As part of our role as your trusted advisor, we have created this checklist that you should be reviewing at least annually to make sure that you are in compliance with various regulations.
Noncompliance with these requirements could result in significant penalties to the business owner.
If you are not sure if these items apply to you, please contact us so that we can help you maintain compliance with the areas applicable to you. Many of you may already be well-informed and up-to-date on these issues. However, if you need more information or our assistance in implementing these items, please contact us. Remember, this list may not be all-inclusive; if there are other areas in which you have concerns, please let us know.
Here is a list of topics to consider each year. For the areas that apply to your business, please click on each title which will take you to the correct destination for further discussion.
- S Corporation Owner/Shareholder Health Insurance
- 1099 Reporting
- Business Vehicle Mileage and Expense Tracking
- Affordable Health Care Act Information
- 2018 Colorado Unemployment Tax Rate Changes (SUTA Tax)
- Sales Tax
- Use Tax
- Business Personal Property Declaration Schedule
- Independent Contractor or Employee?
- Revenue Online – Colorado Department Of Revenue
- Pre-Certification of Qualified Enterprise Zone Business
- Retirement Plans
- Reporting Requirements for Foreign Bank and Financial Accounts and Other Foreign Assets
- Colorado Secretary of State Annual Reporting
- Accountable Plan for Employee Reimbursements
- Employee Personal Use of Business Vehicles
- Colorado New Hire Reporting Requirements
1. S Corporation Owner/Shareholder Health Insurance
Health insurance premiums paid for S Corporation owners/shareholders and their families are likely tax deductible, but there are a couple of items to keep in mind for this tax deduction to stand up to IRS scrutiny. First, neither the owner nor their spouse can be offered group health insurance that is paid pre-tax through nor subsidized by an employer. Second, the business needs to either pay the health insurance premiums directly to the provider or reimburse the S Corporation owner/shareholder if he or she is paying the premiums. Regarding reimbursement, ideally the S Corporation owner/shareholder will turn in an expense reimbursement report to the business and the business will issue a reimbursement check to the S Corporation owner/shareholder for the health insurance premiums paid by the S Corporation owner/shareholder. Or, if the S Corporation owner/shareholder takes monthly draws from the business, a portion of the monthly draw can be specifically allocated as reimbursement for health insurance premiums.
Lastly, the IRS requires health insurance premiums paid for S Corporation owners/shareholders to be reflected on the annual W-2 forms for the S Corporation owners/shareholders; if not, you risk losing the deduction. Please contact us if you need assistance with ensuring this gets reported. Note: self-employed health insurance premiums include items such as dental, vision, Medicare, Medigap, and/or COBRA. It does NOT include any payments made through other employers’ plans or payments to health sharing ministries such as Medishare or Liberty.
2. 1099 Reporting
If your business makes payments for rents, services, or interest you may be required to file 1099 forms annually. You are required to issue a 1099 to any non-corporate vendor (remember LLCs are not corporations) to which you pay at least $600 during the calendar for rents, services (including parts and materials), or interest. There is an additional requirement regarding payments to attorneys. If you pay $600 or more during the year for legal services you have to file a 1099 form even if the payments were made to the attorney’s corporation. You also need to file 1099 forms for any payments you make to vendors or contractors (not employees) that you withhold taxes. You can request a recipient’s (or potential recipient’s) information by sending them a W-9 form. Click here to go to our website for a blank W-9 form.
When we prepare your business’s income tax return, there is a question that you will be required to answer regarding whether you were required to issue any Form 1099 for the year and whether you filed all required returns. More information regarding 1099 reporting can be found at www.irs.gov. Please contact us if you have any questions about 1099 reporting requirements.
