Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.
In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.
If you have questions, contact Neikirk, Mahoney & Smith CPAs at 502-896-2999.
Showing posts with label tax planning for small businesses. Show all posts
Showing posts with label tax planning for small businesses. Show all posts
Friday, September 11, 2015
Tuesday, April 14, 2015
Eight Last Minute Tax Tips from Accounting Today
Our friends at Accounting Today offers up some great tax tips you may find to be of value. If you have any questions, contact Neikirk, Mahoney & Smith at 502-896-2999.
1. Fear Not the Extension
"Everyone is afraid of an extension," says Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee, part of the HD Vest network of tax-focused planning firms. "Everyone is just afraid of the IRS. They think: I am sending in my return late."
But an extension doesn't raise a red flag with the IRS, nor does it really mean clients are "late," he says -- although estimated taxes are still due April 15, even if the full return is not.
"I would much, much rather file an extension and get my ducks in a row and file later," he says, adding that an extension can be for a month or up to six months. "An extension is just no big deal and nothing to be afraid of."
2. Let Entrepreneurs Wait on Funding SEP Plans
Small business owners and sole proprietors can wait until Oct. 15 to fully fund their simplified employee pension (or SEP) retirement plans -- which allow them to contribute up to 25% of the income on which they pay Social Security tax.
Many people pay their taxes on April 15 and fail to fund their SEP retirement plans because they don't have the money to pay taxes and fund their plan all at the same time, says Heather Locus, with Balasa Dinverno Foltz in Itasca, Ill.
For that very reason, the IRS allows clients to wait until Oct. 15 to fund their SEP plans if they file for an extension. "That is something people don't necessarily realize that one can actually do," Locus says.
3. Accelerate Deductions for 2014
Many deductions may expire in the 2015 tax year, including deductions for manufacturing and other business equipment -- a category that includes vehicles of 6,000 pounds in weight, allowing many Land Rovers, GMC Yukons and Toyota Highlanders, Brownlee says.
These deductions, from Section 179 in the Tax Code, remain in place for the 2014 tax year -- but no one knows if they will be extended or significantly reduced for 2015, Brownlee says. He recommends that high-net-worth business owners in particular accelerate all the deductions they can under this code for the 2014 tax year, rather than take them in increments of one-fifth per year over the next five years and risk the expiration, he says.
"You can elect up to $500,000 to expense on that equipment in 2014," he says.
The deduction pertains specifically to portable equipment; in addition to jumbo SUVs, the category includes tractors, heavy vehicles, computers, servers, desks and office equipment. Even heavy manufacturing equipment that may be bolted down, but can be shifted elsewhere in an assembly or manufacturing plan reorganization would qualify, he says.
"Think about it like this," Brownlee says. "It's for any type of non-permanent equipment. If I can pick it up and move it or if I can drive it or ride it or if it's not fixed."
4. Put Alimony in an IRA
Alimony is considered "earned income" -- which is taxable compensation and, as a result, qualifies for saving in an IRAs, Locus says. That could help some recipients who are retired or otherwise not working, Locus says.
"To make an IRA contribution, you have to have earned income, so even if you have a $5 million portfolio and you have $100,000 in dividends, that doesn't qualify," she explains. "But getting paid alimony qualifies."
"A lot of CPAs don't think about that," she adds. "A lot of people who've gotten divorced don't think about that."
5. Make Up for Lost Time
Remember that even seemingly well-off clients may need last-minute retirement help, cautions Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Fla.
"There are those heart-wrenching meetings when you have someone where you think they are doing fine and they are not," he says, citing one example.
"There was a well-known M.D. in town who for whatever reason had her world kind of blow up, and she had to pay most of her money to a spouse in a divorce," Auslander recalls. "He thought he was going to be a novelist, yet never wrote a book. Now she's 58 years old and she has to scramble.
"She's paid for all the kids' education because she was the breadwinner," he adds. "Now she's panicking and worried about her own security. I've seen [similar] cases, male and female."
Doctors and lawyers—especially trial lawyers, Auslander says -- can find themselves in this predicament as they near retirement. The answer is to get them to make catch-up contributions to their traditional or Roth retirement plans.
Some clients can also open up a SEP right before they file their tax return, he says.
"They can deposit 25% of their income -- up to $52,000 for 2014 -- and $53,000 for the 2015 tax year. It's an opportunity to make up lost ground," he says. "That's an old strategy, but ... it keeps coming back and is valuable."
