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New businesses have tax filing requirements

Posted on May 11, 2012 by Robert Weiss

The IRS wants to educate new small business owners about their federal tax responsibilities. “Understanding and meeting their tax filing requirements is one of the biggest challenges faced by people starting out in business,” says the head of the IRS Small Business Division.

Among the common tax issues that can trip up new business owners:

* Classification of workers. Determining whether workers are employees or independent contractors is a matter of law, not the choice of the worker or the employer.

* Federal employment tax deposits. Called trust fund taxes, these deposits must be made according to the appropriate schedule, depending on deposit amounts.

* Quarterly estimated tax payments. Business earnings are not subject to tax withholding; therefore, the owner’s income and social security tax obligations are met through quarterly estimated tax payments.

* Recordkeeping. New businesses need a good recordkeeping system to make tax filing easier and accurate.

* Disaster protection. Financial and tax records need to be protected to ensure business continuity in the event of a disaster.

* Tax scams. New business owners should be alert to the prevalence of abusive tax avoidance schemes. Falling victim to one of these schemes could result in serious tax problems.

For guidance in getting a new business off on the right tax foot, give our office a call.

 

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Health care law scheduled to bring three key tax changes

Posted on May 4, 2012 by Robert Weiss

The U.S. Supreme Court will soon issue its ruling on the health care legislation — the “Patient Protection and Affordable Care Act” — passed in 2010. Over half the individual states have challenged the constitutionality of the law that requires individuals to obtain minimum health insurance coverage and penalizes those who don’t comply. The law could be upheld or overturned or the court might strike down select provisions.

Although the health care mandate has received the most attention, three lesser-known tax changes in the law could have a major impact. If these provisions are allowed to stand, they will take effect in 2013.

1. Medicare surtaxes. Taxpayers will owe a new 3.8% Medicare surtax on the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds an annual threshold of $250,000 for joint filers and $200,000 for single filers. For this purpose, “net investment income” includes interest, dividends, royalties and annuities, rent and other passive activity income, capital gains from the sale of property not used in your business, and trading of financial instruments and commodities. It does not include business income, income from tax-free municipals, or distributions from IRAs and qualified retirement plans.

In addition, a separate 0.9% Medicare surtax applies to earned income in excess of $250,000 for joint filers and $200,000 for single filers. A taxpayer might have to pay both surtaxes.

2. Medical deductions. Currently, a taxpayer may deduct unreimbursed medical expenses in excess of 7.5% of adjusted gross income (AGI). This threshold is scheduled to increase to 10% in 2013 for those under age 65.

3. Flexible spending accounts. Currently, there is no legal limit on annual contributions to a flexible spending account (FSA) for health care expenses. Under the health care law, annual contributions to a health-care FSA are capped at $2,500. This amount will be indexed for inflation after 2013.

Faced with these looming tax changes, you may take appropriate steps before 2013. For instance, you might realize long-term capital gains in 2012 to avoid the 3.8% Medicare surtax, especially since the maximum tax rate is only 15% this year (scheduled to increase to 20% in 2013). Similarly, you might consider accelerating nonemergency medical expenses into 2012 to benefit from the lower AGI threshold or to exhaust FSA funds.

We will keep you posted on any major new developments. Don’t hesitate to contact us for tax planning guidance suited to your situation.

Posted in Health Care Law | Leave a comment

IRS alerts taxpayers to scams involving college tax credit

Posted on April 28, 2012 by Robert Weiss

The IRS has issued a tax scam warning connected with the American Opportunity Tax Credit.

Promoters of the scheme target senior citizens, low-income individuals, and members of church congregations. The con artists say they can get a tax refund or stimulus payments based on the American Opportunity Tax Credit, even if the taxpayer was not enrolled in or paying for college.

Victims of these scams can lose the upfront fees they are asked to pay to have the promoters file these claims on their behalf.

The IRS also warns taxpayers to be careful of these scams because they are legally responsible for the accuracy of any tax return filed and will have to repay any refunds received in error, plus penalties and interest. They may also face criminal prosecution.

In its notice about the promotion of these bogus refund claims, the IRS cautions taxpayers to beware of any of the following:

* Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.

* Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.

* Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.

* Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.

* Offers of free money with no documentation required.

* Promises of refunds for “Low Income — No Documents Tax Returns.”

* Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.

* Unsolicited offers to prepare a return and split the refund.

* Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

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Is your business due for a change?

Posted on April 20, 2012 by Robert Weiss

The business entity your company operates under can have a significant effect on the taxes you pay and your costs of doing business. As your company grows or changes, it may be a good idea to switch to a different entity. Among the main entity choices: sole proprietor, partnership, C or S corporation, and LLC. For guidance in analyzing the entity issue for your company, contact us.

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Need more time to file?

