reports. However, this proposed rule doesn’t affect other parts of the final BOI Reporting Rule. So, companies created or registered before January 1, 2024, still have until January 1, 2025, to file their initial BOI reports. And those created or registered on or after January 1, 2024, will have 90 days to file their initial reports.

Check the status of this proposal on FinCEN website.

You should be aware that FinCEN will not accept reports before January 1, 2024. For more information on this topic, you can refer to the Beneficial Ownership Information Reporting Rule on FinCEN’s website.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are a recipient of Social Security or Supplemental Security Income (SSI), this article might interest you. The Social Security Administration has recently announced a 3.2% increase in benefits for 2024.

In this blog post, we will try to explain what this increase means for you.

2024 Cost-of-Living Adjustment

Starting from January 2024, people who receive Social Security benefits will get a 3.2% increase in their payments. This is known as a cost-of-living adjustment (COLA). A COLA is a periodic increase in benefits that is designed to help beneficiaries keep up with the changes in the cost of living.

How Much Will Your Benefits Increase?

The amount of your benefit increase will depend on your current benefit amount and the type of benefit you receive:

• the maximum income that can be taxed for Social Security will rise to $168,600,
• if you’re younger than the full retirement age, you can earn up to $22,320 without it affecting your benefits; if you earn more than this, your benefits will be reduced by $1 for every $2 you earn above this limit,
• if you reach your full retirement age in 2024, you can earn up to $59,520 without it affecting your benefits; if you earn more than this, your benefits will be reduced by $1 for every $3 you earn above this limit, until the month you reach full retirement age,
• once you’re at full retirement age for the whole year, there’s no limit on how much you can earn.

For example, if you are a retired worker who receives an average monthly benefit of $1,548 in 2023, you will see an increase of $50 per month in 2024.

When Will You Receive Your Increased Benefits?

You will receive your increased benefits starting with your January 2024 payment.

How Will This Affect Your Taxes?

The increase in your benefits may affect your taxes if your total income exceeds certain thresholds. This is because you have to pay taxes of 50% or even up to 85% (for higher income) of your Social Security benefits if your combined income, calculated per the Social Security Taxable Benefits Worksheet exceeds $25,000 if you file as an individual or $32,000 if you file a joint return.

We hope this blog post has been helpful and informative for you.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are using QuickBooks Desktop to manage your accounting, you may need to import your accountant’s changes from a file your accountant sent you. However, sometimes you may encounter errors when importing the file, such as “This file was not created with QuickBooks Accountant Edition” or “The file you specified cannot be opened”. In this blog post, we will show you possible solutions on how to fix some errors and successfully import your accountant’s changes.

What You Need to Do If You Can’t Import Your Changes?

First, make sure you have the latest version of QuickBooks Desktop installed on your computer. You can check for updates by going to Help > Update QuickBooks Desktop. If there are any updates available, download and install them.

Next, make sure the file you received from your accountant is a valid Accountant’s Changes file. The file should have a “. QBY” extension. If it is on a USB flash or server drive, copy the Accountant’s Changes file to your local drive.

You will also need to make sure that you open the right company file. This means that if you have multiple companies you need to chose the right company. In addition, if you have other back-up files or QuickBooks file saved in the same location on your computer, you want to chose the file you just received from your accountant.

Another issue that you might encounter is related to the QuickBooks version. Make sure your accountant processed the accountant’s changes using a QuickBooks version that is compatible with your QuickBooks version. If your accountant has the 2023 version of QuickBooks, your QuickBooks version preferably should not be older than 2022. If you have an older version, you might need to upgrade to a new one.

Problems might also occur if you remove the restrictions before your accountant finishes his or her work. Restrictions are removed by going to: File -> Send Company File -> Accountant’s Copy -> Client Activities -> Remove Restrictions. If your restrictions are still in place you should see “Accountant’s Changes Pending” at the top of the opened QuickBooks file. You should always check with your accountant before removing the restrictions or the dividing date. To avoid issues when importing the Accountant’s Changes file, you should not upgrade a company file with pending Accountant’s Changes.

Other situations we have seen in our practice are related to the way the accountant’s changes file is sent between the accountant and the client. We had situations when we used the QuickBooks File Transfer service, but the client was not able to download the file. This could possibly be related to a poor internet connection, especially when the QuickBooks file is a large file. In this case you can ask your accountant to send you the changes on a CD, USB flash drive, or a secure portal.

If you still can’t import the changes, do some basic data damage troubleshooting on your QuickBooks company file or contact QuickBooks support.

Last Resort Solution

If nothing works for you, as a last resort solution, you can have your accountant import the changes for you. To do this, follow the steps below:

• send your accountant a back-up copy of your current QuickBooks file
  • the back-up copy should have the extension “.QBB”
  • make sure that you are not removing the accountant’s restrictions/dividing date
• next, your accountant will need to incorporate the changes for you; while you wait for your accountant to incorporate the changes, do not work on your QuickBooks
• as a last step, when you receive the back-up copy from your accountant with the changes incorporated, you should download the file and then do the following:
  1. In QuickBooks, go to the File menu and select Open or Restore Company
  2. Select Restore a backup copy and then Next
  3. Select Local Backup and then Next
  4. Browse your computer for your backup company file
  5. Select a folder to decide where to save your restored company file, then select Open

Make sure from now on to use this new restored QuickBooks file.

We hope this blog post helped you fix the errors when importing your accountant’s changes in QuickBooks Desktop.

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.