3. Business Vehicle Mileage and Expense Tracking
When preparing your business income tax return, we will need to calculate the deductible portion of your vehicle expenses, based on mileage information we will ask you to provide. The IRS requires you to track your business miles throughout the year, and only allows expense deductions for the business use. The consequences of not doing this are potentially severe; if the IRS determines records are inadequate, the entire vehicle deduction for a tax year could be disallowed. There are two methods we can utilize to calculate your business vehicle deduction: the actual expense method or the standard mileage deduction. Both methods require you to track mileage. The method chosen is per vehicle, and once chosen is generally used for the life of that vehicle. Please make sure you are doing the following to stay compliant:
- Tracking all business miles, with details for each vehicle (such as: 8/1/18 round trip from office to location X to meet with potential new client Y, total miles 8.5).
- If you claim business deductions based on actual expenses on your vehicle (rather than based on the standard mileage deduction), it is imperative that you track all expenses separately for each vehicle used for business purposes. In other words, you have a van used 100% for business, plus you also use your personal car 60% for business purposes, and you deduct expenses for both vehicles based on the actual expense method. Your books must show all expenses related to the use of each vehicle (gas, maintenance, insurance, etc.), and it must show these expenses separately for the van than for the personal vehicle. If not, we don’t know what expenses to use to calculate your business deduction. If you don’t know whether you use the actual expense method or the mileage deduction for your vehicles, ask us!
When preparing your business income tax return, we will need to know the following details from you for each vehicle you used for your business during that year: total miles (business and personal) for the year, and total business miles for the year. Due to increasingly harsh IRS tax preparer penalties, we will not be able to use estimates from you. Please note that commuting from your home or other non-work location to your office does not qualify as business use; these are commuting miles, which are not deductible. However, if you have an administrative office or other 100% business-use space in your home, and you drive to a permanent office or work location, these miles most likely do qualify as business miles, so ask us if you are unsure.
For sample mileage/tracking click here (Under General Forms, see Mileage Log in PDF and Excel formats). There also are several phone apps that are available to make tracking easier and more thorough. Let us know if you need help setting up a tracking system that will allow you to take advantage of the business use auto deductions that are available.
4. Affordable Care Act Employer Requirements
As a result of the Affordable Care Act legislation employers have various required responsibilities to their employees regarding health insurance.
- If you have 100 or more employees, you are required to offer health insurance to your employees or pay a penalty based on each eligible employee.
- If you have 50 to 99 employees, you are required to offer health insurance to your employees or pay a penalty based on each eligible employee.
- If you have less than 50 employees AND offer health insurance to your employees you are not bound by the employer mandate, but are required to follow many of the rules relative to providing health insurance to employees as dictated in the Affordable Care Act.
- However, if your business grosses more than $500,000 revenues annually, you are required to notify your employees of coverage options available through health insurance marketplaces, also known as health exchanges. The Department of Labor has provided two sample notices that employers may use to comply with this regulation. The notice for employers with health coverage can be found HERE. The notice for employers without health coverage can be found HERE. Please note that one of these are for employers that do offer health insurance to their employees and one is for employers that do not offer health insurance to their employees.
The details as to each area can be quite complicated and beyond the scope of this summary. It is important to consult with your health insurance provider and tax adviser to determine the impact the Affordable Care Act has on your business if you meet any one of the above parameters.
5. 2018 Colorado Unemployment Tax Rate Changes (SUTA tax)
Each year around November, the Colorado Department of Labor & Employment sends out Unemployment Insurance Rate notices that identify your new rate for the next year. If you use QuickBooks and prepare your own payroll, this change must be made in your books before processing your first payroll in 2019. You do not need to wait until 2019 to make this change in your QuickBooks file; you can do it as soon as you get the notice. If we process your payroll, please fax or email a copy of the notice to us at (970) 223-6509 (fax) or firstname.lastname@example.org.
Along with the rate notice, you will see a worksheet to calculate a voluntary tax payment. We suggest that you take a few minutes to go through the four steps to determine if a voluntary payment would be beneficial.
