Over-Taxed by Small Business Tax Requirements?
Feb 11th
It’s coming, looming closer and closer with each passing day. The dreaded tax filing season is in full swing, and, we’ll bet, it’s already giving a number of business owners more than their fair share of headaches.
As a small business, you’re already overwhelmed. You run your business, take care of your employees, manage your client relationships, and focus on your services or products. Where does keeping track of IRS changes for small business taxes fit into your schedule?
One of the major obstacles for small business owners is knowing and understanding tax law because of its ever-changing nature and the amount of time it takes to stay on top of it. Startups in particular experience quite the shock when the full scale of their tax requirements becomes clear.
In addition to the federal income tax, businesses also face various types of state and local taxes, including income, franchise and/or sales taxes. If they have employees, they must deal with payroll taxes – including payments and information filings to the government and their employees.
Many businesses also face specific excise taxes. Even the type of business entity you’ve chosen (sole proprietor, partnership, LLC) affects your taxes. Too often, small businesses overlook important details or misfile some of these tax responsibilities.
Some important reminders:
- Keep good records
- Plan for paying taxes throughout the year, set aside the funds you’ll need before they come due
- Make sure you classify your employees properly – classifying employees as contractors leads to trouble
- Follow the IRS guidelines carefully to avoid potential fines and penalties
There are many tools out there attempting to assist small business owners track required activities. The IRS publishes a small business tax calendar every year (here’s the link to the handy interactive copy of the tax calendar online). You can also subscribe to the tax calendar in your outlook calendar.
As a small business owner, you’re probably a do-it-yourselfer, after all, there’s lots of software packages available for tax filing. However, if maneuvering the gauntlet of allowable deductions and proper filing for maximizing your tax reductions is daunting, it might be smarter to focus on what you do best and hire a professional who specializes in small businesses to prepare your taxes. Especially as small business taxes are never one-time shots, a tax professional can keep track of the constant deadlines and requirements for you.
2010 Cents-Per-Mile Valuation Rule
Feb 9th
For vehicles placed in service in 2010, businesses that value employees’ personal use of company vehicles under the cents-per-mile method can do so for passenger cars valued at $15,300 and trucks or vans valued at $16,000 that are placed in service in 2010. These values have gone up from 2009 when they were $15,000 and $15,200 respectively. Want more details, the full policy is posted on the IRS site here.
2010 Tax Law Changes and Your Small Business
Feb 1st
The 2010 tax year brings a number of changes to business tax laws, many of which could affect your small business investment and growth strategies.
Below is an overview of the major changes in federal income tax law that can impact your business in 2010. This is not a comprehensive list, so be sure to talk to a tax adviser if you have questions about how your small business is affected.
Major changes include:
- Cancellation of Business Debt – First implemented under the American Recovery and Reinvestment Act (ARRA) in 2009, it enables certain businesses to elect to delay recognition of income from the cancellation of business debt in both 2009 and 2010. Income recognition can be deferred until the 5th year after the reacquisition, and then the income is included ratably over the following five years. For more information, view the guidelines from the IRS here.
- Domestic Production Activities Deduction – In 2010 this deduction increases to nine percent of qualifying business net income. “Domestic production” applies to a restricted group of businesses including construction, engineering or architectural firms. The IRS has more information on this deduction and eligibility here.
- Updated Mileage Rates – Standard mileage rates for the business use of vehicles has been reduced slightly for 2010. Beginning on Jan. 1, 2010, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:
- 50 cents per mile for business miles driven
- 16 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations (no change)
- First-Time Buyers with Home-Based Businesses - If you purchase a first-time home and choose to operate your business from that home you can still qualify for an $8,000 tax credit – if you purchase your home before April 30, 2010. The IRS has more information about eligibility here.
- R&D Tax Credit – This tax credit for research and development was set to expire after 2009, but the House of Representatives has since voted for its extension, effectively pushing $31.1 billion in expiring tax provisions through 2010. Keep an eye on this one as it goes on to the Senate.
- Section 179 Expense Deduction due to be phased out - The increases in the Section 179 Expense Deduction, first introduced by President Bush in 2008, phases out completely in 2010. Small business had been able to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. In 2010, this limit is due to drop to $135,000.