Posted on April 16, 2012 by Robert Weiss

If you can’t file your 2011 tax return by the April 17 deadline, you can file for an extension by that date and get until October 15, 2012, to file. You can request the extension on paper, by phone, or online. The extension is automatic, with no explanation necessary. Be aware, however, that an extension to file does not give you more time to pay taxes due for 2011. For assistance, contact our office.

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Tips for managing part-time employees

Posted on April 8, 2012 by Robert Weiss

Part-time employees can play a valuable role in a small business, especially while a business is waiting for general economic recovery. Part-timers can help you deal with variations in workload without having to hire a full-time employee. And often, when there are many job applicants for any opening, you can find a person with above-average skills for the position.

But part-timers can turn into a liability if not managed well. You could end up with poorly motivated workers, unsure of their duties, unfamiliar with the company, and unsure who they report to. Here are a few tips to prevent this situation.

* Think before you hire. Know why you’re hiring. Decide exactly what you want the person to do, what hours you want the person to work, and who he or she will report to. The position may have well-defined duties, or it may involve filling in wherever needed. Decide on the pay level and what benefits you’ll offer.

* Communicate clearly with the part-timer. Explain the person’s duties, and who his or her superior is. Be very clear on hours and benefits. The more flexibility you can offer, the easier it will be to recruit somebody and the happier the new worker is likely to be. Make sure you explain what job performance you expect.

* Communicate clearly with your full-time staff. Explain why you’re hiring a part-time person. Make it clear what that person will and won’t be expected to do. Designate who will manage and assign work to the part-timer. Otherwise you might find everyone trying to unload work on the new employee.

* Make the part-timer feel like part of the company. Provide introductory training on specific duties and on the company’s business and policies. Assign a mentor or “buddy,”  someone the new person can turn to with everyday questions. Wherever possible, include part-timers in staff meetings and company functions.

* Monitor part-timers’ progress. Provide feedback on their performance and recognition if they’re doing a good job. Consider including them in any bonus or incentive schemes. And monitor the reactions of your full-time employees. Sometimes there can be resentment of a part-timer’s shorter hours, especially if your other employees are overloaded and having to work overtime.

With attention to these points, you can make hiring a part-time employee a winning decision for your company.

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There’s still time to cut your 2011 tax bill

Posted on March 30, 2012 by Robert Weiss

Are you still dealing with your 2011 tax return? Do you owe a bigger tax bill than you expected? Are you missing a tax break because your adjusted gross income is too high? Would you like a bigger refund? Don’t despair. You might still have time to make some changes. For example:

* You have until April 17 to make a tax-deductible IRA contribution for 2011. If you qualify, you could contribute up to $5,000 and have it count as a deduction against last year’s taxes. If you were 50 years old or older last year, your maximum contribution is $6,000.

* Even if you’ve already made your 2011 contribution to a Roth IRA, it may not be too late to make a change. You may be able to recharacterize your contribution as a traditional IRA contribution and take the deduction. You’ll need to set up a traditional IRA, make a trustee-to-trustee transfer, and report it on your 2011 tax return. Get details before you try this to make sure you avoid any tax traps.

*If you’re self-employed, there’s still time to set up a SEP-IRA for your business. You have until the due date of your return, including extensions, to set up the plan and make a contribution from 2011 earnings. SEP-IRAs are relatively easy to establish and flexible to manage.

Contact our office if you’re interested in any of these ideas. We can help determine whether you qualify and guide you through the process.

Posted in Cut 2011 tax bill | Leave a comment

It’s tax payback time

Posted on March 23, 2012 by Robert Weiss

If you took certain actions in a prior year, you may now have additional taxes due on your 2011 tax return. Here are the details.

HOME BUYER CREDIT: If you bought a home in 2008 and took the first-time home buyer credit, you have another repayment installment due with your 2011 tax return. The 2008 tax credit was just an interest-free loan that you have to pay back over a 15-year period.

ROTH CONVERSIONS: If you converted a traditional IRA to a Roth IRA in 2010 and opted to split the tax due from the conversion between 2011 and 2012, your first half of the tax` is due on your 2011 tax return.

Posted in Tax Payback | Leave a comment

IRS has $1 billion of unclaimed refunds

Posted on March 16, 2012 by Robert Weiss

The IRS has just announced that more than $1 billion in tax refunds for the year 2008 remain unclaimed by a million taxpayers who failed to file a return for that year. The tax law provides a three-year period for claiming a refund when no return is filed. That means these individuals must file a tax return for 2008 no later than Tuesday, April 17, 2012, or their refunds will be lost.

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Be diligent about saving your tax records

Posted on March 5, 2012 by Robert Weiss

You’re probably getting ready to sort out last year’s financial records and prepare for this year’s recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.

Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.

For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.

The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.

Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.

Please call our office if you have questions about specific items.

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