Back to top


Bates & Associates November Newsletter

Posted by Admin Posted on Nov 30 2016


Employer and employee alert!
On May 18, 2016 President Obama and Labor Secretary Perez announced new Department of Labor overtime regulations that go into place December 1, 2016. The Federal Labor Standards Act (FLSA) has information everyone needs to know to comply with these new rules.


  • Any worker making $47,476 or less must be paid overtime for hours worked in excess of 40 in a given week. This is true whether the employee receives a salary or hourly pay. The overtime rate must be at least time and one-half.
  • Up to 10% of the compensation amount can be in the form of nondiscretionary bonuses or incentives.
  • Highly compensated employees (HCE) is now defined as $134,004 or higher. The old rate was $100,000. Those above these income levels are exempt from the overtime rules as long as a minimal duties test is met.
  • The new rule is effective December 1, 2016
  • The wage amount will automatically reset every three years. The next change will be January 1, 2020.
  • Actual implementation documentation has not been published in the Federal Register. Final regulations could still change slightly.

What this means to you...

There will be change. Any salaried employee who makes less than the $47,476 amount will see a change. It could take any of the following forms:

  • move from salaried employee to hourly employee
  • a raise to $47,476 or more
  • move from a flexible work-week to a scheduled work-week to comply with a strict 40 hour work week
  • increase in the tracking of hours

Flex hours a thing of the past? Your work hours must now be tracked. Because of this, working from home and working flexible hours is more difficult. While the legal burden of reporting is placed on employers, employees will now need to track their work time.

Required reporting. While the Department of Labor provides flexibility on how employers track hours, the standard of reporting will probably be tested through legal action. Here are some of the options per the Department of Labor.

  • Time clock. Have everyone track their hours by punching in and out.
  • Personal recordkeeping. Have each employee track their daily hours and report them to
  • the employer each pay period on a timesheet.
  • Hard scheduling. Publish a schedule of hours for each employee. Record any deviation from the schedule and place the documentation with payroll records.

Note: Please refer the U.S. Department of Labor Fact Sheet #21 for a summary of the FLSA's recordkeeping regulations.

More than a raise. While many are touting this as a potential raise for more than 4 million employees, many believe two other objectives are in play. The first is to broaden employment. Employers may hire additional people to avoid the necessity of paying overtime. The second possible objective is to help re-establish a work and leisure balance.

No matter what the pundits say, the true impact of this change is unknown. The only certainty is that all employers now face additional administrative duties and potential legal action for non-compliance. This includes businesses, schools, and non-profit organizations. What is important at this point is to be aware of the upcoming change and plan for it.

Bates & Associates October Newsletter

Posted by Admin Posted on Nov 02 2016

Employer Reimbursements

An employer may reimburse an employee for travel, meals, and entertainment expenses incurred while performing services for the employer. The tax treatment of the reimbursement, including per diem allowances, depends on whether the employer has an “accountable plan” or a “nonaccountable plan.”

If expenses are reimbursed under an accountable plan, the employer deducts the amount allowable as travel, meals, and entertainment expense, and the employee excludes the reimbursement from income.

If the expenses are reimbursed under a nonaccountable plan, the employer reports the reimbursement as taxable wages to the employee on Form W-2 and takes a wage expense deduction. The employee is then allowed a deduction on his or her individual income tax return for the reimbursed expenses on Form 2106, Employee Business Expenses. These expenses are subject to the 2% AGI limitation as miscellaneous itemized deductions

Accountable Plan

To qualify as an accountable plan, employees must:

1) Have paid or incurred deductible expenses while performing services as an employee,

2) Adequately account to the employer for these expenses within a reasonable period of time, and

3) Return any excess reimbursement or allowance within a reasonable period of time.

An arrangement under which the employer advances money to the employees is treated as meeting (3), above, only if the following requirements are also met.

  • The advance is reasonably calculated not to exceed the amount of anticipated expenses.
  • The employer makes the advance within a reasonable period of time.


Excess reimbursement. Any amount advanced to the employee that exceeds the amount adequately accounted for by the employee must be returned to the employer within a reasonable period of time.


If a reimbursement arrangement provides for meal expenses in excess of the federal per diem rate, there must be a mechanism in place to track the actual expenses for purposes of returning the excess to the employer. If such a mechanism is not in place, the entire amount of reimbursement is included in the employees’ taxable wages, not just the amount in excess of the federal per diem.

Reasonable period of time. Facts and circumstances determine what is reasonable in a given situation. Actions that take place within the following list will be treated as taking place within a reasonable period of time.

