Tax Season Reminders for Small Businesses

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Becky Murphy and Mark Przybysz gave this presentation at the Women's Business Center of North Alabama's POWER lunch on January 12, 2012.

Becky Murphy and Mark Przybysz gave this presentation at the Women's Business Center of North Alabama's POWER lunch on January 12, 2012.

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  • Note – Talk about Doctor prescribing OTC medicine for HSA to cover
  • 1. The 2011 AMT exemptions are $48,450/$74,950/$37,225
  • Education Credits – Includes above-the-line deductions for educators who spend $250 for books, certain supplies, and materials used in the classroom.
  • 1. 168(e)(3)(E)(v) and (E)(ix) – extended by Tax Relief Act to treat qualified restaurant and retail property as 15-yrRev. Proc. 2011-26 says restaurant and retail property fall within the definition of qualified leasehold property (normally, they are not allowed bonus depreciation).For 2012 the rules change significantly, 15-yr property is eligible for 50% bonus, but restaurant and retail property is NOT eligible for any section 179 or bonus.Make mention that the rules are tricky for Qualified Restaurant and Qualified Retail property which are distinguished from Qualified Leasehold property.
  • Beginning Jan. 1, 2011 prepares who prepare > 100 returns must efile unless they have a signed opt-out. Jan. 1, 2010 preparers of > 11 returns must efileCredit Card companies are sending Form 1099-Ks if receipts exceeded $20,000 or transactions exceed 200Separate line item on Schedule C for 2011IRS will match 1099-Ks v. Amount reported on return1099 Repeal – Any merchant who spent over $600 anywhere was required to send a 10995. Need documentation
  • 1. Talk about problems with borrowing w/h for business use – STEALING, government frowns on this.
  • 1. Per Rick Taylor – since investment returns are so low, the opportunity cost of forgoing the investment and paying the tax is smaller