6. Sales Tax
As a result of the Supreme Court decision in the Wayfair case, the definition of ‘Nexus” has changed from having a physical location in a sales tax jurisdiction (state, county, local, etc.) to making an actual sale in that jurisdiction. Thus, if you make any sales in a specific jurisdiction you will have to determine if you have a requirement to file sales taxes for that jurisdiction. This is going to make the sales tax process very complex. Unless Congress intervenes, every sales tax jurisdiction will be able to set its own rules as to whether you need to collect and remit sales taxes for that jurisdiction. Because of this Shaw & Associates has determined we do not have the technical capabilities nor the personnel resources to assist with sales taxes outside the State of Colorado.
If your business operates in Colorado you are only required to obtain a state sales tax license if you sell tangible personal property, or rent real property for less than 30 days, in any sales tax jurisdiction controlled by the State of Colorado (state, counties, non-home rule cities, and RTD). As a result of the Wayfair decision the Colorado Department of Revenue has changed its definition of “Nexus” to having any sales in any sales tax jurisdiction. Thus, if you sell tangible property in the state of Colorado, you will be required to collect and remit sales taxes for any sales tax jurisdiction.
If your business operates in a home-rule city (Fort Collins, Loveland, Windsor, Denver, etc.), you are also required to have a separate city sales tax license (even if you are not required to have a state sales tax license) regardless if you sell tangible personal property or not. Click HERE for the complete list of home rule cities. If you are required to have a sales tax license you will be required to file a periodic sales tax return (even if you have no sales during that period).
7. Use Tax
Although very similar, use tax is not the same as sales tax and tends to be overlooked by many taxpayers. In the state of Colorado, businesses and individuals are required to pay use tax on items purchased that are not for resale, and on which state sales tax was not paid when purchased. If your business operates in Colorado, you are required to file a separate state use tax return only if you owe such taxes. Additionally most home-rule cities require use tax to be reported and paid on the Sales and Use Tax Return based on your required filing frequency. Use taxes can also be very complicated, so please contact us if you have questions. Please note, if you are a non-profit organization located in Fort Collins, you are not necessarily exempt from city sales and use tax.
8. Business Personal Property Declaration Schedule
If your business operates in Colorado, you must file an annual declaration schedule of business personal property if the total actual value of all your business personal property is more than a certain threshold. For instance, the threshold for Larimer and Weld Counties is $7,400. For every county in which you have a separate physical business address, you need to file an annual declaration with that county if that separate location meets the $7,400 requirement. The declaration schedule must be filed by April 15th each year with the assessor’s office of the county where your business is located.
If your business is located in Larimer County, and you have filed in the past, you should receive an annual declaration schedule in the mail. You can also get the declaration schedule from the Larimer County Assessor’s Office, or you can now file it online at www.larimer.org/assessor/personal_property/detail_entry.cfm.
If your business is located in Weld County, and you have filed in the past, you should receive an annual declaration schedule in the mail. You can also get the declaration schedule from the Weld County Assessor’s Office, or you can now file it online at http://www.co.weld.co.us/apps/assessor/assessordec/.
Please contact us if you have any questions regarding your business personal property declaration schedule or would like us to file this for you. Please note that not receiving this declaration schedule in the mail does not exempt you from these requirements. If your business is located in a county other than Larimer or Weld County and you are unsure about the requirements, please contact us.
9. Independent Contractor or Employee?
It is important for business owners to determine whether the individuals performing services for them are employees or independent contractors. The IRS recently has been cracking down on what they consider to be improper classifications, and can hold a business owner liable for employment taxes and penalties on payments to independent contractors who the IRS determines should be employees. Business owners need to look at the entire relationship with the individual performing services, consider the degree or extent of the right to direct and control, and document the factors used in coming up with the determination. The following three categories of facts that provide evidence of the degree of control and independence should be considered when making the determination:
- Behavioral – does the business control or have the right to control what the worker does and how the worker does the job?
- Financial – are the business aspects of the worker’s job controlled by the business owner? These include items like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.