  • The employer reimburses an expense within 30 days of the time the employee incurred the expense.
  • The employee adequately accounts for the expense within 60 days after the expense was paid or incurred.
  • The employee returns any excess reimbursement within 120 days after the expense was paid or incurred.
  • The employer gives the employee a periodic statement, at least quarterly, that asks the employee to either return or adequately account for outstanding advances, and the employee complies within 120 days of the date of the statement.


Reimbursement not requested.


When an employee has a right to reimbursement for expenses related to his or her status as an employee but fails to claim reimbursement, the expenses are not deductible since they are not considered necessary expenses. Court Case: The taxpayer’s job involved extensive traveling in a two-state area. His employer had a policy under which employees were eligible for reimbursement of all types of nonvehicle business expenses. The taxpayer did not submit any expenses for reimbursement from his employer. Instead, he deducted the expenses as unreimbursed business expenses on his tax return. The court noted that it was not necessary for the taxpayer to remain unreimbursed for the expenses. To the extent the expenses could have been reimbursed, the court disallowed the taxpayers claimed deductions. (Stidham, T.C. Summary 2012-61)

Nonaccountable Plan

Any form of reimbursement that does not meet the accountable plan rules is a nonaccountable plan. All amounts paid, or treated as paid under a nonaccountable plan are reported as wages on Form W-2. The payments are subject to income tax withholding, Social Security, Medicare, and federal unemployment taxes.

Paying Expenses of an Employer

If the expense paid by an employee is that of the employer and not the employee, the expense might not be deductible. This could be the case where a taxpayer is both the shareholder and employee of his or her corporation. The shareholder-employee may pay a corporate expense, such as office rent, out of personal funds when the corporate checkbook is low on funds. Since the expense is a liability of the corporation and not the employee, the expense is not deductible by the employee because it is not an ordinary and necessary business expense. However, if the corporation has a resolution or policy in place requiring a corporate officer as an employee of the corporation to assume certain expenses, those expenses would be deductible by the employee, subject to the 2% AGI limitation on Schedule A, Itemized Deductions.

Bates & Associates September Newsletter

Posted by Admin Posted on Oct 18 2016

IN THE NEWS: Student Tax Scams

With school starting, the IRS has reminded us to pay attention to a new scam that is targeting students and their parents.
Here is what you need to know.

  • The scam. Callers will contact your student and demand payment of an unpaid Student Tax. This tax does not exist. The contact is typically via phone call, but can take the form of a realistic looking email.
  • It will seem real. The caller will say they are from the IRS. They will have your student's name and some of their personal information stolen from another source. There may be a caller ID displaying IRS. They will often call multiple times and may even threaten arrest.
  • Their goal. To get your unwary parent or student to provide them with payment through a prepaid debit card, credit card, or other type of gift card.
  • What to do. If this happens to you, hang up. If they call back, do not answer. Students should inform parents of the call. Remember, the IRS NEVER initiates a tax question with a phone call or email. You can also report the scam to the Treasury Inspector General for Tax Administration: IRS Impersonation Scam Reporting Form


Should this scam occur, one thing is certain. Personal data has been stolen. If you receive this scam call, you may be targeted for other scams. So be alert and consider reviewing your credit reports to ensure someone is not trying to access your identity in other ways.

Day Care Providers Income and Expenses

Employer Identification Number (EIN)
Even if you operate your day care business as a sole proprietor or have no employees, you should obtain an EIN.

  • Instead of your Social Security number, use your EIN on Form W-10, Dependent Care Provider’s Identification and Certification.
  • Use your EIN for your business bank account.


Business Bank Account
Have a bank account that you use exclusively for depositing day care income and paying day care expenses.

  • Keep track of deposits from your personal funds and of reimbursements you make to yourself.
  • Deposit all day care income, including cash payments, into the business bank account.
  • Use a check or debit card to pay for business expenses instead of withdrawing cash.


Business Credit Card
Some options for tracking business expenses that you pay for with a credit card are:

  • Using a business credit card exclusively for day care business expenses.
  • Dedicating a personal credit card to the exclusive use of the day care business.


If you don’t have a separate credit card, keep careful track of day care business expenses that you charge to your personal card.

Day Care Business Records
You may use any recordkeeping method that clearly shows your day care income and expenses, such as handwritten ledgers, spreadsheets, and business software. You should keep the following additional records.

  • Daily time log for the hours you spend in preparation, planning, recordkeeping, food preparation, clean-up, etc., in addition to the actual hours you are available for day care.
  • Attendance, rates, payment history, and meal and snack log for each person in your care.
  • Mileage records for the use of your car in the day care business.
  • Home-related expenses.


