Tax Talk

Now offering Tax-Zoom

Conover & Conover CPAs, PSC will be offering numerous ways to safely get your 2021 taxes prepared, including Tax-Zoom, our contact free method of preparing taxes. To learn more about our safe, effective and time-shaving method, email us at ConoverCPA@gmail.com or give us a call at 859-734-0304.

We will be in the East Street office on Tuesdays starting February 1 for purposes of receiving and providing information and documents. We will be open other hours by appointment.

Please be advised that we may be closed or on a delay schedule on any date that the Mercer County schools are closed for adverse weather. You should call in advance to confirm your appointment.

Where are you? Where is East Street? I’m on East Street, but I don’t see 116? Is East Street one way? Where do I park? These are all questions we hear frequently. And we would like to help you out BEFORE you get lost. We are located at 116 S. East Street. East Street runs along the railroad tracks in Harrodsburg. If you are coming from US Highway 127, you will go east on Lexington Street (US Highway 68) and swing a right just BEFORE you cross the tracks. But if you are coming from Lexington on US Highway 68, you will take a left just AFTER crossing the tracks.

Corner of Hwy 68 & S. East Street

This historic two-story home sets at the corner of Lexington Street and S. East Street. If you are on East Street but do not see 116, you are likely on NORTH East Street. North East Street also runs along the tracks but on the opposite of the tracks from SOUTH East Street. Just come south, cross the railroad tracks at US Highway 68, and you will see us right away. Believe it or not East Street is a two-way street, at least for now. It really causes little problem because the one-lane portion is very short. Once at the office, you may park in either drive. Yes, it appears that we do not have much parking.

But the truth is we do not double book. There is additional parking if needed. But your scheduled time is just for you. In a sense, you have “reserve” parking. But, please, do not park in the road. It is only one lane and the police insure that it is kept clear. Take advantage of your “reserve” parking, instead. We look forward to seeing you.

Question: I often see you use the phrase: Open 23/7/365. Shouldn’t that be 24/7/365? Answer: No, that is not a typo. I use that phrase in honor of my dad. My dad, Boyd Collett, spent well over a decade of his life under ground in the coal mines. In the late 1950’s he started his own taxicab company, OK Cab, in Pineville, Bell County, KY, which he owned and ran for over 30 years. His business cards always read, “Open 23 hours a day.” I remember, when I was a child, my dad seemed to always be working. He would go out to help those who needed to be transported any time, day or night. He lost a lot of sleep, missed many Christmas dinners, but would never leave someone stranded. Later on I asked him, “Dad, your cards said ’23 hours a day’. What hour were you closed?” To which he replied, “That’s exactly it, I got to choose the hour.” My dad was not a highly educated man. He worked hard in jobs that no one expected to make a lot of money. But he taught me, by example, to work hard, whether it was while studying to get my education, for my bosses as an employee, or for my many clients today. I am proud to say, “We are open 23/7/365.” Thanks, dad.

Unfortunately, the answer may be “no”.

The IRS uses what is known as the shotgun rule. All fringe benefits are taxable to the employee, unless there is a specific law exempting that benefit from taxation. That is they are generally deductible for the employer but taxable to the employee. An example of a benefit that might not be taxable to the employee is medical insurance. There is generally a law exempting medical insurance.

Fringe benefits are generally included in an employee’s gross income. The benefits are subject to income tax withholding and employment taxes. Fringe benefits include cars and flights on aircraft that the employer provides, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events.

In general, the amount the employer must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount that the law excludes.

If you want to explore fringe benefits for your company, especially fringe benefits that might be tax free to your employees, give us a call. [859-734-0304]

Published 1/282022

The 2022 Mileage Rates

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Need rates for earlier years? Click here.

Beginning on Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 58.5 cents per mile for business miles driven.
• 18 cents per mile driven for medical or moving purposes.
• 14 cents per mile driven in service of charitable organizations.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. To claim actual, receipts must be maintained.

Mileage logs must be maintained for all business vehicles and/or for all business miles regardless as to whether you claim the standard mileage rate or your actual expenses.

Contact us for more information on this or for information concerning additional expenses you may take even when taking the standard mileage rate. Call us at 859-734-0304.

CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.

Reviewed 1/28/2022

What is use tax?
Kentucky use tax is a tax on tangible personal property and digital property used in Kentucky upon which the sales tax has not been paid. In other words, it is a sort of “backstop” for the sales tax. Tangible personal property is basically any property that you can touch other than real estate.

What causes use tax to be owed? There are a number of things. Here are some usual reasons:

1. Tangible personal property and digital property purchased for resale, but which is used instead of being resold, is subject to sales and use tax.
2. Property which is purchased, leased or rented outside of Kentucky and is brought into Kentucky for storage, use or other consumption is subject to the use tax.
3. Any circumstance in which a business acquired the property for an exempt use but now is using it in a taxable use can subject it to use tax.

What is the rate of tax?
The use tax rate is six percent (6%), just like sales tax.

How is use tax paid?

>Businesses that file a sales and use tax return: These businesses can simply include the tax owed on the return. It is reported in total on line 23(a) on the paper return. Or if you file online, report it on the line which says: Cost of tangible personal property, digital property and extended taxable warranty services purchased without payment of the sales and use tax for business or personal use.

>Businesses that do not file a sales and use tax return: These businesses can apply for a Consumer’s Use Tax return. Generally, these businesses will only need to file 1 – 4 returns per year, depending on the number of purchases made on which no tax has been paid.

