Small Business Taxes..the Whole Enchilada for Year-End Planning

 Guest Post by Carol Olson, CPA  - DRDA, LLC

Small Business Jobs Act of 2010

The Small Business Jobs Act of 2010 includes a number of important tax provisions for businesses large and small. While a few of the provisions take effect in 2011, the majority of the provisions are effective retroactively for the 2010 tax year.  Following are some of the major provisions:

Bonus Depreciation. Bonus depreciation has been extended for 2010.  You can deduct 50% of the cost of qualifying new business assets as well as depreciate the remaining basis of the asset.  Bonus depreciation of up to $8,000 may be taken on passenger automobiles.

Section 179.  The Section 179 deduction has been increased to $500,000 for property placed in service in 2010 and 2011.  The $500,000 deduction is limited if a business acquires more than $2,000,000 of qualifying property.  The Section 179 limit for large SUVs ($25,000) remains unchanged.   Normally, Section 179 expensing only applies to tangible personal property used in a trade or business.  For 2010 and 2011, a taxpayer may elect to treat up to $250,000 of qualified real property as Section 179 property.  Qualified real property includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Interesting Small Business Tax Information

Time to start [preparing for 2010 and 2011 tax issues...the IRS never sleeps! Here are a few small business tax items that may apply to you. Talk to your CPA about them.

Deduction for Start up Expenses Increased.  For 2010 only, the amount of start-up expenditures deductible in the current year increased to $10,000.  Any remaining start-up expenses can be deducted ratably over 180 months.

Self-Employed Health Insurance Deduction.  For tax year 2010, health insurance costs for a self-employed taxpayer and his family are deductible in computing 2010 self-employment tax.

Small Employer Health Insurance Credit.  For 2010 through 2013, the health care act provides small employers with a tax credit for providing health insurance for their employees.  The credit is limited to businesses with no more than 25 full-time employees with annual full-time equivalent wages averaging no more than $50,000.

 

More to come. It's time to start your tax planning.

Consult with your CPA before making decisions.

When is 95% less than 20%? When the 95% is wrong!

In my day to day activities I meet with 250 - 350 small business owners a year who are considering selling a business for one reason or another. In discussing their business the topic of customer service is brought up by me. The reason it is discussed is because significant value is added to a business with a loyal and happy customer base.

New 1099 Rules effect on Small Business

    This post provided by Paul Ikard, CPA

March 17, 2012  - Some of the below rules may have been modified, check with your CPA before taking any action.

Businesses and not-for-profit organizations are accustomed to IRS rules that require them to report certain payments on annual Form 1099 information returns. However, the recently enacted healthcare law imposes surprising new Form 1099 reporting requirements. Complying with them may add significantly to your organization's paperwork burden. While the new rules don't apply to payments made before 2012, it's not too early to start gearing up to deal with them.

Current Rules in a Nutshell


Background: For many years, businesses have been required to report various payments on different versions of Form 1099. For instance, when a business pays $600 or more during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC that reports the amount paid that year. The business must also furnish a copy of the Form 1099-MISC to the IRS. This reporting procedure helps contractors remember to include the payments on their tax returns, and it helps the IRS ensure that income is reported. Under rules now in effect, other types of payments that businesses must report on Forms 1099
include:
1. Commissions, fees, and other compensation paid to a single recipient when the total
amount paid in a calendar year is $600 or more.
2. Interest, rents, royalties, annuities, and income items paid to a single recipient when
the total amount paid in a calendar year is $600 or more.
When a Form 1099 is required, it must show:
The total amount for the calendar year;
The name and address of the payee;
The tax ID number (TIN) of the payee (For privacy reasons, it's okay to show a truncated
TIN on a 1099 issued to an individual);

Contact information for the payer; and

The payer's TIN.

If your business doesn't have a payee's TIN, you may be required to institute backup federal income tax withholding at a 28 percent rate on payments under Internal Revenue Code Section 3406. In most cases, the rules summarized above apply to payments made by not-for-profit organizations since they are generally considered to be businesses for Form 1099 reporting purposes. If a payer inadvertently fails to issue a proper Form 1099, the IRS can assess a $50 penalty. The penalty for each intentional failure can be $100 or more.

The Bush tax cuts debate and the real small business story

It's hard to avoid the politicians ranting either for or against the extension of the Bush tax cuts. Like many issues in life, for every complex problem there is a simple solution that is absolutely wrong.

Those opposed to the extension often try to separate the issue of "who" gets the extension. The theory is the high income earners should not get the extension and therefore pay more in taxes because they can afford it.

Those in favor of extensions for everyone say if the extension of the cuts isn't done it will cost jobs and be a drag on the economy.

In this case the unfortunate truth is they may both be right. So if they are both right how do we decide which policy is best.

Let's take the case of Mary who owns a pest control business. Like many small business owners her income can vary wildly from year-to-year. For the sake of this discussion let's say that she and her husband, who also works in the business, make $300,000 combined. Since many politicians have said that the tax cuts should not be extended for those who make over $250,000 let's use that as income above which the Bush tax cuts expire.

So let's go with that, Mary and Bob currently make $300,000 per year and, if the Bush tax cuts are eliminated, they are going to get a 10% tax increase on income over $250,000. I'll use round numbers again..their new tax rate goes to 40% from today's current 36%.

Now Mary and Bob have a good idea. They think they can grow their business next year and increase their income by $50,000 to $350,000 but they will need to hire someone for $32,000 a year to do the job. Seems like a good idea right? Spend $32,000 and make an extra $50,000..easy decision. Well, maybe not. Here's the math if the Bush tax cuts expire for her:

1. Mary pays an employee $32,000.
2. Mary makes additional $50,000 before tax and $30,000 after taxes (40% tax rate)
3. Mary pays additional tax of 3.6% (difference between old rate and new) on the $50,000 she already makes above the $250,000 tax increase line. That's another $1,800 in taxes

So what happened here? Mary made $50,000 more and has $3,600 less in cold hard cash. (The math is $50,000 - $32,000- $20,000 - $1,600 = -$3,600)

What would you do? Take the risk of hiring someone for $32,000 so you can lose $3,600?

The same situation if the tax rate for Mary is extended:

1. Mary hires and pays an employee $32,000
2. Mary makes additional $50,000 before tax and $32,000 after taxes (36% current tax rate)

In this case if her plan works Mary is break-even. Remember from above, if the tax increase goes into effect Mary will lose $3,600 if her plan works perfectly. Without increasing her taxes she's break-even.

What's the difference? If the tax increase goes into effect and Mary decides not to hire the new employee

 the tax effect to Mary is $1,600 and the new employee doesn't have a job.

If the tax increase doesn't go into effect what happens? Mary hires the new employee, Mary pays $18,000 MORE in taxes because she made $50,000 more taxed at old rate AND the IRS gets to tax the new employee on his $32,000 salary. Mary makes more money, another person has a job and IRS gets more money. But Mary had to be willing to take the risk! None of this happens unless Mary takes the risk. It's not the government taking the risk, it's Mary that has to take the risk. 

There are millions of people like Mary and Bob in the U.S. today making these same decisions every day.

The point of this is that nearly all financial decisions are made at the margin not based on the overall. Mary didn't make her decision based on the $300,000 she makes, she made the decision based on the next $50,000 she might make. 

Need an SBA Loan? Here's a list of SBDC locations

Here's how to find the Small Business Administration's Small Business Development Centers nearest you.

Contact one of these offices to see if your business qualifies for an SBA Loan

If you want to buy a business go to Sunbelt Business Brokers to find an office near you.

For articles about how to Buy a Business visit our article library.

Articles:

What Do You Buy When You Buy a Business?

How to use an SBA Loan to Buy a Business.

Can Owning a Small Business Make You Wealthy?

FULL LIBRARY OF ARTICLES 

5 Reason to get a business appraisal

There are many good reasons to get a business appraisal valuation on your business. Here's a list:

1. So you can keep track of what business value you are building not just what income you are generating.
2. So you would know if someone made you an offer to buy your business that you should take. Don't rely on a buyer doing a business appraisal, you need to have one.
3. So you know what the Small Business Administration would value your business for if you applied for an SBA Loan. 
4. So you know how much life insurance you need to buy-out a partner's interest if something bad happens.
5. So you know how much you could lose by not properly segregating your personal and business risks. 

Please read number 5 again...........

Is the small business owner world upside down?

This post falls under the category of "what the heck is going on"!

The following is from a small business consultant who talks to small business owners several times a week and has done so for about 10 years. Their name is being with held for obvious reasons.

They say, many of the following are found to be true for abut 75% of small business owners:

• Business owners who sleep very well ....probably shouldn't.
• Business owners think because their employees don't complain the employees are happy
• Business owners whose employees complain blame it on the government
• Business owners personal spending is often unrelated to their personal income, some spend a lot more than they make and some spend a lot less.....very few are break-even
• Business owners who are chronically behind in paying suppliers are often right on time replacing their boat.
• For every one minute a business owner spends talking to an employee (shouting instructions doesn't count) they spend 54 minutes talking to sales people about a new copier.
• Whenever a customer says "your price is too high" the business owner believes it.
• Whenever a customer says "your price is too high" the business owner grumbles about how his competitors are losing money.
• A business owner would rather pay 5% more to a vendor than lose his invitation to the vendor's hunting trip.
• For every one minute a business owner spends getting expert advice they spend 92 hours giving it.

Ouch..................

Ready to Buy a Business - Your 401(k) could be your best friend!

If you are considering buying a business don't overlook the value of your 401(k) as a good source of financing. According to CPAs who specialize in this investment vehicle the IRS code currently allows you to access your 401(k) without triggering income tax or early withdrawal penalties when used to purchase a business.

Your 401(k) and an SBA Loan from the Small Business Administration could help you buy a business and build the wealth that is often created when you own and operate a successful small business.

Could there be a better investment than investing in yourself?  For free information and complete details click here.

Don't Let the Doom and Gloom in the Media Distract You!

If you are a small business owner the "psychology" of the day-to-day these days can be discouraging. Don't let the doom & gloom specialists get you down. Here are a few things to keep in mind that might help you get your mojo back:

• If your business is down don't be lulled into thinking that every business like yours is down. There is opportunity in more places that you might be currently considering.
• If the "economy" is down 10%, so what? If your biz has 1% share of market then you only need to get .2% of the other 99% to be back to even. If your small business is off you can do something about it.
• Down markets are GREAT times to expand. If your competitors are hiding in a bunker there is a lot of room to grow.
• Want to be more optimistic? Then stop watching the news or reading the newspaper. Instead study up on marketing....especially new ways to market. Believe it or not........ every business owner can be a better business owner but only if we let someone teach you something.

You can make your business better, more fun, more profitable and more valuable. Get to work.