- Payroll Tax Changes – The maximum amount of wages subject to Social Security tax will remain the same as 2009 at $106,800. As in prior years, there is no limit to wages subject to the Medicare Tax; therefore, all covered wages are still subject to the 1.45% tax. The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65% for 2010. The maximum social security tax that employees and employers will each pay in 2010 is $6,621.60.
These are just some of the changes for tax year 2010. To stay up-to-date on changes throughout the year, keep checking our blog. You can also contact one of our tax experts at CGP to help you plan and monitor tax changes affecting your business.
Congress is Driving Us Crazy
Jan 27th
There are a couple new tax and financial planning issues affecting our clients for the 2009 tax season, so be aware:
1. Every disaster needs a new tax law…apparently.
We, like the rest of the world, were saddened by the tragedy of the Haiti earthquake, and, like so many, were inspired to donate what we could. As accountants, however, we also realized this created a new issue for the upcoming tax season. They do make tax planning a challenge. For an analysis of deducting Haiti donations made in 2010 on your 2009 tax return, look at page 3 of our newsletter. This is hot off the government presses and doesn’t apply to any of the other worthwhile causes out there.
2. Another developing issue: if you’ve worked diligently with your attorney to develop an estate plan, congratulations, that plan may now be useless — at least for the time being.
As of January 1, 2010 the estate tax has been temporarily repealed. Don’t worry, though; it comes back as of January 1, 2011. Congress may extend the tax retroactively, but who knows. You may want to contact your attorney to see if a fix to your plan is warranted.
There may be more retroactive tax laws to follow, so stay tuned!
On a more positive note, wouldn’t it be nice if the Kansas Legislature actually considered and passed a repeal of the Kansas Income Tax? I understand that other taxes would be expanded to cover the shortfall, but I am growing tired of Kansans moving to Texas, Florida or Nevada to avoid the Kansas Income Tax. Even boring accountants can dream.
Records: Keep or Toss?
Jan 20th
If you’re like many of our clients, you are sometimes confused about which documents to save and which ones you can get rid of (see, shred in a quality paper shredder to protect your identity). If you’re staring at a pile of papers or boxes of papers, worried that you may need some of them at some point, here are a few basic tips on what to keep and what to toss (if you’re not sure, save it, these are just guidelines).
WHAT TO KEEP
- The most important documents to keep are your annual tax returns. You should keep the actual returns forever, but you can get rid of the supporting documents after three years – which is how long the IRS has to initiate an audit. If you’re self-employed, you need to keep supporting tax documents for six years, the amount of time the IRS has to come after you. Once that time is up, toss the records, shredding any that reveal your Social Security number or other personal information.
- Other papers to save for at least three years include thank-you letters from charities and year-end investment statements. You don’t need to save your monthly mutual fund reports forever. But before you toss them, wait for the year-end statements and make sure they match up.
- Records that show the initial purchase price for stocks and mutual funds so you can calculate your basis when you sell them. After that, you can shred the documents once the three- or six-year IRS window draws to a close.
- Save records pertaining to your house as long as you live in it. Records showing your purchase price, and what you spent on improvements, may come in handy when you’re trying to prove the value of your home to potential buyers. Another reason to keep these papers: If you sell your house at a hefty profit (more than $500,000 for couples filing a joint return or $250,000 for single filers), certain expenses can be used to lower your tax bill. After you sell the house, keep the documents for three years.
- Records showing how much money went into and came out of IRAs and 401(k)s — especially if you’ve made any nondeductible contributions — so you don’t overpay taxes when you withdraw the money. Keep any 8606 forms on which you reported nondeductible contributions to traditional IRAs.
WHAT TO TOSS
- ATM receipts, bank withdrawal and deposit slips, and credit-card receipts can go through the shredder after you’ve checked them against your monthly statements.
- Paper copies of most monthly bills — for credit cards, utilities and cable TV — unless you need them for tax purposes.
Thoughts from a Boring Accountant
Jan 12th
While reading a recent newspaper article, I noticed a story about a couple getting horribly lost and worse by simply following their GPS device instructions. It makes me think how easy it is to believe that our technology has all of the answers.
It comes as no surprise that blindly following tax advice from a software program, an inexperienced tax preparer, a Google search or worse, a know-it-all friend or acquaintance, can be just as dangerous.
At least the GPS tells you that you are “assuming all risks” when you start up the device. Signing your tax return also means you are “ASSUMING ALL RISKS.” If there is an error, you pay all of the tax, interest and penalties. Drawing the attention of the IRS is never pleasant.
The tax laws are much more complex and confusing than simply finding a location on a map. Alternative minimum tax, taxation of social security benefits, tax credits, phase outs all are examples of thinks not appearing as they seem. Rules of thumb are now extinct when it comes to taxes. Laws changing every year and sometimes multiple times a year means last years good advice may be this year’s bad advice.
Sometimes you just need to ask for directions. When navigating dangerous terrain, also known as the Internal Revenue Code, use a guide that has the experience and continuous training to get you home safely. An experienced and licensed tax advisor is invaluable.
Steve
Tax Info You Should Know for Your Business in 2010
Jan 8th
Vehicles
Mileage: If you drive your personal car or truck for business and opt to deduct costs based on the IRS standard mileage rate (rather than your actual costs), note that the rate for 2010 is much lower than it had been for 2009. The 2010 rate is 50 cents per mile, down from 55 cents per mile in 2009.
New vehicle purchase: If you purchase a new vehicle in 2010, the IRS has yet to announce depreciation limits (these probably will not be available until February). Based on projections that do not foresee an extension of bonus depreciation rules, expect the dollar limit for a car to be $3,060 and for a truck or van to be $3,160 (up slightly from 2009 levels).
Retirement plans
If you already have a 401(k) or other qualified retirement plan, be sure to note that contribution limits remain the same for 2010 as they were in 2009. Thus, the top contribution to a SEP for 2010 is $49,000.
There is a new retirement plan option available in 2010, and businesses with existing plans and those with no plans might consider this new option, called a DBk. It combines a modest defined benefit (pension) plan with a 401(k)-like option. As the year progresses, look for financial institutions to start offering DBk products.
Health plans
Health savings accounts (HSAs), allowing small business owners to provide affordable health coverage, have new contribution limits for 2010. The annual contribution limit for self-only coverage is $3,050; it’s $6,150 for family coverage. The contribution can be increased by $1,000 for each person age 55 or older by the end of the year. To be eligible to make an HSA contribution, a person must be covered by a high-deductible health plan. In 2010, this is a policy that has an annual deductible of at least $1,200 for self-only coverage and $2,400 for family coverage. If you provide an HSA for your staff and make the contributions, they are deductible and are not subject to FICA and FUTA taxes.
Expired provisions
A number of important business-related tax rules expired at the end of 2009. The House has passed a bill that would extend some of them for one year; the Senate will probably pass a similar measure early in 2010 and make the changes retroactive to January 1, 2010. Key extenders include:
- Research credit
- 15-year amortization of qualified leasehold, restaurant, and retail improvements
- Expensing of environmental remediation costs
- Employer credit for wage differential payments to employees called to active duty
- Enhanced deductions for charitable donations of food inventory, book inventory, and computer technology
For more information or to get answers on any questions you have, please contact CGP at (916) 685-1040.
Tax Law Changes Provide Saving Opportunities for Nearly Everyone
Jan 7th
Source: IRS.gov
In 2009, numerous new and expanded deductions and credits came into being for a broad cross-section of taxpayers: College tax benefits for parents and students; energy credits for homeowners who are going green; and even tax breaks for home buyers and car buyers.
Following is a summary of these and other key changes taxpayers will find when they start preparing their 2009 federal income tax returns. More >
Five Filing Facts for Recently Married or Divorced Taxpayers
Jan 7th
If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.
Here are five facts from the IRS for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.
- If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
- If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
- Informing the SSA of a name change is a snap; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.
- Form SS-5 is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
- If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Source: IRS.gov
Kansas May Need 16 Weeks to Refund Paper Tax Filings
Jan 7th
The Kansas Department of Revenue warns that it may take up to 16 weeks to process state tax returns filed on paper this year due to budget cuts. They will also not be sending paper forms to libraries, post offices and other locations for the public to pick up. Instead, the state is encourages taxpayers to file electronically to save on processing costs.
Processing paper returns and sending out refunds used to take six to eight weeks, but the process is expected to last up to four months this season.
