Category Archives: Small Employer

Most start-ups and small businesses have good years and not-so-good years. There are those that will say that if your business continually functions in the red, maybe you really need to rethink your business strategy. The IRS, on the other hand, will be looking at whether your business is really a for-profit business or is actually a hobby and the deductions or losses you have taken. “The IRS will generally assume an activity is a business if it generates a profit 3 of 5 consecutive years…“.¹ If the business has a loss for 3 of 5 consecutive years, the IRS will take a closer look at what they consider the “facts and circumstances” to evaluate whether the activity is actually a hobby or qualifies as a for-profit business.

Why is this important? Because if the IRS determines that your business doesn’t have a solid profit motive, they will re-classify your business as a hobby, then your past returns will be reviewed and deductions will be re-evaluated. If they feel your *activity* is actually a hobby, they will add back the losses claimed by you that will result in back-taxes, penalties and interest.

So here are a few tips that you should consider in support of your for-profit business in the event you are ever reviewed by the IRS. You want to be able to substantiate your business, and therefore entitled to any business losses you have claimed. These practices include being properly licensed, have separate bank accounts and credit cards, payment of business taxes, good accounting and record keeping, appropriate insurance, a separate business phone line, log or business journal of time devoted to the business and documented actions taken to help make the activity profitable.²

¹ Brett Hersh, http://www.hbsbusiness.com
² Ibid.

Need help? We do more than just tax preparation at US-TaxLaws. We are your best source for professional tax preparation and/or financial consulting services that include:

Personal Tax Preparation   Business Tax Preparation   Partnership Tax Preparation
Corporate Tax Preparation  Incorporation-Choice of Entity   Business Support Services
Corporate Compliance   Audit Representation  Retirement Tax Planning   Wills & Trusts, Estate Planning   Bookkeeping   Payroll

FTB Of CA Penalties and their meaning

AN EDUCATED TAXPAYER IS OUR BEST CUSTOMER.

We help our clients understand the ever-changing federal and state tax laws so they can maximize their tax deductions, and adopt best recordkeeping practices.

Many of our clients have come to us after having a bad tax preparation experience that resulted in penalties and interest. When we come across a reference document that we feel is valuable for the taxpayer – we promote it.

We have linked to the 18-page Penalties and Interest Reference Table published by the Franchise Tax Board of California.

Penalty reference chart (pdf)

EDD extension for San Diego wildfire

San Diego County – May 2014

Employers in San Diego County directly affected by the wildfire may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. This extension may be granted under Section 1111.5 of the California Unemployment Insurance Code (CUIC). Written request for an extension must be received within 60 days from the original delinquent date of the payment or return to file/pay.

If you have any questions, contact the EDD’s Taxpayer Assistance Center at (888) 745-3886 or at www.edd.ca.gov/Payroll_Taxes/Emergency_and_Disaster_Assistance_for_Employers.htm

Source:

Business Health Plan Review and Options

BUSINESSES NEED TO REVIEW HEALTH PLAN OPTIONS

Businesses need to do a review of their health plan options and strategy. Businesses with 100+ “full time employees” need to act this year; your mandate starts in 2015. Smaller businesses (50-99) have a little more time. Your mandate begins in 2016. See all of our posts on the effects of the Affordable Care Act.

IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, Tax Tips Available on IRS.gov
IR-2014-27, March 10, 2014 — With business tax-filing deadlines fast approaching, the IRS encouraged small employers that provide health insurance coverage to their employees to check out the small business health care tax credit and claim it if they qualify.

Sources: IRS.gov

Use of Electronic Media for Saving Tax & Business Records

Considering the use of Electronic Media for Saving Tax & Business Records?

Whether you are starting a new business – or have an established business – you might be looking at how to improve your record keeping practices.

If you have considered the use of electronic media for saving tax & business records you will also want to be sure you are in compliance with the IRS rules and regulations for electronic storage systems. Continue reading →

Tax Reform Update for Small Businesses

How the Tax Reform Act of 2014 Will Affect Your Small Business

You may be holding your breath and wondering how tax reform will affect your small business.

The bill includes a renewal of Section 179 expensing. This tax advantage has typically been renewed every year with higher and higher thresholds, but on Jan. 1, the law reverted back to its original provision, which only allows $25,000 in the expensing of any new assets.

Purchases in excess of this amount must be depreciated over their useful lives. From 2010 to 2013, businesses were allowed a $500,000 threshold for Section 179 expensing. Proposed in the Tax Reform Act of 2014 will be a ceiling of $250,000 – levels enjoyed during 2008 and 2009.

The proposal does not allow for the renewal of bonus depreciation which also expired at the end of 2013. This allowed businesses to deduct 50% of the cost of all assets, above and beyond the Section 179 expensing.

In a statement, National Taxpayers Union Executive Vice President Pete Sepp said that the proposed reform aims to harmonize the top tax rate for S and C Corporations with qualified domestic income to 25%. He contends that because S Corporations are pass-through entities – the individual pays the tax on profit rather than the corporation – there will be an exclusion allowed to create an equivalent 25% tax. Qualified domestic income relates specifically to the manufacturing sector.

This change should encourage production and new jobs within our borders. “The proposal rightly aims to bring a measure of tax parity between ‘pass-through’ small business entities and traditional corporations, but how it hits that target must be thoroughly examined to ensure that job creators aren’t punished in the process,” Sepp said in a statement.

He also reiterated swift action on Capitol Hill will also be necessary. “Some tax-saving provisions for businesses will be gone several years before the final, beneficial 25% tax rate kicks in. Washington must avoid the appearance of clawing back many provisions in the short-term while pushing rate relief into the long-term.”

One tax element that hits many small business owners is the Alternative Minimum Tax which can be triggered when using net operating losses against current year income and when taking depreciation and Section 179 expensing.

On the other hand, the National Federation of Independent Business (NFIB) Vice President of Federal Public Policy Brad Close made the following statement in response to Camp’s proposed reform:

“NFIB has long advocated tax reform that achieves lower rates and a simpler code,” said Close. “While we appreciate Chairman Camp pursuing tax reform that lowers some rates, we are very concerned that this plan does not address the core issues that are important to all small businesses: simplifying the code, leveling the playing field for all businesses, and addressing both corporate and individual tax rates. We look forward to working with members of the Ways & Means Committee and Chairman Camp to achieve comprehensive tax reform that does not pick winners and losers based on size and type of business.”

The tax reform is nowhere near being carved in stone; after all, this is only the discussion draft, so we shall see.

Source: http://smallbusiness.foxbusiness.com/finance-accounting/2014/02/28/how-tax-reform-act-2014-will-affect-your-small-business/

Important Tax Date – February 28

FOR ALL BUSINESSES – TAX FILING INFORMATION

CAUTION TAX FORMS NEEDED! File information returns (for example, Forms 1099 for certain payments you made during 2013. There are different forms for different types of payments. Use a separate Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, which form to use, and extensions of time to file.

If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms generally remains January 31.

All businesses.

Give annual information statements to recipients of certain payments you made during 2013. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. Payments that may be covered include the following.

Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish.
Compensation for workers who are not considered employees (including fishing boat proceeds to crew members).
Dividends and other corporate distributions.
Interest.
Rent.
Royalties.
Payments of Indian gaming profits to tribal members.
Profit-sharing distributions.
Retirement plan distributions.
Original issue discount.
Prizes and awards.
Medical and health care payments.
Debt cancellation (treated as payment to debtor).
Cash payments over $10,000. See the instructions for Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

This information is available in IRS Publication 509 – Tax Calendars for Use in 2014

Communicating Your Child Care Business Policies

SHOULD YOU CREATE A POLICY HANDBOOK FOR YOUR CHILD CARE BUSINESS? ABSOLUTELY!

It is your responsibility to communicate your policies in your business. Clients will appreciate the information, and creates a basis of communication between you and the client. It establishes how you conduct your business, and gives parents an “inside look” of what to expect in your performance. It also lets them know what is expected of them. To learn more about what to include in your handbook, see Communicating Your Child Care Business Policies

One Million+ getting a letter from the Franchise Tax Board!

