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Archives for August 2012

Does a Small Business Need a Tax ID Number?

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

A tax ID number, also called an employer identification number (EIN), is a federal number assigned to companies by the IRS. The federal tax ID number is different for each business, letting the IRS differentiate between businesses. It’s also used by the IRS for for verification purposes. Regardless of the size of your business, there are many reasons to have a tax ID number or EIN,, which should be carefully examined.
 
What is a small business tax ID number?
 
The tax ID number for a small business is a federal number given to a business for verification, regulation, and tax purposes. In order to pay taxes, your business needs to have a tax ID number that was specifically assigned to your company. As a US citizen, your tax ID number is your social security number, but when filing as a business, in most cases, you need a separately assigned number from the IRS.
 
Does my small business need a tax ID number?
 
There are some stipulations that require small businesses to obtain a tax ID number, but in general, all businesses should have one. If your business sells products that are taxed, you need a federal tax ID number. You will also need one if you have employees, sell services, are a partnership or corporation, or sell alcohol, tobacco, or firearms. Additionally, if your business is involved with a farmers’ cooperative, non-profit organization, estate, trusts, or real estate mortgage conduits, you will also need a tax ID number.
 
However, a sole proprietor who doesn’t file pension plan or excise tax returns and is without employees doesn’t need an employer identification number. In this case, the sole proprietor’s social security number may be used as the taxpayer identification number.
 
Even if you don’t fit these specifications, it is still advised that you apply now to get a tax ID number. You may require one in the future, and you can save yourself delays in paying taxes or receiving refunds if you apply for it now.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 
 
 
 
 
 

When Can an Automobile be Expenses to my Business?

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Operating a business can be expensive, making every allowable deduction count when it comes to tax time. Luckily, a business is typically allowed to deduct a wide variety of expenses associated with the operation of the business, including vehicle expenses. As a general rule, any time you use your vehicle for business related reasons, the expense is deductible. Vehicles, for purposes of the deduction, include cars, vans, panel trucks and pickup trucks. As with all Internal Revenue Service, or IRS, rules there are some important points that you must understand in order to claim the business use of your vehicle deduction.
 
Record keeping is of paramount importance when claiming a business use of your vehicle deduction. Start when the vehicle is placed in service. If your vehicle is used for both personal and business purposes, keep a detailed record of the mileage for each trip. Regardless of whether the vehicle is used solely for business purposes, or for both personal and business use, also keep records of gas, license fees, repairs and anything else related to the use of the vehicle.
 
Two methods for determining your deduction amount are allowed — the standard mileage rate method and the actual expense method. Before deciding which method to use, figure out the deduction using both methods to determine which offers the largest deduction. Although either method may be used, the method you choose to use in the first year that your vehicle is placed in service for the business will impact your options in future years.
 
The standard mileage rate is simple to calculate. You simply multiply the miles claimed for the year as business miles by the current rate per mile. The rate per mile changes on a regular basis so be sure you know the current rate.
 
The actual expense method requires you to add up all the costs associated with the vehicle for the year such as gas, license plate fees, tires and tune-ups and then multiply that figure by the percentage of use assigned to the vehicle for your business. If the vehicle is used solely for the business, then there is no need to multiply the total expenses by a percentage.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 

Filed Under: IRS

Planning for Possible Changes to Estate and Gift Taxes for 2013

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Estate planning has evolved into an art form over the last century. The days when a simple Last Will and Testament sufficed to distribute estate assets upon your death are long over. Without a carefully thought out estate plan, you could lose over half of your estate assets to estate taxes. Although gifting assets during your lifetime is an option, the gift tax can also take a significant bite out of your estate assets without careful planning. This year, both the estate and gift tax rates are at historically low rates. Likewise, the estate tax and gift tax exemption amounts are at all time highs. Both of these are currently set to change for 2013 unless Congress acts before the end of the year. If your estate will be affected by the changes, now is the time to consult with your estate planning attorney about how best to handle the upcoming changes.
 
The estate tax is levied on a decedent’s estate if the total estate assets at the time of death exceed the estate tax exemption amount. For 2012, the estate tax exemption amount is set at $5.12 million. That means that only estate assets over $5.12 million would be taxed if an individual died this year. For assets that exceed the exemption amount, they are currently taxed at a rate of 35 percent.
 
The current rate and limit are both set to expire at the end of 2012 and return to the previous tax rate of 55 percent and the previous exemption amount of just $1 million. To put this in perspective, imagine that you have an estate valued at $7 million. If you die this year, $1.88 million will be subject to the estate tax at a rate of 35 percent for a total tax liability of $658,000. If the rate and limit return as scheduled for 2013, the same estate would incur a tax bill of $3.3 million.. Every dollar paid in estate taxes is a dollar less left to your loved ones.
 
Although the average taxpayer is not impacted by estate taxes at the 2012 exemption amount, many more will be affected if the amount is reduced to just $1 million. If you are one of those people, be sure to talk to your estate planning attorney about estate planning tools that can be used to help minimize estate taxes upon your death.
 
The gift tax faces the same potential scenario for 2013. The gift tax lifetime exemption amount is also currently set at $5.12 million at a rate of 35 percent. It too will return to a lifetime exemption amount of $1 million with gifts over that amount taxed at 55 percent. A taxpayer may also take advantage of the yearly gift tax exclusion rules which allow you to make as many gifts of up to $13,000 to as many beneficiaries as you wish each year free from gift taxes. In addition, yearly gifts made pursuant to the gift tax exclusion do not count toward your lifetime exemption limit. If gifting is part of your overall estate plan, be sure to talk to your estate planning attorney to decide whether you should gift more this year than originally planned or wait to see what ultimately happens to the gift tax.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 

Filed Under: IRS

The importance of Creating a Last Will and Testament

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The Importance of Creating a Last Will and Testament
Many people make the mistake of assuming that estate planning is only important if you have a substantial estate to leave behind to beneficiaries. Nothing could be farther from the truth. Although an elaborate estate plan may not be necessary if your estate assets are modest, there are a variety of reasons why a basic Last Will and Testament should be executed anyway.
 
Probate — Probate is the legal process by which a decedent’s estate is inventoried, valued, and the assets ultimately transferred to beneficiaries. Probate can be a lengthy process and may incur significant fees. In some states, a small estate may be eligible for a less formal process that will save the estate time and expense; however, if the decedent failed to execute a Will, formal probate is typically required in order to determine who the legal heirs are to the estate.
 
Intestate Succession Laws — If you fail to execute a Will, the state laws of intestate succession will determine what happens to your assets. Friends, charities and distant relatives that were important to you will receive nothing from your estate if you give up control to the state.
 
Tax Consequences — If your estate assets are significant, a comprehensive estate plan is necessary to avoid the often high rate of estate taxes levied on an estate upon the death of the decedent. While a Will alone will not prevent your estate from incurring estate taxes, it is the foundation for an estate plan that can include tools aimed at minimizing your tax burden.
 
Fees and Expenses — By not leaving a Will, additional expenses will be incurred by your estate. Costs involved in locating and notifying heirs, locating and valuing assets, and defending any claims or challenges to your estate can reduce the value of your estate, leaving less for your heirs.
 
Guardianship of Minor Children — If you have minor children, your Will is the only chance you have to nominate someone as guardian in the event of your death. Although the court will ultimately decide who is appointed as guardian, your wishes will carry significant weight in the decision.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.