payroll
Take action now to reduce taxes
Tuesday, November 23rd, 2010 | consulting, tax | No Comments
Year-end is the best time to take actions that have an impact on next spring’s tax bill. There’s not much you can do after the year is over. Take time to do financial projections through year-end and calculate your tax bill. Working with your accountant, you can identify actions to take that may reduce your tax or improve your financial position.
Although we are still waiting for Congress to act on several important tax issues, laws were passed earlier this year that change the calculations for many business owners. You still have time to arrange things to take advantage of these new provisions.
The Affordable Care Act introduced a tax credit that takes effect this year for smaller employers who pay at least part of their workers’ health insurance premiums. After determining whether your company is eligible and the amount of the credit, you can calculate how much net income (and taxes) will be offset by the credit.
The HIRE Act offers a payroll tax reduction for hiring new workers, starting with the second quarter of 2010. If you have not been taking advantage of this reduction, amend the prior returns and reduce the amount of your deposits in this final quarter for a holiday cash windfall. Beware, though, that the reduction may also reduce your payroll tax expense deduction and increase your income tax bill. If you keep those new hires on the payroll for a year, you get an income tax credit in 2011.
The Small Business Jobs Act, enacted in September, contains about a dozen and a half provisions that may affect your business’s tax situation this year and next. They include:
- Several adjustments to depreciation deduction limits for first-year write-offs and bonus depreciation for various types of property and vehicles.
- An increase in the up-front deduction for business start-up expenses if the business starts operation in 2010 only.
- An option to carry back business credits five years and recover taxes previously paid.
- Relaxation of the record-keeping rules for deducting cell phones. (Did you know you had to log every business call?)
- A reduction in self-employment tax for self-employed persons who buy health insurance for themselves and their families.
These provisions may affect you starting in 2011:
- Many rental income recipients must begin issuing Forms 1099 to service providers (e.g., plumbers, painters, etc.) to whom they pay $600 or more. (Some exceptions apply.)
- Penalties for failure to file information returns such as Forms 1099 have been increased substantially.
If you work through the projections and consult with your tax professional before year-end, you can make decisions that may save your company taxes and improve your financial position.
New rule for FSA and HSA medicine coverage
Tuesday, September 28th, 2010 | tax | 1 Comment
Many employers and employees are looking at benefit plan decisions this time of year. A rule change in the Affordable Care Act (healthcare reform) goes into effect January 1, 2011 that may change your calculations for your flexible spending arrangement (FSA), health reimbursement arrangement (HRA), Health Savings Account (HSA), or Archer Medical Savings Account.
The new rule requires a prescription for nonprescription medicines and drugs (over-the-counter drugs), with the exception of insulin, to make them eligible for reimbursement under these arrangements. For example, if your doctor recommends an over-the counter acid reducer for your heartburn after January 1, 2011, ask him or her to write a prescription for it. Then you can use your FSA, HRA, HSA, or Archer account to pay for it with before-tax dollars. Without a prescription, the expense will not be reimbursable or deductible even if it is for a specific medical condition.
If you use a debit card to pay for medicine through your FSA or HRA, you may not be able to use it to buy over-the-counter medicine in 2011 even if you have a prescription (check with your provider). Whether you use a debit card or not, be prepared to prove the legitimacy of the claim with a receipt and a copy of the prescription (or Rx number on the receipt).
You will still be able to get reimbursement in 2011 under the current rule for purchases made before January 1, 2011.
Employees should consider whether this rule change will affect wage amounts you designate for FSA, HRA, HSA, or Archer accounts as you enroll for the new benefit year. Employers need to analyze how the new rules affect your benefits package. The IRS is giving employers a grace period until June 30, 2011, to amend your cafeteria plan to comply with the new rule retroactive to January 1, 2011.
Payroll Tax Audits Target Businesses
Friday, September 3rd, 2010 | tax | No Comments
Earlier this year, the IRS began its program of auditing businesses for compliance with payroll tax reporting and payment. As part of its National Research Program to gather statistics about payroll tax compliance, the IRS is examining 6,000 businesses large and small, 2,000 each year starting earlier this year. This study is part of their push to step up collection of unpaid payroll taxes. The second round of selection will take place at the end of 2010, and marks a continued increase in business audit frequency.
Even compliant employers face the possibility of being selected for these audits, incurring the extra time and expense of proving compliance. At a time when many businesses are struggling, the added burden could be disastrous.
The IRS is very aggressive in collecting past-due employment taxes because they are considered to be the government’s money that the employer is resonsible for collecting and remitting. Employers who fall behind on their payroll taxes face the highest penalty rates the IRS can impose, adding huge amounts of debt in a matter of months. Additionally, the IRS is empowered to file liens against property, seize funds in bank accounts, and divert payments by the company’s customers to collect payroll taxes. If the business cannot pay, the IRS will collect from the owner or other person responsible for payroll taxes, in some cases imposing civil or criminal penalties. In short, delinquent payroll taxes can shut down your business.
If you are thinking of going up against the IRS on your own, think again. You need experienced representation to keep the IRS from crippling your business. Depending on your situation, it may be possible to reduce the penalty amount, although the tax liability is rarely reduced. If you are behind on your payroll taxes, call for help before the IRS contacts you. If you receive a notice or call from the IRS, a timely and appropriate response is required. Help is available, and it can make a difference in the resolution of the problem.
Payroll tax credit
Wednesday, July 7th, 2010 | tax | No Comments
It is time to prepare your second quarter payroll tax returns, due August 2, 2010 (July 31 falls on Saturday). If your company or tax-exempt organization has hired employees this year, you may be eligible for the HIRE Act new hire tax credit. You should check before filing Form 941. We previously posted about this and other tax credits in the spring.
Here is a checklist (but consult your tax adviser for specifics related to your situation):
- Was the new worker hired to fill a new position, or to replace someone who quit voluntarily or who was terminated for cause? The new worker may not be related to you or to another owner of the business.
- Was he/she hired after February 3, 2010, and before January 1, 2011?
- Did he/she work less than 40 hours during the 60 days ending on the hire date?
- Did he/she sign and give you the required Form W-11 certifying these facts? (Do not send this form to the IRS.)
If all of the above conditions are met, you qualify for an exemption of 6.2% (the employer share of Social Security tax) of wages paid between March 19 and December 31, 2010. This reduces the amount of your tax deposits for this year. It does not affect amounts withheld from the employee’s pay.
Form 941 has been modified to report wages to qualified employees starting with the second quarter. The IRS has provided more information in the instructions to the forms, and in a question-and-answer format at their website.
Small Business Tax Incentives
Wednesday, June 2nd, 2010 | tax | No Comments
Recent legislation provides incentives for businesses to hire unemployed workers and provide health insurance.
If your company hires a worker after February 3, 2010 through year-end, the HIRE Act allows a credit equivalent to the employer’s share of Social Security tax (6.2%). If the employee stays with you for a year, your company gets a $1,000 tax credit. The new hire must not have worked more than forty hours in the prior sixty days, and generally must be hired into a new position. There are important details and procedures, and a new Form W-11 for the new worker to fill out.
Some provisions of the Affordable Care Act (healthcare reform) take effect this year. The small business health care credit is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. There are complicated rules regarding such definitions as full-time equivalents and compensation-based phase-out ranges. But if you offer health insurance coverage to your employees, the tax savings could be significant. For more information, read the IRS release. Then find out what you need to do to qualify for the credits.