>Individuals: Persons who become liable for use tax are required to report and pay the tax directly to the Department within 20 days following the end of the month in which the taxable use occurs. Persons who occasionally incur a use tax liability and who do not hold a sales and use tax permit may report and pay the use tax on a non-registered basis on a Consumer’s Use Tax return, Revenue Form 51A113(0).
Individuals who have only a few, nominal instances of liability often choose to pay the tax due with their individual tax returns [line 27 of the 2019 form].
If you believe you might owe use tax or have additional questions about this, please give us a call.

reviewed: January 28, 2022

If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal, state and local tax responsibilities. The IRS has provided five tips in its Tax Tip. We’ve added two at the end.

Tax Tips if You’re Starting a Business

Here are five basic tips from the IRS that can help you get started.
1. Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.
2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check Do you need an EIN to find out whether you need this number.
4. Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
5. Accounting Method and Tax Year. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.
Our additional tips
6. You also have tax responsibilities to Kentucky and local governments. Applications need to be completed with each taxing authority.
7. Contact your CPA early. We can complete the applications you need to file with the IRS, KY Department of Revenue and the local government. There are deadlines on elections you will want to make. Waiting will cause you to lose the opportunity to make the choices you want. Call or e-mail us today. Phone 859-734-0304 or e-mail ConoverCPA@gmail.com.

Reviewed 1/28/2022

The Kentucky Secretary of State Annual Report is due June 30 of each year. Entities conducting business in the Commonwealth of Kentucky are required to file annual reports with the Secretary of State by June 30 of each year. Reports can be filed online at SOS.KY.gov. Scroll all the way down to the bottom. Then under business services, Click on FILE ANNUAL REPORT. Or, to go directly to the page for filing your report CLICK HERE . This is not just for corporations. Limited liability companies (LLCs), professional service organizations, non-profit organizations, some partnerships and any other entity who filed articles of organization with the KY Secretary of State need to file an annual report. Your annual report must signed, dated and accompanied by a $15 filing fee. If you file online, you must have a credit or debit card to complete the transaction.

This is no longer rare and it is no longer limited just to individuals. We are putting together 1. a check list of things to do if you are a victim of tax return identity theft, AND 2. a check list of things to do to keep from being a victim. Contact us if you would like a copy of either check list. Please call or text 859-734-0304.

Employers are already working frantically to get out timely and accurate W-2s. Congress has changed the law requiring W-2s to be filed on or before January 31. You can expect your W-2 on or before January 31. However, this law change could result in little time to find errors. What you should do: 1. Immediately open your W-2 and check the following: a. Is your name spelled correctly (as reflected on your Social Security card)? b. Is your Social Security number correct? c. Do the year-to-date totals agree with the totals as shown on your last pay stub for the year? d. Is the withholding for federal and state what you expected it to be? 2. If all seems well, put your W-2 in a safe place until you are ready to file your return. If lost, it may take some time to get a replacement and your employer may charge you for the duplicate W-2. 3. If there are issues with your W-2 bring it to your employer’s attention immediately. If you wait to point out issues until after your employer has filed the W-2 with the taxing authorities, it will take longer to make corrections. 4. Complete a new W-4. This is particularly important in any year that there are significant law changes. And this is the correct way to make corrections to your name, Social Security number, address and withholding. The corrections are needed because: a. If your name and Social Security number are incorrect, you will not only have trouble filing your income tax return today, you will likely not get credit for Social Security wages. Wages not reported to the Social Security Administration will cause your future Social Security payments to be smaller. b. A correct address is needed in order to get your W-2 to you timely. You might not get it at all. c. If your withholding was insufficient for last year, make changes for the current year. The amounts withheld last year cannot be changed. But changes on the W-4 will insure that the current year withholding will be proper. We recommend that you review your W-4 with your tax preparer.

Here is the latest chart for KY Per Diem Rates. The laws regarding perdiem are rather complex. The IRS laws require that you keep a log and certain documentation. Failure to do so will result in the expenditures being disallowed. Additionally, a penalty is generally assessed. This penalty can be substantial.

We’ve heard a lot about red card purchases lately. But the question for some of us is this. Is my red card purchase deductible? DID YOU KNOW? If you use a bank credit card to pay for an otherwise tax deductible expenditure before the end of 2019, you can deduct that expenditure even if you do not pay the credit card bill until 2020. ON THE OTHER HAND If you use a retail store credit card to make an otherwise deductible expenditure before the end of 2019, that expenditure will be deductible only if you pay the credit card bill in 2019. I know this sounds crazy. While there is a sound tax reason for this, the more important thing is to know the rules. [Of course, all this assumes that you are on the cash basis. If you are on the accrual basis for income tax purposes, different rules apply.] Call us if you have questions. CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.

Tax Talk

January open hours and adverse weather, featuring Tax-Zoom

Now offering Tax-Zoom

Finding Conover & Conover CPAs, PSC… We don’t mean to be difficult.

Open 23/7/365: In honor of my dad

Fringe Benefits that my company offers to my employees are tax free to my employees, right?

Unfortunately, the answer may be “no”.

2022 IRS Mileage Rates

Kentucky Use Tax

7 things you need to know if you are opening your new business in Harrodsburg, Danville, Nicholasville or Lexington.

KY Secretary of State Annual Report Due

Identity Theft and Your Tax Return

Is your W-2 correct?

2020 Kentucky Per Diem Rates

When are credit card purchases deductible?