Day Care Income
As a day care provider, you generally receive income from several sources. Examples include:

  • Direct payments from parents or guardians.
  • Direct payments from the employee benefit plan of a parent or guardian.
  • Subsidy payments from state and local agencies or from charitable organizations for specific children or adults in your care.
  • Sales of assets used in your day care business.
  • Grants from state, local, or private agencies.
  • Reimbursements for expenses you incur, such as food program payments through the Child and Adult Care Food Program (CACFP).


Reporting Income
All the above items are included in your day care gross income.

  • Grants made directly to your business are generally included in business income. If you spend the grant money in your day care business, you can deduct those expenditures.

Bates & Associates August Newsletter

Posted by Admin Posted on Sept 16 2016

Back to School Tax Tips

With the start of school, taxpayers should be aware of the following tax breaks and deductions available for qualifying expenses.

Private School Tuition and School Uniforms The cost of private school or parochial school tuition is not deductible. However, the child care component costs of private school tuition for children under 13 may qualify the taxpayer for a tax credit. School uniforms are also not deductible even if they are required.

Before and After School Care Can Be Deducted For a child under the age of 13, the cost of before or after school care may qualify the taxpayer for a tax credit if it is a qualifying expense.

Tax Deductions for School Fundraisers are Limited You are required to reduce your deduction by the market value of any goods or services received in return for your charitable donation.

Moving Expenses to Go to College are Not Deductible Going away to college is not moving for a job and is not considered a moving expense deduction by the IRS. However, the expenses for moving from college for that first job may be eligible for the moving expenses deduction.

Earnings in 529 Plans are Not Federally Taxable The earnings in 529 plans are not taxable. The money grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses.

Use Tax-Deferred Accounts to Pay for Educational Expenses You can use tax-deferred accounts (i.e., an Educational Savings Account) to pay for qualified educational expenses including books and computers for elementary, high school and college expenses.

Student Loan Interest is Deductible Above the Line Student loan interest is generally deductible as an above the line deduction, meaning you do not have to itemize in order to claim the deduction. There is a student loan interest deduction of up to $2,500 for paying interest on a student loan used for higher education. The amount of the student loan interest deduction is gradually reduced if the taxpayer’s modified adjusted gross income is within a certain range.

American Opportunity Tax Credit The American Opportunity Tax Credit can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that the taxpayer may be able to receive up to $1,000, even if they have no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply. The taxpayer is now required to have the 1098-T from the qualified educational institution to take the AOTC, and the credit has to be based on amount paid and not billed.

Lifetime Learning Credit Up to a maximum of $2,000 credit for qualified education expenses paid for a student enrolled in an eligible educational institution. The credit is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. There is currently no limit on the number of years a taxpayer can claim the credit. Income limits apply. Please keep in mind, this credit does not allow for some of the items that are allowed for the AOTC. This credit is generally based on tuition and fees.

Tuition and Fees Deduction The Tuition and Fees Deduction applies to qualified education expenses for higher education for an eligible student taking undergraduate, graduate or post graduate courses. The deduction gradually phases out after a certain income range. There is no limit to the number of years the credit can be claimed.

Roth IRA The income earned from summer and/or after school employment by the student can be contributed to a Roth IRA, which will grow tax-free. The earnings are taxable and subject to a penalty only if withdrawn before the age of 59 ½.

Services We Provide

Accounting – We work closely with business owners to improve their and accounting and bookkeeping. Whether you work with a desktop accounting software or use a cloud-based accounting software, we have solutions for you.

Payroll – We can provide assistance from preparing all of your payroll checks, including direct deposit checks, to assistance with tax payments and filing payroll reports.

Taxes – We can provide assistance for all types of tax filings – Sales, payroll, and of course income taxes. We work with all types of organizations including, Schedule C businesses, partnerships, corporations, and nonprofits.

Bates & Associates July Newsletter

Posted by Admin Posted on Sept 09 2016

Ten Tips on Amending Tax Returns

If you find that there is an error on your income tax return then you should file an amended return. 10 tips from the Internal Revenue Service on when, why and how to change a previouslyfiled tax return. 

1. Know when to amend. Possibly the best reason to amend a return is to claim a deduction or credit that wasn’t claimed on the original return. Among the other common reasons for amending a return are correcting filing status, changing a taxpayer’s number of dependents, or changing their total income.

2. Know when not to amend. Not everything requires an amended return. The IRS will make some corrections – such as fixing math errors – for the taxpayer. And if a required form or schedule isn’t included, they’ll mail out a notice about the missing item.