- Type of Relationship – are there written contracts or employee-type benefits (vacation pay, insurance, retirement plan, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Additionally, in recent court cases when a payee seemed to fit all other descriptions of an independent contractor, they have been reclassified to an employee if the payer did not issue the required Form 1099 to the payee. So if you determine an individual meets the definition of an independent contractor, it is especially crucial that you issue the required 1099. (See more information in the 1099 Reporting section above.)
Business owners must weigh all these factors and evaluate each situation separately, as factors that are relevant in one situation may not be relevant in other situations. Click HERE for a complete checklist used by the IRS to determine whether you have enough control over a worker to be an employer. Please contact us if you need assistance with making this assessment.
10. Revenue Online – Colorado Department of Revenue
The Colorado Department of Revenue (CDOR) has created a system called Revenue Online that is now the preferred method for communicating with the CDOR on most matters affecting your state withholding, sales, and income taxes. This system also allows you to pay most kinds of state taxes via electronic funds transfer (EFT). Additionally this system allows us to communicate with the CDOR on your behalf and to research history in your account. We highly recommend that you register for this service and give us the authority to access the account on your behalf. You can register and access this system at www.colorado.gov/revenueonline. If you have not already registered please do so (see detailed instructions at our website by clicking HERE). If you have already registered, please add us as an allowed third party to access your account (see detailed instructions at our website by clicking HERE). Please contact us at 223-0792 or email@example.com for our login ID and to discuss the level of access required for your circumstance.
11. Pre-Certification of Qualified Enterprise Zone Business
There are income tax credits available to certain businesses that operate inside a Colorado Enterprise Zone. The 2018 Tax Cuts and Jobs Act includes a change that now makes one of the Enterprise Zone credits applicable to far more businesses than it was previously. However, in order to be eligible for the credit, a business is required to be pre-certified prior to performing applicable activities. If you are not sure if you qualify, check with us before you try to obtain pre-certification. Pre-certification is required annually, so please add a reminder on your calendar at the beginning of each year to complete the pre-certification process. The pre-certification process can be done electronically at https://oedit.secure.force.com/oedit/. Please send us a copy of your accepted certification form as it is required to be filed with your business tax return to claim some Colorado Enterprise Zone income tax credits.
12. Retirement Plans
Retirement plans are valuable tools that can provide tax benefits to both business owners and employees. If your company has a retirement plan, you should review it at least annually with your tax and financial advisors to make sure that it is still a good fit for the company and that it is still accomplishing all the objectives that were originally envisioned. Since we provide both tax and financial services to our clients, we can help you with the annual analysis.
If your company does not have a retirement plan, consider meeting with us to understand all of the tax and business benefits a retirement plan can provide. Since there are several types of retirement plans available with different set-up and funding requirements, it is important to explore this option prior to December 31st to make sure all plans can be considered.
13. Reporting Requirements for Foreign Bank and Financial Accounts and Other Foreign Assets
- FinCEN 114 Report of Foreign Bank and Financial Accounts (FBAR) – If you or your business has signature authority over a financial account located outside of the United States and the total value of all foreign financial accounts is greater than $10,000 at any time during the calendar year, you are required to file FinCen 114 Report of Foreign Bank and Financial Accounts (FBAR). This form is filed separate from your income tax return and must be filed by April 15th of the year following the calendar year being reported. We will file this form for you annually if we know about your foreign assets.
- Form 8938 Statement of Specified Foreign Financial Assets – If you are required to file a Federal income tax return and you have specified foreign financial assets of more than $50,000 during the year you may be required to file Form 8938 with your Federal income tax return. If you have specified foreign financial assets of more than $50,000 during the year, please let us know so that we can determine if Form 8938 needs to be filed with your Federal income tax return.
- Form 3520 Annual Return To Report Transactions with Foreign Trusts and Receipts of Certain Foreign Gifts – If you have ownership in a foreign trust, or have certain transactions with a foreign trust, or receive certain large gifts/bequests from certain foreign persons, you may be required to file Form 3520. This form has the same due date as your Federal income tax return, but is filed separately. Please contact us if you have ownership or transactions with a foreign trust or receive large gifts/bequests from foreign persons to determine if you need to file Form 3520.
