IRS

Health Insurance Tax Credit For Small Business

August 26, 2013 by mrice

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.

Health Insurance Tax Credit for Small Business

Small businesses have traditionally been unable to offer health insurance benefits to employees. The primary culprit preventing small businesses from offering this particular benefit was the high costs involved in doing so. The Affordable Care Act, however, has made a few changes that make offering insurance to employees a more affordable option — even for the smallest of businesses. Health Insurance CO-OPs, the Small Business Health Options Program (SHOP), are health insurance tax credits are just some of the changes which are opening the health insurance doors that have been closed to small business owners in the past. What’s So Powerful About the Combination?
Health Care CO-OPs and tax credits, by themselves, would still not be enough to make offering employer insurance feasible for many small businesses. The combination, however, of affordable insurance alternatives such as CO-OPs with tax credits, makes the situation more tenable for small businesses that operate at marginal profits in order to stay afloat as it is. What Businesses are Eligible for Health Insurance Tax Credits?
There are several requirements that must be met in order for employers to be eligible to receive tax credits for offering health insurance. According to Aetna, these conditions include:

Cannot employ more than 25 full-time equivalent employees in a taxable year
Employer must cover a minimum of 50 percent of the coverage cost for employees
Average annual wages cannot exceed $50,000
Qualifying agreement must be maintained

In 2010, the maximum tax credit was 35 percent. That number will change to a maximum of 50 percent in 2014. However, extremely small businesses with 10 or fewer full-time employees and average annual wages lower than $25,000 stand to benefit most from the small business tax credit says the Small Business Administration. The goal, of course, is to provide the greatest support and assistance to low and moderate income workers.
The IRS also points out that if you did not owe taxes during the year, you are eligible to carry the credit forward or back to other tax years. Information Worthy of Note
The National Federation of Independent Business, NFIB, points out that there are several limitations business owners need to be aware of with the health care tax credit. First of all, business must pay at least fifty percent of the health insurance premiums for their employees in order to qualify for the tax credit.
Second, most businesses that do receive the tax credit will not be awarded the maximum amount. Not only are small business owners excluded from the tax credit (and exclusion in the calculations of wages), but also the owners’ family members including children, foster children, siblings, step siblings, spouses, certain cousins, and in-laws.
Because figuring tax credits and understanding benefits such as these is so complex, the NFIB also highly recommends that business owners consult with their accountants before determining their best courses of action.

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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.

WHAT IS THE MARRIAGE PENALTY?

June 30, 2013 by mrice

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.

What is the Marriage Penalty?

If you are recently married, you’ll have to contend with a few more issues besides your spouse’s snoring. You’ll also have to deal with new tax issues while spending your days and nights being blissful in eternal love.
First, you’ll have to make a decision concerning how to file your taxes, as you’ll have a choice between “married filing separately” or “married filing jointly”.
Combining two spousal income often equates to a higher household taxable income, than it obviously would have if you remained single. In a number of cases, this means more taxes you’ll have to pay, in part, due to the “marriage penalty tax”.
The marriage penalty affects couples living in the United States and refers to the increased taxes required to be paid by some married couples. In general, the marriage penalty tax is imposed on couple who have approximately the same salaries, or otherwise have roughly the same amount of taxable income, and file one return under the “marriage filing jointly” tax filing option.
Whenever both working spouses have to pay a higher combine, or “joint” tax rate on the identical income than they would be paying had they each been single, that’s generally when the marriage penalty kicks in.
However, the good news is that not all marriage couples have to contend with the marriage penalty tax. Some married couples actually pay less as a couple than they would as single. Generally speaking, this happens when these spouses earn disparate incomes, such as a doctor and a social worker.

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FEDERAL INCOME TAX RETURN FILED INCORRECTLY? WHAT SHOULD I DO?

June 12, 2013 by mrice

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.

Federal Income Tax Return Filed Incorrectly: What Should I Do?

Because the IRS’s tax laws are complicated, it is possible to mistake a mistake — whether minor or major — when preparing your federal tax return. In fact, the IRS encounters thousands every year. If you have already sent in your federal tax return, but realize you made an error, you need to amend the return. In light of this, the IRS makes this as easy as possible by providing you with printable forms that give you detailed instructions on how to amend previous filed incorrect federal tax return.
Steps to File an Amended Return

Obtain and print Form 1040X, which is titled “Amended US Individual Income Tax Return.” From the IRS website. Form 1040X should be used if you originally filed forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.
Write the amending return year at the top of the form, complete your corrections on the form, and sign it at the bottom. The Form 1040X makes it easy to amend your return by listing step-by-step instructions on how to enter your corrections. Double-check that the amended return is 100% correct before signing it and preparing it to be sent.
Mail the completed and signed form to the address listed on the Form 1040X. If you are amending more than one tax return, you should fill out and send two separate forms and envelopes.