3. Use the right form. That would be the Form 1040X. It must be paper-filed, and the box at the top showing which year is being amended needs to be checked off. The three columns on the front of the form show the original amounts, the net increase or decrease for the amounts being changed, and the corrected amounts – the back is for explaining what’s being changed, and why.

4. Each year on its own. If returns from more than one year are being amended, each one should appear on a separate 1040X – and they should be mailed in separate envelopes.

5. More is more. If the changes on the amended return involve other tax forms or schedules, they should be attached to the Form 1040X when it’s filed.

6. Refund first, amend later. If the expected refund from the original return hasn’t arrived yet, don’t file an amended return until after the refund shows up. Amended returns take up to 16 weeks to process, after which the taxpayer will receive any extra refund that’s due.

7. Feel free to pay now. If an amended return will mean the taxpayer will owe more, the IRS recommended paying as soon as possible – and not just because it wants the revenue: It will also help limit interest and penalty charges.

8. Double-checking Obamacare. The IRS suggests considering an amended return for taxpayers who incorrectly claimed an Affordable Care Act Premium Tax Credit, or if they received a corrected or voided Form 1095-A.

9. Filing deadlines. Amended returns can be filed up to three years from the date of the original filing – or up to two years from the date the tax was paid, if that’s later than the original filing date.

10. Follow the return. Most amended returns can be tracked through the “Where’s My Amended Return?” tool or by phone at (866) 464-2050.

Ten Reasons Businesses Fail

Data from the small business association indicates three in ten new businesses fail within the first two years, and only five in ten businesses survive five or more years. These are the ten most common reasons for failure.

1) Lack of experience. This can apply to a lack of experience in a specific business or in running a business in general.

2) Insufficient capital. Sufficient capital must be in place to support a business until cash flow from operations is adequate.

3) Poor location.

4) Poor inventory management. Keeping too much inventory uses too much capital unnecessarily, while having too little inventory can lead to shortages and customer dissatisfaction.

5) Over-investment in fixed assets.

6) Poor credit arrangements. Lacking access to sufficient, reasonably priced credit.

7) Personal use of business funds. Business funds should not be used for personal purposes.

8) Low sales.

9) Competition. Not properly assessing competition can potentially leave a business in a position of needing to compete in a market where it cannot do so and survive.

10) Unexpected growth. Growth without sufficient planning for the consequences can lead a thriving business to failure.

Ten Ways to Protect Yourself from Tax Scams

There are many tax scams out there with the purpose of stealing your identity, stealing your money, or filing fraudulent tax returns using your private information. Tax scammers work year-round, not just during tax season and target virtually everyone. Stay alert to the ways criminals pose to trick you out of your money or personal information. The following are precautions you can take to protect yourself from becoming a victim.

1. IRS will never initiate contact with a taxpayer via telephone, text message, email, or social media to request personal or financial information. The IRS will always first send a letter requesting information.

2. Personal information should not be provided over the phone, through the mail, or on the internet unless the taxpayer initiated the contact or is sure he or she knows with whom he or she is dealing.

3. Social Security cards or any documents that include your Social Security number (SSN) or individual taxpayer identification number (ITIN) should not be carried around.

4. Do not give a business your SSN or ITIN just because they ask — provide it only if required.

5. Financial information should be protected. Do not give out any financial information over the phone or via email.

6. Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of groups with names that are similar to nationally known organizations.

7. Credit reports should be checked yearly.

8. You should review your Social Security Administration earnings statements annually.

9. Protect personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for internet accounts.

10. Report any instances of tax scams to the IRS.

Bates & Associates June Newsletter

Posted by Admin Posted on Sept 09 2016

Death of a Taxpayer

One of the most famous quotations by Benjamin Franklin is: “Nothing is certain except death and taxes”. This saying is so true. The IRS still expects taxes to be paid even after a person dies. There are certain returns that still need to be filed, a responsibility that falls onto the personal representative.

Personal Representative

Under state law, a personal representative is the person appointed by a court to administer an estate. The term includes both executors (appointed when decedent has a will) and administrators (appointed in the absence of a will). A personal representative nominated in a will has no authority over estate assets unless appointed by a court.

Duties of Personal Representative

Duties include collecting all of the decedent’s property, paying any creditors, and distributing assets to beneficiaries. In addition, the representative is responsible for filing various tax returns and seeing that the taxes owed are properly paid.