6. Take State Deductions on Lease Income
Clients who receive lease income from oil and gas producing companies -- who lease the right to drill for oil on their land -- are profiting now, Brownlee says. Although oil producers are sitting on their heels, waiting for the price of oil to rebound, they are still paying pricey three-year leases to property owners for the right to drill eventually.
Lease holders must file a state tax return wherever they derive this income from, Brownlee says -- as long as that state has an income tax -- but some states also offer a deduction on that income.
Brownlee cites an example. "A client had a $400,000 lease bonus check" from Oklahoma this year, he says, and that state's 22% deduction gave her an $88,000 deduction against Oklahoma income, saving her roughly $4,400 on her state tax return. Out-of-state CPAs and planners might miss that, he notes.
7. Switch Deductions among Divorced Couples
This tactic might require ex-spouses to work together amicably, but there's a worthwhile payoff, Locus says.
Because the IRS is phasing out certain deductions for high earners who bring in $254,000 or more annually, she explains, formerly married couples may want to switch some deductions from the high-earning parent to the lower-earning one to reduce the total amount paid to the feds.
"Usually the person [in a divorced couple] who has the higher income takes the kids as a deduction exemption," she says, to get the biggest bang for the buck. However, "in 2013, a phase-out for itemized deductions and personal exemptions for high earners began again -- and now people who have an adjusted gross income of $376,000 for a single person or $402,125 for a head of a household don't get any benefit from it. So, it may make sense that the person in the higher tax bracket lets the other spouse take the deduction and the [co-parents] either split the tax benefit or put that money in a 529 college account for a kid."
Failing to swap these deductions means that, she says, "the IRS is just getting more money."
8. Remind Clients to Max Out 401(k)s
Occasionally, Auslander takes on new clients whose former advisors convinced them that they would do better by not investing as much in their 401(k)s. However, those advisors' aims in giving that advice was entirely self-serving: to keep more assets to manage for themselves, he says.
In reality, clients are always better off putting the maximum amounts into their company's retirement plans, he says.
"The math is so compelling that you'd have to be an absolute fool not to," Auslander says.
1. Fear Not the Extension
"Everyone is afraid of an extension," says Kyle Brownlee, CEO of Enid, Okla.-based Wymer Brownlee, part of the HD Vest network of tax-focused planning firms. "Everyone is just afraid of the IRS. They think: I am sending in my return late."
But an extension doesn't raise a red flag with the IRS, nor does it really mean clients are "late," he says -- although estimated taxes are still due April 15, even if the full return is not.
"I would much, much rather file an extension and get my ducks in a row and file later," he says, adding that an extension can be for a month or up to six months. "An extension is just no big deal and nothing to be afraid of."
2. Let Entrepreneurs Wait on Funding SEP Plans
Small business owners and sole proprietors can wait until Oct. 15 to fully fund their simplified employee pension (or SEP) retirement plans -- which allow them to contribute up to 25% of the income on which they pay Social Security tax.
Many people pay their taxes on April 15 and fail to fund their SEP retirement plans because they don't have the money to pay taxes and fund their plan all at the same time, says Heather Locus, with Balasa Dinverno Foltz in Itasca, Ill.
For that very reason, the IRS allows clients to wait until Oct. 15 to fund their SEP plans if they file for an extension. "That is something people don't necessarily realize that one can actually do," Locus says.
3. Accelerate Deductions for 2014
Many deductions may expire in the 2015 tax year, including deductions for manufacturing and other business equipment -- a category that includes vehicles of 6,000 pounds in weight, allowing many Land Rovers, GMC Yukons and Toyota Highlanders, Brownlee says.
These deductions, from Section 179 in the Tax Code, remain in place for the 2014 tax year -- but no one knows if they will be extended or significantly reduced for 2015, Brownlee says. He recommends that high-net-worth business owners in particular accelerate all the deductions they can under this code for the 2014 tax year, rather than take them in increments of one-fifth per year over the next five years and risk the expiration, he says.
"You can elect up to $500,000 to expense on that equipment in 2014," he says.
The deduction pertains specifically to portable equipment; in addition to jumbo SUVs, the category includes tractors, heavy vehicles, computers, servers, desks and office equipment. Even heavy manufacturing equipment that may be bolted down, but can be shifted elsewhere in an assembly or manufacturing plan reorganization would qualify, he says.