Transcript

  • 1. A Global Reach with a Local Perspective www.decosimo.comPOWER to the Tax People!MARK PRZYBYSZ, CPA – MARKPRZYBYSZ@DECOSIMO.COMBECKY MURPHY, CPA – BECKYMURPHY@DECOSIMO.COM
  • 2. DECOSIMO 2012 TAX UPDATE  WHAT IS IN, WHAT IS OUT AND HOW DOES IT AFFECT YOU?
  • 3. OVERVIEW Tax Relief Act of 2010 Expired Provisions Bonus Depreciation Section 179 Expensing Alabama Highlights 1099 Filing Requirements Items of Interest
  • 4. EXTENDED FILING DATE April 17, 2012  Extended due to  15th falls on Sunday  Monday is a holiday in D.C.
  • 5. EXPIRED PROVISIONS
  • 6. EXPIRED PROVISIONS - 2010Individuals Making work pay credit Self employed health insurance premium deduction for SECA tax purposes 65% subsidy for payment of COBRA health care coverage continuation premiums (5/31/10) First time homebuyers credit Purchase of OTC via HSA accounts
  • 7. TAX TIP Ask your doctor for a prescription for the OTC
  • 8. EXPIRED PROVISIONS - 2010Business 5 year NOL carryback Enhanced deduction limit and phase-out for start-up expenditures  Reduced from $10,000 to $5,000 Organizational Costs
  • 9. TAX TIP Organizational costs and start-up costs are not the same
  • 10. PAYROLL TAX UPDATE Employer – Side Payroll Tax Forgiveness 2% payroll tax cut  Extended to February 29, 2012  Recapture Provision  Individuals earning > $18,350  Add-on to 2012 tax liability
  • 11. A Global Reach with a Local Perspective2010 Tax Relief Act www.decosimo.com
  • 12. EXPIRING DEDUCTIONS - 2011 100% bonus depreciation Above-the-line deduction for qualified tuition Deduction for State and local general sales taxes Premiums for mortgage insurance Nontaxable IRA transfers to eligible charities Enhanced charitable contributions
  • 13. TAX TIP Keep you charitable donation records!
  • 14. EXPIRING CREDITS - 2011 AMT patch Credits allowed against regular tax and AMT Extenders  Research credit  New market credit  Work opportunity credit  Personal energy property credit
  • 15. TAX TIP Research and experimentation  Design, develop, or improve
  • 16. HIGHLIGHTSTwo Year Extensions Bush tax cuts; Individual tax rates remain the same LTCG and qualified dividend tax rates No 3%/80% limitation on itemized deductions No phase-out of personal exemptions
  • 17. TWO-YEAR EXTENSIONSNon-Refundable Child tax credit Adoption credit Dependent care credit Education credits ($1,500 of $2,500)Refundable Additional CTC Earned income credit Education credits ($1,000 of $2,500)
  • 18. TWO-YEAR EXTENSIONS Extenders/Extensions for Business  Child Care Facility Credit for up to $150,000  Bonus depreciation deduction drops to 50%  Section 179 expensing reverts to “Pre-Bush” For a full list of expiring provisions see, “List of Expiring Federal Tax Provisions,” at www.jct.gov
  • 19. DEPRECIATION
  • 20. CELL PHONES – NO LONGER“LISTED PROPERTY”Cell phones and similar devices used primarily for business areremoved from the “listed property” category.  Effective starting with the 2010 tax year  So…employees should not have to document personal vs. business use under the heightened substantiation rules for listed property  Depreciation rules that apply to listed property no longer apply to cell phones  However, personal use of an employer- provided cell phone may still result in taxable income to the employee 20
  • 21. BONUS DEPRECIATION „Qualified‟ property eligible for 100% depreciation  Qualified Property Includes  New original use property  20 yr or less class life  Leasehold improvements to non res buildings > 3 yrs old  Qualified retail and restaurant property eligible for 15-yr class life, thereby, eligible for 100% bonus Highlights  No AMT adjustment entire recovery period  Not limited to taxable income Watch-out for  Passenger auto limits – generally $11,060
  • 22. SECTION 179 EXPENSING Applies to new or used property Includes 15-yr property:  Qualified leasehold improvement  Qualified restaurant property  Qualified retail improvement property Note: The 179 property expensing for 15-yr property is only for 2011 and does not extend to 2012
  • 23. SECTION 179 EXPENSING Amounts  Max $500,000 (2011) and $139,000 (2012)  If qualified real property  Maximum $250,000 (part of $500,000 above)  Phase-out of deduction when qualifying property placed in service exceeds $2,000,000  Limited to amount of taxable income for entity
  • 24. TAX TIP S Corp owners can add back W-2 wages in determining taxable income for purposes of Section 179 deduction. MFJ return – business income(loss) from both spouses is aggregated even though Sec. 179 relates to the activity of only one spouse Overall taxable income of ALL trades or businesses is combined for the income limitation. Taxpayers with multiple pass-thru entities could exceed limits
  • 25. ALABAMA UPDATE 25