No Court-Appointed Representative

When there is no probate and no appointed representative, the IRS will allow a “person charged with property of the decedent” to file the decedent’s income tax returns and claim refunds. IRS written guidance does not specify who this person should be. If there is a surviving spouse, he or she usually files a joint final Form 1040 and any other required returns. If there is no surviving spouse, the person who files is commonly:

  • The trustee of the decedent’s revocable trust,
  • The personal representative nominated in the will who would have been appointed if probate was required, or
  • A beneficiary receiving nonprobate assets who undertakes the work.


The IRS uses the term “personal representative” to refer to anyone filing for a decedent, whether or not court appointed.

Decedent’s Tax Returns

The personal representative is responsible for the following returns when required.

    Form 1040, Final return for year of death (gross income of a decedent from January 1 until the date of death is reported on the decedent’s final income tax return).
  • Form 1041, Income tax returns for the probate estate (required if income greater than $600 is received after death by the decedent’s estate).
  • Form 706, Estate tax return (required if decedent’s estate exceeds the estate tax exclusion ($5,340,000 in 2015) or if portability election is made.
  • Form 709, Gift tax for year of death (required if the decedent gave more than the annual exclusion ($14,000 for 2015) to any one person in the year of death or failed to file any prior year gift tax returns).
  • Returns not filed by decedent for prior years—Form 1040, Form 1040X, Form 709.
  • State income tax and estate tax returns. Some states do not have an estate tax, but several states have annual estate tax exclusions that are significantly less than the federal exclusion.


A personal representative may be personally liable for unpaid tax if he or she distributed assets, the estate is insolvent as a result, and the personal representative had notice of the tax claim.

Application for Employer Identification Number (EIN)

An executor should obtain an EIN for the probate estate as soon as possible. The identification number must be included on estate returns, statements, and other documents. The executor can obtain an EIN immediately at by searching “EIN online.”

Notice of Fiduciary Relationship

The personal representative must notify the IRS of the fiduciary relationship. Form 56 can be used for this purpose. File separate forms for the decedent and estate. Form 56 can also be used to notify the IRS of a change in fiduciary or termination of fiduciary relationship.

Prompt Assessment

Form 4810 can be filed to shorten the statute of limitations for tax returns from three years to 18 months. File Form 4810 separately after the returns are filed. Prompt assessment can be requested for Forms 1041 and Form 1040, including returns filed by the decedent. Prompt assessment cannot be requested for federal estate tax.

Discharge From Personal Liability

Personal representatives can request discharge from personal liability for estate, gift, and income tax after returns are filed. The personal representative is discharged from personal liability nine months after receipt of the request by the IRS, unless notified of unpaid tax.


All personal representatives must include in their gross income any fees paid to them from an estate. Generally, a taxpayer is not in the trade or business of being an executor and will report these fees on Form 1040, line 21.

Bates & Associates May Newsletter

Posted by Admin Posted on Sept 09 2016


Wedding season is upon us. There are several items that newlyweds should remember to do once the ceremony is over. Updating your status from single to married may bring about some unanticipated changes, including changes relating to your taxes. While wedding planners don’t typically use an IRS checklist, here are a few things to keep in mind when filing your first tax return as a married couple. As with any tax issue, contact your tax professional to help you navigate your own unique situation.

Notify the Social Security Administration (SSA)

If one of you has taken on a new name, report the change to the SSA. File Form SS-5, Application for a Social Security Card. It is important that your name and Social Security number match on your tax return. The IRS will match your information with records provided by the SSA and, if the records don’t match, any electronically filed return will be rejected and any paper filed return will have the mismatched individual’s personal exemption cancelled until the error is corrected. Avoid making a name change too close to tax season. While the SSA can process a name change in about two weeks, the delay in data-sharing between the SSA and the IRS can make any change near the end of the year problematic. In such situations, it may be advisable to file the tax return using your maiden name and change your name with the SSA after the return has been filed. Form SS-5 is available on the SSAs website at, by calling 800-772- 1213, or by visiting a local SSA office. A copy of your marriage certificate and driver’s license or passport will be required.

Notify the IRS If You Move

The IRS will automatically update your new address upon filing your next tax return, but any notices the IRS sends in the meantime may not get to you. The U.S. Postal Service does not forward certain types of federal and certified IRS mail. IRS Form 8822, Change of Address, is the official way to update the IRS of your address change. Download Form 8822 from or order it by calling 800-TAX- FORM (800-829-3676).

Notify the U.S. Postal Service

To ensure your mail, including mail from the IRS, is forwarded to your new address, you’ll need to notify the U.S. Postal Service. Submit a forwarding request online at or visit your local post office. Most post offices will not forward refund checks so be sure the IRS has your correct address. Using electronic direct deposit for refunds can prevent them from being delayed due to address mix- ups.