More information regarding the forms above can be found at www.irs.gov. We know these forms can be extremely confusing, so please contact us as soon as possible if you meet these requirements as penalties for noncompliance can be severe.
14. Colorado Secretary of State Annual Reporting
If you operate an LLC, partnership, or corporation in the state of Colorado, you are required to be registered with the Colorado Secretary of State (SOS). Additionally, you are required to file an annual periodic report (based on your original formation date), which simply involves updating your contact information and paying a small fee with the SOS. If you do not file, your entity eventually will be statutorily dissolved by the SOS. The SOS no longer sends out annual postcard reminders. You can sign up for email reminder notification at www.sos.state.co.us (see detailed instructions at our website by clicking HERE). If you do not want to use the email notification, make sure to mark your calendar every year for when your annual filing is due.
15. Accountable Plan for Employee Reimbursements
If your business reimburses employees (including owner-employees) for business expenses, the IRS requires you to have an accountable plan. However, we strongly suggest that this plan be in writing. If the IRS were to question the expense reimbursement payments your business makes to employees and determine them to be compensation rather than expense reimbursement, they could require your business to pay payroll taxes on these reimbursements. An accountable plan would help reduce the ambiguity of such payments and the threat of reclassification. To be considered an accountable plan, your reimbursement arrangement must include the following rules:
- Expenses reimbursed must have a business purpose – employees must have paid or incurred deductible expenses while performing services as an employee of your business.
- Employees must adequately account to you for expenses to be reimbursed within a reasonable period of time. This includes mileage for business travel by the employee using his or her personal vehicle.
- Employees must return to you any excess reimbursement or allowance within a reasonable period of time.
We suggest having a standard reimbursement form for all employees to use for submitting to you for business expenses to be reimbursed. You can create one that is customized for your business or click HERE to download an Excel expense report template or you can find it on our website under the Client Forms section. Please contact us if you would like assistance with setting up an accountable plan.
16. Employee Use of Business Vehicles
If your business owns vehicles that are used personally by your employees, that personal use is taxable to your employee as compensation and is required to be included in their annual W-2, or to be reimbursed by them to the business.
Personal use may include:
- Driving the vehicle home after hours (which is considered commuting and is not a qualified business use).
- Family trips.
- Personal errands.
- Any use by the employee’s spouse or dependent.
Personal use does not include driving from one jobsite to another, running errands for the business, or de minimis personal use. De minimis use is when the employee takes a small personal detour while using the vehicle for business purposes, like running to the bank on their way back to the office from a business meeting. Keep in mind that if these vehicles are fitted with signs or decals advertising your business, this does not change the nature of business versus personal use, even though your business is receiving advertising when these vehicles are being driven around town.
Often, an employee will have business and personal use of the same vehicle. In that case, they need to substantiate their business use. There are many ways to track business use, including a manual mileage log (see a sample HERE), a smartphone app, or other system. As the employer, you need to require your employees to keep these records, to provide them to you periodically (at least annually, but preferably more often), and you need to keep those records. Any miles driven on business vehicles that are not substantiated as business expenses are considered to be personal, and therefore are subject to employee and employer payroll taxes and income taxes.
There are 3 different methods the IRS allows to value the additional compensation you must report for your employees. Generally, you calculate this on a per-vehicle basis, and can use different methods for different employees. Please contact us for more information regarding the valuation methods allowed by the IRS. If you have employees who meet these criteria and you are not currently following these rules, contact us to help you get in compliance.
17. Colorado New Hire Reporting Requirements
Colorado employers are required to report information about all newly-hired Colorado employees and certain independent contractors, within 20 calendar days of the date of hire. This gets reported to the State Directory of New Hires. More details can be found HERE.
If you have any questions please do not hesitate to call.