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Backup Withholding: What Businesses Should Know
In most cases, you aren’t required to withhold taxes from payments to independent contractors. However, there are situations in which the “backup withholding” rules apply. Backup withholding is most commonly required when a contractor fails to provide a correct Social Security number or Employer Identification Number, or doesn’t properly complete Form W-9, “Request for Taxpayer Identification Number and Certification.”
When required, you must withhold 24% from payments to the contractor and remit those funds to the IRS using Form 945, “Annual Return of Withheld Federal Income Tax.” The withheld amount must also be reported on the appropriate Form 1099.
Contact the office if you’re unsure whether backup withholding applies or need help navigating the requirements.
Can You Deduct Elder Care Costs?
If your parent or another elderly family member is moving into a nursing home there may be tax implications. For example, long-term care expenses may qualify as an itemized deduction if they, along with other medical expenses, exceed 7.5% of adjusted gross income. (Only the amount over 7.5% is deductible.) As long as your relative is staying in the nursing home for medical (not just custodial) care or is chronically ill, payments to the facility normally qualify.
If you claim your relative as a dependent, you can usually include medical expenses you incur for your relative along with your own to calculate your tax-deductible amount. For more details, limits and related tax breaks, contact the office.
IRS Eases Partnership Sale Reporting Rules
Final regulations released by the IRS stipulate that partnerships no longer need to provide detailed gain and loss information to selling partners by January 31. This deadline had become a contentious issue.
The tax code requires that any portion of a partnership’s sale proceeds attributable to the partner’s share of unrealized receivables and inventory items be reported as ordinary income. Other sale proceeds are generally taxed as capital gains. But partnerships complained that the reporting deadline was hard to meet.
Now, partnerships can provide such information to partners according to their natural end-of-year tax compliance cycle, on or with Schedule K-1.