Notify Your Employer

Report your name and/or address change to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year. Notify Financial Institutions Financial institutions with which you do business need to be notified to ensure that any Forms 1099 are sent to the proper address. This would include banks and brokerage firms, as well as employer- sponsored retirement plans.

Check Your Withholding

If you both work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. The IRS Withholding Calculator, available at, can help you determine whether you need to give your employer(s) a new Form W-4, Employee’s Withholding Allowance Certificate. Use the results to fill out and print Form W-4 online and give it to your employer(s).

Select the Right Tax Form

Choose your individual income tax form wisely because it can help save you money. Newlywed taxpayers may find that they now have enough deductions to itemize on their tax returns, rather than taking the standard deduction. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.

Choose the Best Filing Status

Your marital status on December 31 determines whether you are considered married for that entire year for tax purposes. The law generally allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax. For most married couples, filing jointly will result in a lower tax liability. This is especially true if there is a significant difference in your incomes. The so-called “marriage penalty” only applies to couples who both earn relatively high salaries. Certain situations may make it more advisable for married taxpayers to file separately.

  • If both spouses have their own itemized deductions, such as medical deductions, they may be able to claim higher overall deductions because of the percentage limitations on Schedule A.
  • If one spouse has past due debt with the IRS or another government agency, such as child support obligations or student loans, filing separately will prevent the other spouse’s share of any refund from being used to offset debts for which he or she is not liable.
  • If one spouse has messy or missing records, or is thinking of taking a risky tax position, the other may want to file separately to avoid becoming liable for potential additional taxes or penalties.


Planning for your wedding may be over, but don’t forget about planning for the tax-related changes that marriage brings. More information about changing your name, address, and income tax withholding is available on, or contact your tax professional.

Simple Projections

Based on your tax information from last year, it will be easy to prepare a dummy return to show what your tax situation would be if you had been married. You can print out Form 1040, other tax forms, and tax tables from On the blank forms, combine tax information from last year’s returns. For example, combine the wage amounts from both returns and enter the total on Form 1040, line 7, of the blank form. Do the same for items such as interest, other income, and include deductions if either person itemized. Use filing status, deductions, and exemption amounts as if you had been married. The resulting tax and refund or amount due will give you an indication of whether your current withholding is sufficient to cover your tax liability when incomes are combined and will also help identify any problems that may need to be addressed when you file as married taxpayers.

Bates & Associates April Newsletter

Posted by Admin Posted on Sept 09 2016

Business Owners—Taking Money Out of a Business

When taking money out of a business, transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. Business owners should follow the advice of a tax professional to make sure financial transactions are controlled and do not cause unanticipated taxation or other negative effects. For example, a shareholder of a corporation can make a loan to the corporation, and subsequent repayments of principal are not taxable to the shareholder. This may seem straightforward. However, if the loan and repayments are not set up and processed properly, with specific documentation in place, the IRS can reclassify the funding as nondeductible capital contributions and classify the repayments as taxable dividends, resulting in unexpected taxation. A weak loan structure can also create a danger zone where a court can “pierce the corporate veil,” resulting in personal liability for the business owner. These negative effects can occur in several different situations.


When a business owner provides funds to the business, it can be classified as one of the following transactions:

  • Capital contribution.
  • Loan to the corporation.
  • Repayment of a loan from the corporation.
  • Expense reimbursement.
  • Purchase.


On the other hand, when an individual takes funds from a business, the transaction can be classified as:

  • Taxable dividend or distribution of profits.
  • Nontaxable distribution.
  • Nontaxable expense reimbursement.
  • Taxable wages.
  • Loan to the shareholder.
  • Repayment of a loan from the shareholder.


Failure to tightly control the nature of the transactions can have negative effects on the business and the business owner.

Intermingling Funds

One of the most dangerous financial mistakes a business owner can make is to intermingle funds, such as paying personal expenses from the business checking account, or paying business expenses from the owner’s personal account. This can be done with the best of intentions with the business owner making adjustments in the books to separate the business and personal transactions, but the behavior can leave openings for the IRS or courts to question the integrity of the business entity or the transactions. Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses.

Sole Proprietorships

A sole proprietor is taxed on self-employment income without regard for activity in the business bank account. A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications.


One way for a business owner to take money out of a corporation is through wages for services performed. Wages are appropriate only for C corporations and S corporations, not for sole proprietorships or partnerships.

Owners are treated as employees, payroll taxes and income taxes are withheld, and the corporation issues Form W-2, Wage and Tax Statement, to the business owner after the beginning of the year.

“Reasonable Wages”

For C corporations and S corporations, there are incentives to skew wages one way or the other for purposes of tax savings. In a C corporation, wages are deductible by the corporation but dividends are not, creating incentive or a C corporation shareholder to inflate the wages for higher deductions. In an S corporation, wages are subject to payroll taxes but flow-through income is not, creating an incentive for artificially low wages.

Both C corporations and S corporations are required by law to pay “reasonable wages,” which approximate wages that would be paid for similar levels of services in unrelated companies.

Guaranteed Payments

Guaranteed payments to partners are the partnership counterpart to corporate wages. One major difference is with guaranteed payments, there is no withholding for payroll taxes or income tax. These amounts are computed and paid on the partner’s individual Form 1040.


Dividends are generally the means by which a C corporation distributes profits to shareholders. Amounts up to the C corporation’s “earnings and profits” are taxable to the shareholder. Although flow-through income from S corporations or partnerships are often called “dividends,” they are not treated as dividends under tax rules.

Flow-Through Income—S Corporations and Partnerships

Income from S corporations and partnerships flow through to the shareholder or partner’s individual tax return. Flow-through income is reported without regard for whether or when the income is distributed to the shareholder or partner. Distributions of cash to an S corporation shareholder or partner are not taxable to the individual until the person’s cost basis reaches zero.

One-Class-of-Stock Rule

An S corporation is allowed to have only one class of stock. If an S corporation does not make equal distributions to all shareholders, this rule may be violated and the S corporation status may be terminated. The one-class-of-stock rule must be adhered to whenever making distributions from an S corporation’s bank account.


A corporation or partnership can receive loans from shareholders or partners, and on the other hand a corporation or partnership can make loans to shareholders or partners. There is generally no taxable event when a corporation or partnership repays a loan from a business owner, and no taxable event when a corporation or partnership makes a bona-fide loan to a shareholder or partner. However, failing to adhere to necessary formalities can put these transactions in danger, allowing the IRS to step in and reclassify the transactions, resulting in taxable income for the business owners.

Limited Liability Companies (LLCs)

Taxation of an LLC falls into either a default category, or the LLC makes an election on the manner of taxation. A single-owner LLC owned by an individual is considered a “disregarded entity” and is taxed as a sole proprietorship by default. If the LLC makes an election to be taxed as a corporation, either C corporation  or the S corporation rules apply. An LLC owned by more than one individual is taxed as a partnership by default. As with a single-owner LLC, a multiple-owner LLC may make an election to be taxed as a corporation.

Bates & Associates March Newsletter

Posted by Admin Posted on Sept 09 2016


Bates & Associates CPAs have a new office.  We are growing and needed additional space.  We now have a great new location.  It’s easy to find – just south of the intersection of E Sunshine and Lone Pine.  Please come by and visit our office.

2452 E Madrid St
Springfield, MO  65804

417-720-4530 office phone
866-901-8720 fax

Tax Deadline Is Fast Approaching

Individual tax returns are due in just over 30 days.  Deadline this year is Monday, April 18th.  Please call us soon if you need assistance with your returns. 

If you are still needing to contribute to your retirement plan for 2015, in most instances, your contribution needs to be made by April 15th.

Financial Topics High School Students Should Know

Often lost in the race to get kids through high school and on to life in the “real world” are basic financial skills that are simply not covered.  Here are some financial concepts every high school student should know.

  • How bank accounts work. Provide your student a basic understanding of checking accounts and savings accounts. Show your new banking customer how to use checks and debit cards to pay for goods with their funds. Teach them how to access their accounts and reconcile their statements each month.
  • How credit cards work. Teach your child how credit cards work. Stress the importance of understanding that credit card spending actually creates a loan. Too many young people create credit card debt that they are unable to pay back. Emphasize the importance of not carrying a balance by paying off credit card debt each month.
  • Tax basics. You do not need to create a tax expert, simply a smart consumer that understands the basics of tax. When your student receives their first paycheck, walk through their paystub to explain Social Security, Medicare, federal tax withholdings, and state tax withholdings.
  • The power of the retirement account. While a tough concept for a young person, let them know the availability of long-term savings tools like a Roth IRA. The wise saver can create a self-made millionaire by starting their retirement savings at a young age.
  • How credit scores work. While no one really knows all the aspects that go into creating a credit score, you still have access to a free credit report each year. Consider walking through your child's free credit report with your student.
  • Spending within your means. Save first then spend. This is a simple concept that is hard to accomplish. By teaching your student this habit early, you give your child a fighting chance of creating strong financial habits.
  • The art of saving. Part of spending within your means implies that your student has healthy savings habits. Walk your child through the techniques that work for you. Perhaps it is setting up a separate savings account. Perhaps it is putting a set amount away each month.
  • The strength of investing. The most valuable investment a young person can make is in themselves. Whether it is a college degree or a trade school diploma, your student can create tremendous value in skills that will provide a positive financial return each year.
  • Mutual fund and stock understanding. With an understanding of self-investment, next consider teaching your student some of the basic investment alternatives available to them. Stocks and mutual funds are most common, but also consider explaining bonds, CD's, annuities and other investment tools.
  • Help your student create a basic budget and then help them track their savings and spending against this budget.
  • Cash flow. The hard way to learn the lesson of cash flow is when bill collectors are calling and there simply isn't money to pay them. When creating an initial budget, show your student the flow of funds each month. An easy example of this is to show the flow of funds that relate to a car. There are everyday expenses like fuel, there are monthly expenses like a car payment, and there are periodic expenses for car insurance.
  • Calculation of net worth. Assets (what you own) minus liabilities (what you owe others) equals net worth. This is the math of banks and businesses. The sooner your student understands this concept, the easier it will be to plan to purchase a car, a house, or any other item of value.


We Appreciate Referrals

We acquire many of our customers through referrals from satisfied clients. Beyond the benefit of being able to expand our business, there are other reasons why we appreciate referrals. When a client thinks enough of us to recommend our services to a family member, friend, or co-worker, we attain a higher quality clientele than those we acquire from more random marketing efforts. A personal recommendation can help jump start the business relationship, resulting in a more efficient, effective tax engagement.

Services We Provide

Accounting – We work closely with business owners to improve their and accounting and bookkeeping.  Whether you work with a desktop accounting software or use a cloud-based accounting software, we have solutions for you.

Payroll – We can provide assistance from preparing all of your payroll checks, including direct deposit checks, to assistance with tax payments and filing payroll reports.

Taxes – We can provide assistance for all types of tax filings – Sales, payroll, and of course income taxes.  We work with all types of organizations including, Schedule C businesses, partnerships, corporations, and nonprofits.

Bates & Associates February Newsletter

Posted by Admin Posted on Sept 09 2016

IRS Revises Safe Harbor Repair Regulations

In November the IRS increased the amount your business can expense versus capitalize from $500 to $2,500. This change impacts businesses that do not publish applicable financial statements. The new rule takes effect starting in 2016, but there is audit protection for using this new limit in prior years.

This new rule is typically referred to as the safe harbor de minimis limit. Now small businesses may expense versus capitalize purchases of equipment that cost less than $2,500 and not have it challenged by the IRS. Without this change, small businesses would need to capitalize these purchases and then recapture the cost using depreciation over many years.

The irony is that with the recent extension of bonus depreciation through 2019, many small businesses would already expense many of these purchases. If this change could impact recent purchases of your business please ask for a review of your situation.

Retirement Funding

There is still time to make a contribution to a Traditional IRA or Roth IRA for the 2015 tax year. The annual contribution limit is $5,500 or $6,500 if you are age 50 or over. Prior to making the contribution, if you (or your spouse) are an active participant in an employer's qualified retirement plan, you will want to make sure your modified adjusted gross income (MAGI) does not exceed certain thresholds. There are also income limits to qualify to make Roth IRA contributions.

If your income is too high to take advantage of these IRAs you can always make a non-deductible contribution to an IRA.  While the contributions are not tax-deferred, the earnings are not taxed until they are withdrawn.

Tax Issues

There are many events that occur during the year that can affect your tax situation.  Preparation of your tax return involves summarizing transactions and events that occurred during the prior year.  In most situations, treatment is firmly established at the time the transaction occurs.  However, negative tax effects can be avoided by proper planning.  Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following:

  • Pension or IRA distributions.
  • Significant change in income or deductions.
  • Job change.
  • Start-up or sale of business.
  • Purchase or sale of a home or other real estate.
  • Attainment of age 59 ½ or 70 ½
  • Divorce or separation.
  • Self-employment or contract work.
  • Large charitable contributions.
  • Children in college.
  • Notice from IRS or other revenue department.


We Appreciate Referrals

We acquire many of our customers through referrals from satisfied clients. Beyond the benefit of being able to expand our business, there are other reasons why we appreciate referrals. When a client thinks enough of us to recommend our services to a family member, friend, or co-worker, we attain a higher quality clientele than those we acquire from more random marketing efforts. A personal recommendation can help jump start the business relationship, resulting in a more efficient, effective tax engagement.