  • 26. LEGISLATIVE HIGHLIGHTS CORPORATE INCOME TAX  Qualifying small businesses may deduct 100% of the amount the pay as health insurance premiums on behalf of qualifying employees (HB 61, 4/21/11). APPORTIONMENT  The sales factor in the apportionment formula for business income is double-weighted and provides rules for sourcing income other than personal property (HB 434, 6/9/11).26
  • 27. LEGISLATIVE HIGHLIGHTS FULL EMPLOYMENT ACT OF 2011  $1,000 credit against income or financial institution excise tax liability  Small employer < 50 employees  New hire post June 9, 2011  Hourly wage > $10 per hour  12 consecutive months of employment  Must have net increase in employment  Available to corporations, pass-through entities and self- employed business owners  Repeals deduction for hiring individuals drawing unemployment
  • 28. PERSONAL INCOME TAX INCOME TAX DEDUCTION FOR RETROFITTING HOMES AGAINST CATASTROPHIC WINDSTORM EVENTS  Individuals who retrofit their homes to be more resistant against hurricanes, tornado or other catastrophic windstorm events are entitled to a personal income tax deduction, regardless of whether the taxpayer itemizes income tax deductions in calculating his income tax, that is equal to 50% of the retrofitting cost incurred, up to $3,000 (SB 395, 6/9/11).
  • 29. PERSONAL INCOME TAX TORNADO RECOVERY TAX INCENTATIVE PROTECTION ACT OF 2011  Protects the granting and extension of economic benefits impacted by the April tornado outbreaks  Wage and employee requirements of the capital credit shall be tolled for a period of two years HOMEOWNERS and STORM VICTIMS PROTECTION  Act expands definition of residential property to include single-family dwellings and related lots under construction for a period up to 2 years (HB 179, 9/1/11)
  • 30. TAX TIP Casualty Losses  Alabama does not conform with Federal  Must claim loss in same year
  • 31. PERSONAL INCOME TAX HEALTH INSURANCE PREMIUM DEDUCTION  Qualifying employees may deduct 100% of the amount the pay as health insurance premiums as part of an employer provided health insurance plan (HB 61, 4/21/11). SMALL BUSINESS JOBS CREDIT  Self-employed business owners can take advantage of this incentive for job creation (HB 230, 6/9/11) VOLUNTARY TAX ASSESSMENT  Are you crazy?
  • 32. SALES TAX The Alabama Streamlined Sales and Use Tax Commission is created to identify and develop the programs necessary for Alabama to come into compliance with the Streamlined Sales and use Tax Agreement (SSUTA) in the event that Alabama becomes a participating member of the SSUTA (HB 355, 6/9/2011).32
  • 33. TIPS & HINTS
  • 34. ITEMS OF INTEREST Segregated reporting of merchant card gross receipts IRS issues regulations requiring efiling Controversial 1099 reporting requirement repealed on 4/4/11 when President Obama signed H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” IRS aggressively challenging charitable contributions and documentation
  • 35. RECORDKEEPING TIPS Records that support deductions  3 years Tax returns and tax form packages  7 years Records for large purchases including homes, cars, stocks, etc. and business or rental property records  Indefinitely
  • 36. PITFALLS Estimated tax payments  Not paying or not paying timely Employee v. Independent contractor Choice of entity No internal controls/theft/fraud
  • 37. OTHER BUSINESS CONSIDERATIONS Above the line deduction for health insurance premiums Pay children without withholding Retirement Plans  SEP  Simple IRA  Traditional IRA Mileage Rate
  • 38. 2011 RATES Business Miles 51 cents/mile Jan-June 55.5 cents/mile June-December Personal Exemption $3,700 Kiddie Tax Threshold $1,900 Standard Deduction  Single $5,80038  MFJ $11,600
  • 39. TAX RATES Type 2013 Health Care Combined 2013 2012 Tax RatesOrdinary Income 39.6% 0.9% 40.5% 35% 36.0% 0.9% 36.9% 33% 28.0% 28.0% 28% 25.0% 25.0% 25% 15.0% 15.0% 10%LT Capital Gains 20.0% 3.8% 23.8% 15%and Qualified 18.0% 3.8% 21.8% 0%Dividends 10.0% 10.0% 8.0% 8.0%Interest, Rents, 39.6% 3.8% 43.4% 35%Royalties and 36.0% 3.8% 39.8% 33%Passive Activity 28.0% 28.0% 28%Income 25.0% 25.0% 25% 15.0% 15.0% 10%
  • 40. WRAP-UP
  • 41. WHERE DO WE GO FROM HERE? Never easy – 29 new tax laws since 2001 Take advantage of Bonus and Section 179 depreciation Credits Available – R & D, DPAD, Hiring Veteran‟s and Worker‟s Retention Credit Considering likely return of higher tax rates means deferring deductions and accelerating income is a good idea
  • 42. YEAR-END PLANNING Selling appreciated property Exercising stock options Pay dividends from C Corps Holding loss-stocks to 2013 Cash basis taxpayers defer expenses
  • 43. CONTACT USMark Przybysz, CPAmarkprzybysz@decosimo.comBecky Murphy, CPAbeckymurphy@decosimo.com423-756-7100 The contents and opinions contained in this presentation are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals.