Friday, May 4, 2018

For Small Business Week: Tax credit can help employers hiring new workers; key certification requirement applies


With many businesses facing a tight job market, the Internal Revenue Service reminds employers to check out a valuable tax credit available to them for hiring long-term unemployment recipients and other categories of workers with employment barriers.

During National Small Business Week — April 29 to May 5 — the Internal Revenue Service is highlighting tax benefits and resources designed to help new and existing small businesses.

The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. For any employer considering this option, the WOTC may be able to help.

For those who haven’t claimed the WOTC in a while, the IRS noted that legislation enacted in recent years has both expanded and modified the credit. For example, legislation effective Jan. 1, 2016, added a new category for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time.

Here’s how it works.

The credit, usually claimed on Form 5884, Work Opportunity Credit, is generally based on wages paid to eligible workers during the first two years of employment. To qualify for the credit, an employer must first request certification by filing IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.

There are now 10 categories of WOTC-eligible workers. Besides long-term unemployment recipients, the other categories include certain veterans and recipients of various kinds of public assistance, among others.

The 10 categories are:
  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Food stamp (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800, General Business Credit.

Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans. Visit the WOTC page on IRS.gov for more information.

How the Employer Credit for Family and Medical Leave Benefits Employers


During National Small Business Week, the IRS focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.


Here are some facts about this credit and how it benefits employers:
  • To claim the credit, employers must have a written policy that meets certain requirements:
    • Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part time.
    • The paid leave must be not less than 50 percent of the wages normally paid to the employee.
  • A qualifying employee is any employee who:
    • Has been employed for one year or more.
    • For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.
  • For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:
    • Birth of an employee’s child and to care for the newborn.
    • Placement of a child with the employee for adoption or foster care.
    • To care for the employee’s spouse, child, or parent who has a serious health condition.
    • A serious health condition that makes the employee unable to perform the functions of his or her position.
    • Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
    • To care for a service member who is the employee’s spouse, child, parent, or next of kin.
  • The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. 
  • An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Any wages taken into account in determining any other general business credit may not be used toward this credit.
  • The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.
More Information:

Employer Credit for Family and Medical Leave FAQs

For Small Business Week, IRS offers tips to small business owners about the overlooked home office deduction


The Internal Revenue Service today reminded small business owners who work from a home office that they may be overlooking a common deduction.

The IRS encourages small business owners to explore the guidelines surrounding home office deductions so they understand the legal guidelines and options available. More details are available in Publication 587.

As part of National Small Business Week (April 29-May 5), the IRS is highlighting a series of tips and resources available for small business owners. For someone considering claiming the home office deduction, there are two options available:

Regular method

The first option for calculating the home office deduction is the regular method. This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Schedule C, Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.

Simplified method

The second option, the simplified method, reduces the paperwork and recordkeeping burden. The simplified method has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and enter the result on the tax return. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Schedule C, Line 30, and farmers claim it on Schedule F, Profits or Loss from Farming, Line 32.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are allowed when the home is the only fixed location of the business, or for regular use of a residence for daycare services; exclusive use isn't required in these cases.
Further details on the home office deduction and the simplified method can be found in Publication 587, Business Use of Your Home, on IRS.gov.

IRS urges small businesses: Protect IT systems from identity theft

The IRS, state tax agencies and the nation’s tax industry are warning small businesses to be on-guard against a growing wave of identity theft attempts against employers.

Small business identity theft is big business for identity thieves. When businesses and their employees have their identities stolen, their sensitive information can be used to open credit card accounts or file fraudulent tax returns for bogus refunds.

The Internal Revenue Service, state tax agencies and the private-sector tax community -- partners in the Security Summit -- are marking “Small Business Week” with a series of reminders to taxpayers and tax professionals. The week concludes with warnings about small business identity theft.

In the past two years, the Internal Revenue Service has noted a sharp increase in the number of fraudulent filings of Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Identity thieves are displaying a sophisticated knowledge of the tax code and tax industry filing practices as they attempt to obtain valuable data to help file fraudulent returns. To help counter this, Security Summit partners have expanded efforts to better protect business filers and identify suspected identity theft returns.

Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now they are using company names and EINs to file fraudulent returns.

As with fraudulent individual returns, there are certain signs that may indicate identity theft. Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:
  • Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file;
  • An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS;
  • Received 5263C or 6042C Letters;
  • An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;
  • Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.
Steps to protect businesses

The IRS, state tax agencies and software providers also share certain data points from tax returns, including business returns, that help identify a suspicious filing. The IRS and states ask that business and tax practitioners provide additional information that will help verify the legitimacy of the tax return.

Respond to the “know your customer” questions when prompted by software:
  • Who signed the return – including name and SSN
  • Tax payment history of the company
  • Parent company information
  • Additional information based on deductions claimed
  • Tax filing history of the company
Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help the IRS and states identify suspicious business-related tax returns.

For small businesses looking to enhance their security, the National Institute of Standards and Technology (NIST) produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.

The United States Computer Emergency Readiness Team (US-CERT) has Resources for Small and Midsize Businesses. Many secretaries of state also provide resources on business-related identity theft as well.

The IRS, state tax agencies and the tax industry continue to work together to fight against tax-related identity theft and to protect business and individual taxpayers. Everyone can help. Take steps recommended by cyber experts and visit the Identity Protection: Prevention, Detection and Victim Assistance for information about business-related identity theft.

Tax Reform: Changes to Depreciation Affect Businesses Now


As employers across the country celebrate National Small Business Week, the IRS reminds businesses that the passage of the Tax Cuts and Jobs Act may affect their depreciation deductions and taxes.

Business taxpayers can generally depreciate tangible property except land, including buildings, machinery, vehicles, furniture and equipment.

Changes to depreciation and how they will affect businesses may include:

  • Businesses can immediately expense more under the new law; taxpayers may elect to expense the cost of any property and deduct it in the year the property is placed in service.
  • Maximum deduction increased from $500,000 to $1 million.
  • The phase-out threshold increased from $2 million to $2.5 million.
  • The new law allows taxpayers to elect to include improvements made to nonresidential property. The improvements must have been made after the date the property was first placed in service.


These improvements include: 
  • Any improvement to a building’s interior
  • Roofs
  • Heating and air conditioning systems
  • Fire protection systems
  • Alarm and security systems
Improvements that do not qualify:
  • Enlargement of the building
  • Service to elevators or escalators
  • Internal structural framework of the building
These changes apply to property placed in service in taxable years beginning after December 31, 2017.