This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.
Are you one of the millions of Americans who haven't filed (or even started) your taxes yet? With the April 15th tax filing deadline less than two weeks away, here's some last minute tax advice for you.
Remember: Get your documents to us as soon as you can, and we'll help you take care of whatever comes up.
If you're a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.
What is the Small Business Health Care Credit?
The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.
How Does the Credit Save Me Money?
For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014 and the rate will increase to 50 percent and 35 percent, respectively.
Note: The sequester, which took effect on March 1, 2013 includes a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers. As such, the refundable portion of the claim will be reduced by 8.7 percent. Without congressional intervention, this rate remains in effect until the end of fiscal year 2013 (September 30).
The amount of the credit you receive works on a sliding scale, so the smaller the business or charity, the bigger the credit. Simply put, if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.
If you pay $50,000 a year toward workers' health care premiums--and you qualify for a 15 percent credit--you'll save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that's a total savings of $30,000. And, if in 2014 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.
Is My Business Eligible for the Credit?
To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs) and those employees must have average wages of less than $50,000 a year.
Let's take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20.
Now let's talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10--the number of FTEs--and the result is your average wage. In this example, the average wage would be $20,000.
Can Tax-Exempt Employers Claim the Credit?
Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.
Can I Still Claim the Credit Even If I Don't Owe Any Tax This Year?
If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That's both a credit and a deduction for employee premium payments.
Can I File an Amended Return and Claim the Credit for Previous Tax Years?
If you can benefit from the credit this year but forgot to claim it on your tax return there's still time to file an amended return.
Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years.
Give us a call if you have any questions about the small business health care credit. And, if you need more time to determine eligibility this year we'll help you file an automatic tax-filing extension.
Given the current economic conditions, you may be faced with tax questions surrounding a job loss and unemployment issues. Here are some answers:
Q: What if I received unemployment compensation in 2012?
A: Unemployment compensation you received under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.
Types of unemployment benefits include:
You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.
Q: Can I have federal income tax withheld?
Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.
Q: What if I lost my job?
A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable.
Q: What if I searched for a job?
A: You may be able to deduct certain expenses you incurred while looking for a new job, even if you did not get a new job. Expenses include travel, resume preparation, and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible.
Q: What if my employer went out of business or in to bankruptcy?
A: Your employer must provide you with a 2012 W-2 Form showing your wages and withholdings by January 31, 2013. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.
If you have experienced a job loss and have questions, please call us. You need to be prepared for the tax consequences.
More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs - home-based businesspeople.
And, with technological advances in smartphones, tablets, and iPads as well as a rising demand for "service-oriented" businesses, the opportunities seem to be endless.
Is a Home-Based Business Right for You?
Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take time to learn as much about the market for any product or service as you can. Before you invest any time, effort, and money take a few moments to answer the following questions:
Before you dive head first into a home-based business, it's essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss: an honest assessment of your own personality, and understanding of what's involved, and a lot of hard work. You have to be willing to plan ahead, and then make improvements and adjustments along the road. While there are no "best" or "right" reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:
Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home. You must consider whether your home has the space for a business, and whether you can successfully run the business from your home.
Compliance with Laws and Regulations
A home-based business is subject to many of the same laws and regulations affecting other businesses and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.
Be aware of your city's zoning regulations. If your business operates in violation of them, you could be fined or closed down.
Restrictions on Certain Goods
Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.
Registration and Accounting Requirements
You may need the following:
If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.
Money fuels all businesses. With a little planning, you'll find that you can avoid most financial difficulties. When drawing up a financial plan, don't worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.
Estimating Start-Up Costs
To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.
Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough of a cushion if you need it.
Projecting Operating Expenses
Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don't forget to include your normal living expenses. Your business must not only meet its own needs, but make sure it meets yours as well.
It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points and cash-flow statements. Use your marketing research to estimate initial sales volume.
Determining Cash Flow
Working capital--not profits--pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you're broke.
Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.
If you think a home-based business is in your future, then don't hesitate to give us a call. We'll set up your business and make sure you have the proper documentation system in place to satisfy the IRS.
If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
If you received Form 1099-C, but aren't sure what to do with it, give our office a call. We'll help you figure out whether your cancelled debt is taxable--or not.
Due to delays at the start of the tax season, the IRS is providing late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching forms to their returns that couldn't be filed until after January.
The relief applies to the late-payment penalty, normally 0.5 percent per month, charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.
Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits, including the Work Opportunity Credit qualify for this relief, as well as the following:
Please call us for a complete list of delayed forms.
Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Eligible taxpayers need not make any special notation on their extension request, but as usual, they must properly estimate their expected tax liability and pay the estimated amount by the original due date of the return.
The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.
Give us a call if you're planning on filing a tax extension this year. We'll make sure you get the late-penalty relief you are entitled to.
Question: How do I know if I have to file quarterly individual estimated tax payments?
Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.
If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.
If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.
If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.
There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.
Contact us if you are unsure whether you need to make an estimated tax payment. The first estimated payment for 2012 is due April 15, 2013.
If you're one of the more than 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction), you might be interested in the new simplified option available for taxpayers starting with the 2013 return most taxpayers file early in 2014.
The new optional deduction, recently announced by the IRS, is capped at $1,500 per year based on $5 a square foot for up to 300 square feet. It is expected to reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
Currently, taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.
Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.
If you need more details about the new simplified home office deduction for tax year 2013, don't hesitate to give us a call. We're here to help.
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