Archive for February, 2010
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.
