Shutting Down a Business? File Your Final Taxes On Time and Avoid the Short Year Trap.

Filing a late partnership or S corporation tax return has gotten increasingly expensive over the last 10 years. In 2006, the penalty per month, per partner/shareholder was $50. For 2018 that penalty is $195 per month, per partner/shareholder. This means that if a partnership with two partners who fail to file an extension for their tax return, but still file by September 15th would face $1,950 in penalties from the IRS. The maximum months that penalties can be assessed are 12, but consider the client who may be a few years behind in filings and has multiple shareholders. These penalties can quickly reach the $10,000 plus mark.

If you are a business owner the above situation may not apply to you. You always file timely or get an extension and feel confident your tax professional filed your income tax returns when they said they did.  Yes, we have seen cases where the client believed the tax returns were filed when in fact they were not. Relying on a professional alone is not sufficient cause for the IRS to provide penalty relief. If you are someone out there dealing with penalty issues from the IRS there can be relief and we can help you reduce or alleviate those penalties. For the purposes of this blog, let’s assume all returns have been filed timely.

Where business owners can fall into what I will call the “short year trap” is when a change in ownership of the business occurs or the business is sold. The requirement to file a tax return is by the 15th of the 3rd month following the date the entity’s tax year ended for S Corporations and the 15th of the 4th month following the date the entity’s tax year ended for partnership. Notice that these instructions say the entity’s tax year ended – not the end of the calendar year. If you are a sole owner of a S corporation, sell your business, and shut down all entity operations on 7/15/2018 there is a tax return filing requirement before 3/15/2019. The same requirements apply with a technical termination of a partnership. If a sale of exchange of 50% or more of the ownership occurs in a 12 month period, that is a technical termination and a final tax return must be filed.

Contact Adam Shay CPA Firm in Wilmington NC for Help

Like with most tax returns, extensions are available, but you need to notify your CPA in Wilmington NC, at a minimum, when these events occur to help make sure you are in compliance and avoid late filing penalties. We want to be involved with and notified by our clients before these transactions happen to help walk them through the tax implications of selling a business, ending a partnership, or changing ownership. Even if the business no longer exists, the IRS may have the ability to reach individual assets to collect these penalties. Avoid falling into the short year trap by keeping communication open with your tax professional, Adam Shay CPA Wilmington NC.

Proposed Fair Labor Standards Act (FLSA) Regulations


The Department of Labor recently updated the Fair Labor Standards Act (FLSA). The regulations regarding overtime pay for white collar workers was last updated in 2004. The new changes were proposed to take effect December 1, 2016 but implementation has been delayed. It is most likely that this will affect you. Our Adam Shay accountant in Wilmington NC explains the ins and outs of the regulations so you may better familiarize yourself with the changes.

OVERTIME

FLSA requires that certain employees that do not fall under an exemption be paid overtime if they work over 40 hours a week. These employees would include inside sales, construction workers and waitresses to name a few. So, the change here is that any employees you have paid up until December 1, 2016 as salary that don’t fall into an exemption (to be discussed below) will have to track their time on an hourly basis and be paid overtime as applicable.

Exemptions

There are certain professions exempt from the overtime pay rules:
-Learned professionals (such as CPAs).
-Creative professionals (such as musicians or writers).
-Law or medicine (you must hold a valid license or certificate).
-Teachers (definitely exempt if teacher holds a certificate, anyone who does not may still be subject to overtime rules).
-Outside sales.
-Computer occupations.
-Executive employees.
-Highly compensated employees.
-Administrative employees (certain duties must be met to qualify).

If an employee falls in the exempt category, they are exempt from tracking time and overtime pay, if the employee is paid a certain salary level.
Previously, the salary level was set at $23,660. With the new regulations, the salary level increases to $47,476. If the employee is considered exempt, but is paid under $47,476, then you must track their time to monitor and pay overtime. If you have an exempt employee that you are currently paying $45,000, it may save you time, money and headache to go ahead and bump them above the $47,476.

Another notable change with the new regulations is that beginning on January 1, 2020 the salary level will be updated every 3 years.

Contact an Expert Accountant in Wilmington NC

We encourage you to be proactive and start evaluating any changes you need to make now. If you’re looking for an accountant in Wilmington NC please feel free to reach out to our office if you have any questions.