More than 1 million Californians did not file a 2012 state income tax return!

Sacramento – Last year, the FTB collected more than $727 million dollars through their diligent campaign to find people who did not file!

The FTB receives more than 400 million income records from bank, employers, state departments, the IRS and other sources.

This program is designed to find wage earners and self-employed who did not file – it also tracks down other nonfilers through sources such as occupational licenses and mortgage interest payments.

If contacted, you have 30 days to file or to show why one isn’t due. For those who do not respond, the FTB will issue a tax assessment using income records to estimate the amount of state tax due. It will include interest, fees and penalties. If you get a letter, contact us immediately. Do not wait. Do not hesitate. Call us at 619-589-8680.

The FTB administers two of CA’s major tax programs – Personal Income Tax and Corporation Tax. They take their job seriously and are responsible for collecting more than 65% of California’s general fund. For more information visit taxes.ca.gov.

Tax information is not tax advice. Always speak with your tax professional before making decisions. If you need to speak with a tax professional, give us a call today at 619-589-868.

Affordable Care Act Tax Provisions: Employer Provided Health Coverage in Form W-2

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Source: http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

Image Credit: ClipArt

Interest Rates Remain the Same for the First Quarter of 2014

For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Larger IRS

IR-2013-96, Dec. 9, 2013

WASHINGTON ― The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2014. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during Oct. 2013 to take effect Nov. 1, 2013, based on daily compounding.

Revenue Ruling 2013-25 announcing the quarterly rates will be published in Internal Revenue Bulletin 2013-52, dated Dec. 23, 2013.

Mileage Deductions

January 29 Header for ChildCare Site

For 2013 you get 56.5¢ for each business mile (keep your logs daily) . While employees can’t deduct driving to work, look at visits to clients, extra meetings, errands or shopping for supplies. Business owners – especially child care providers – have the same and more. To learn more, click here.

Dec 2013 – April 2014 Tax Dates to Keep In Mind

YOUR TAX CALENDAR

December 31

A check mailed on December 31 counts for 2013. Last chance for deductions!
State estimated tax paid December 31 is deductible on 2013 Federal Return

January 15

4th quarter estimated tax payments due.

February 1

Employers – Quarterly payroll & FUTA due (Federal Unemployment Tax).
W-2s and 1099s due to recipients.

March 3

W-2s and most 1099s due to IRS.

April 15

2103 Tax Returns due.
Last day for 2013 IRA contributions.

Affordable Care Act Tax Provision for Large Employers – Beginning October 1, 2013

In 2015 large employers will have annual reporting responsibilities concerning whether and what health insurance they offered to their full-time employees.

Some of the provisions of the Affordable Care Act, or health care law, apply only to large employers, generally those with 50 or more full-time equivalent employees.

Coverage

Beginning Oct. 1, 2013, if you have 50 or fewer employees, you can purchase affordable insurance through the Small Business Health Options Program (SHOP).
To learn more about market reforms and various plan requirements, visit HealthCare.gov Reporting

Reporting

Effective for calendar year 2015, you must file an annual return reporting whether and what health insurance you offered your employees. This rule is optional for 2014. Learn more.
Effective for calendar year 2015, if you provide self-insured health coverage to your employees, you must file an annual return reporting certain information for each employee you cover.This rule is optional for 2014. Learn more.
Beginning Jan. 1, 2013, you must withhold and report an additional 0.9 percent on employee wages or compensation that exceed $200,000. Learn more.
You may be required to report the value of the health insurance coverage you provided to each employee on his or her Form W-2.

Payment & Provisions

Effective for calendar year 2015, you may have to make a payment if you do not offer adequate, affordable coverage to your full-time employees, and one or more of those employees get a Premium Tax Credit. Learn more.
If you self-insure, you may be required to pay a fee to help fund the Patient- Centered Outcomes Research Trust Fund