If you send in your amended tax return quickly, or shortly after the original return was sent, you may have a chance to get your return processed in a timely manner. However, you should expect a minor delay in your tax refund while the IRS verifies the old return versus the amended return. The amended refund form gives you the chance to make your corrections and receive the appropriate refund. In addition, if your federal income tax return had a mistake, your state tax liability may be affected.

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HOW LONG DO YOU NEED TO KEEP FINANCIAL RECORDS?

June 3, 2013 by mrice

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.

How Long Do You Need to Keep Financial Records?

We all know that keeping a copy of receipts, tax returns, and other financial records is a good idea, but how long should we hold on to them? Of course, it is better to keep them for too long then to get rid of them only to find that you need a copy shortly thereafter; however, holding on to records indefinitely can lead to a room full of boxes that do nothing but gather dust.
Try using the following guidelines to decide how long to hold on to your records:

Tax returns – Of course, it depends. Tax returns should be kept for a minimum of three years which is the statute of limitations. However, if your return somehow understated your income by 25% or more (the exact definition of 25% or more is the subject of litigation) the IRS can go back 6 years. And if you did not file, or filed a fraudulent return, the IRS has forever. So the answer here depends on the accuracy of the return and the honesty of the taxpayer.
Major purchase receipts — receipts and warranty information for major purchases such as a vehicle or major appliance should be kept until one year after you sell, or otherwise dispose of, the item.
Personal records — everyday receipts, budgets, and financial planning documents can typically be thrown out after you have compiled your tax return for the year in question; however, if the receipt was used to claim a tax deduction for the year then either the original or a copy should be kept with your actual return.
Legal records — legal documents can be anything from a small claims judgment to estate planning documents. Some of these should be kept until the corresponding statute of limitations runs out while others should be kept indefinitely. Check with your attorney before you discard any legal documents.

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RETIREMENT INCOME A CHALLENGE? THE BASICS

June 3, 2013 by mrice

Retirement Income a Challenge: The Basics

Thinking of offering a retirement plan to your employees? Here’s some of what you need to know.
If you were employed during the 1980s, you probably remember what a benefits bonanza that period was. Inexpensive health and life insurance. Short and long-term disability. And pensions.
The defined benefit pension was beginning to fade as the defined contribution pension – created when Congress established 401(k)s – took hold. The onus of retirement income began its slow shift from the employer to the employee, though many employers continue to contribute.
Today’s retirement accounts have tax advantages for both employer and employee, but there are many IRS regulations you’ll need to follow. Here’s a basic overview of what’s available. We’ll work closely with you when you decide to get started.

A Trio of Options
Most retirement plans fall into one of three categories:
1. Simplified Employee Pension (SEP). This is the simplest method; you contribute on an ongoing basis to a retirement plan for yourself and your employees. Your contributions are deposited directly into a traditional individual retirement account or individual retirement annuity (SEP-IRA).
The maximum contribution is $49,000 or 25 percent of employee’s salary, whichever is smaller. Maximum deduction is 25 percent of all participants’ compensation (a cap of $245,000 in compensation was – “generally” – in place for the 2011 tax years).
2. Savings Incentive Match Plan for Employees of Small Employers (SIMPLE). These can be either IRAs or 401(k)s. To be eligible, you must have 100 or fewer employees who earned at least $5,000 during the last year. Employees can opt to have a portion of their paychecks deducted regularly for this purpose, and you would contribute matching or nonelective contributions.
Employees can defer up to $11,500 ($14,000 if age 50 or older), and there are two options for the employer contribution:
Dollar-for-dollar matching contributions, up to 3 percent of employee salary (up to $245,000 in 2011)
Fixed, non-elective contributions of 2 percent of compensation (same salary limit)
The maximum deduction here is the same as the maximum contribution.
3. Qualified Plans. These are more complicated than SEPs and SIMPLEs. Still, they offer advantages like more flexibility in creating plans and – sometimes – higher contribution and deduction limits. The contribution and deduction limits vary greatly.
Numerous Tax Implications

Keep in mind, too, that you may be able to claim a tax credit for, “…part of the ordinary and necessary costs of starting a SEP, SIMPLE or Qualified Plan.”
Obviously, your taxes are about to get a whole lot more complicated. We’d like to work with you early in the process, before you’ve even determined what kind of plan to offer. We applaud you for your efforts to help your employees build income for their retirement.

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Does a Small Business Need a Tax ID Number?

August 31, 2012 by mrice

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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