"Think about it like this," Brownlee says. "It's for any type of non-permanent equipment. If I can pick it up and move it or if I can drive it or ride it or if it's not fixed."
4. Put Alimony in an IRA
Alimony is considered "earned income" -- which is taxable compensation and, as a result, qualifies for saving in an IRAs, Locus says. That could help some recipients who are retired or otherwise not working, Locus says.
"To make an IRA contribution, you have to have earned income, so even if you have a $5 million portfolio and you have $100,000 in dividends, that doesn't qualify," she explains. "But getting paid alimony qualifies."
"A lot of CPAs don't think about that," she adds. "A lot of people who've gotten divorced don't think about that."
5. Make Up for Lost Time
Remember that even seemingly well-off clients may need last-minute retirement help, cautions Paul Auslander, director of financial planning at ProVise Management Group in Clearwater, Fla.
"There are those heart-wrenching meetings when you have someone where you think they are doing fine and they are not," he says, citing one example.
"There was a well-known M.D. in town who for whatever reason had her world kind of blow up, and she had to pay most of her money to a spouse in a divorce," Auslander recalls. "He thought he was going to be a novelist, yet never wrote a book. Now she's 58 years old and she has to scramble.
"She's paid for all the kids' education because she was the breadwinner," he adds. "Now she's panicking and worried about her own security. I've seen [similar] cases, male and female."
Doctors and lawyers—especially trial lawyers, Auslander says -- can find themselves in this predicament as they near retirement. The answer is to get them to make catch-up contributions to their traditional or Roth retirement plans.
Some clients can also open up a SEP right before they file their tax return, he says.
"They can deposit 25% of their income -- up to $52,000 for 2014 -- and $53,000 for the 2015 tax year. It's an opportunity to make up lost ground," he says. "That's an old strategy, but ... it keeps coming back and is valuable."
6. Take State Deductions on Lease Income
Clients who receive lease income from oil and gas producing companies -- who lease the right to drill for oil on their land -- are profiting now, Brownlee says. Although oil producers are sitting on their heels, waiting for the price of oil to rebound, they are still paying pricey three-year leases to property owners for the right to drill eventually.
Lease holders must file a state tax return wherever they derive this income from, Brownlee says -- as long as that state has an income tax -- but some states also offer a deduction on that income.
Brownlee cites an example. "A client had a $400,000 lease bonus check" from Oklahoma this year, he says, and that state's 22% deduction gave her an $88,000 deduction against Oklahoma income, saving her roughly $4,400 on her state tax return. Out-of-state CPAs and planners might miss that, he notes.
7. Switch Deductions among Divorced Couples
This tactic might require ex-spouses to work together amicably, but there's a worthwhile payoff, Locus says.
Because the IRS is phasing out certain deductions for high earners who bring in $254,000 or more annually, she explains, formerly married couples may want to switch some deductions from the high-earning parent to the lower-earning one to reduce the total amount paid to the feds.
"Usually the person [in a divorced couple] who has the higher income takes the kids as a deduction exemption," she says, to get the biggest bang for the buck. However, "in 2013, a phase-out for itemized deductions and personal exemptions for high earners began again -- and now people who have an adjusted gross income of $376,000 for a single person or $402,125 for a head of a household don't get any benefit from it. So, it may make sense that the person in the higher tax bracket lets the other spouse take the deduction and the [co-parents] either split the tax benefit or put that money in a 529 college account for a kid."
Failing to swap these deductions means that, she says, "the IRS is just getting more money."
8. Remind Clients to Max Out 401(k)s
Occasionally, Auslander takes on new clients whose former advisors convinced them that they would do better by not investing as much in their 401(k)s. However, those advisors' aims in giving that advice was entirely self-serving: to keep more assets to manage for themselves, he says.
In reality, clients are always better off putting the maximum amounts into their company's retirement plans, he says.
"The math is so compelling that you'd have to be an absolute fool not to," Auslander says.
Thursday, March 26, 2015
Yes, Virginia, it IS taking longer to do your taxes this year:-)
Tax season is supposed to be over on April 15. But among certain groups—especially the wealthy—filing for an extension until Oct. 15 is now routine, according to Bloomberg Business and Neikirk, Mahoney & Smith CPAs.
In 2011, 11 million taxpayers filed for an extension; two years later, 13 million did, an increase of almost 20 percent. At the end of September 2014, more than 25 percent of those who had filed for an extension were still working on their filings. We're not just procrastinators. It has gotten harder to file on time. Here’s why:
1. You don't have the forms you need.
The more complicated your investments, the more likely it is that you won't have everything you need to file your taxes by April 15. Often, private equity, venture capital, and hedge funds are structured as partnerships, which means their earnings generate so-called “Schedule K-1” forms, which sometimes take until late summer to arrive.
Christine Freeland, a certified public accountant in Chandler, Ariz., says brokers are putting more of her clients in energy or real estate partnerships instead of (or in addition to) mutual funds, which means more K-1s. Some clients don't even know how many K-1s they'll be getting, she says, and they think their return is ready until they receive an additional K-1 in the mail. Sometimes the partnerships—which have to finish their own returns before they can issue K-1 forms—get extensions, although they must file by Sept. 15.
Simpler investments that generate 1099 forms can slow down the process, too. Brokerage statements have to be out by Feb. 15, but many note that the information may not be final. One of Freeland's clients once handed her a corrected brokerage statement that hadn't arrived until April 15.
2. You're waiting on other people.
The more middlemen standing between you and your tax forms, the greater the chances of delay. According to Bill Zatorski of accounting firm PwC, a common sticking point for wealthy taxpayers is data from funds of funds, hedge funds that invest in hedge funds. A fund of funds can’t send you a K-1 until it receives K-1s, or other needed forms, from all the various funds it holds.
Adding to the delay, says Kevin Meehan of Wealth Enhancement Group, is that investors rarely hold funds or other investments directly. Everything gets funneled through brokerages. You wait for your brokerage, which is waiting for your fund-of-funds, which is awaiting forms for all the funds it holds. An extension until Oct. 15 is only a partial solution for taxpayers with late tax forms: They still must pay an estimate of what they owe by April 15, even if the full return comes later.
3. The tax code is more complicated.
If all else fails, blame Congress. Taxpayers already must follow different rules for wages, capital gains, and two types of dividends—those that get taxed at a lower tax rate and those that don’t meet the “qualified” criteria. In 2013, yet another tax category was added, a 3.8 percent net investment income tax on married couples earning more than $250,000 per year.
Under a 2010 law, taxpayers also now must report all their overseas holdings—a process that sometimes requires the close reading of K-1 footnotes, Zatorski says. Finally, there’s the alternative minimum tax, or AMT, a parallel tax system designed to limit the deductions that wealthier Americans can take. Plenty of those affected aren’t particularly wealthy. About 4.2 million people were ensnared by the AMT in 2014, the Tax Policy Center estimates, up 8 percent from the year before. The AMT alone can almost double how long it takes to fill out a tax return, the National Taxpayer Advocate says.
In 2011, 11 million taxpayers filed for an extension; two years later, 13 million did, an increase of almost 20 percent. At the end of September 2014, more than 25 percent of those who had filed for an extension were still working on their filings. We're not just procrastinators. It has gotten harder to file on time. Here’s why:
1. You don't have the forms you need.
The more complicated your investments, the more likely it is that you won't have everything you need to file your taxes by April 15. Often, private equity, venture capital, and hedge funds are structured as partnerships, which means their earnings generate so-called “Schedule K-1” forms, which sometimes take until late summer to arrive.
Christine Freeland, a certified public accountant in Chandler, Ariz., says brokers are putting more of her clients in energy or real estate partnerships instead of (or in addition to) mutual funds, which means more K-1s. Some clients don't even know how many K-1s they'll be getting, she says, and they think their return is ready until they receive an additional K-1 in the mail. Sometimes the partnerships—which have to finish their own returns before they can issue K-1 forms—get extensions, although they must file by Sept. 15.
Simpler investments that generate 1099 forms can slow down the process, too. Brokerage statements have to be out by Feb. 15, but many note that the information may not be final. One of Freeland's clients once handed her a corrected brokerage statement that hadn't arrived until April 15.
2. You're waiting on other people.
The more middlemen standing between you and your tax forms, the greater the chances of delay. According to Bill Zatorski of accounting firm PwC, a common sticking point for wealthy taxpayers is data from funds of funds, hedge funds that invest in hedge funds. A fund of funds can’t send you a K-1 until it receives K-1s, or other needed forms, from all the various funds it holds.
Adding to the delay, says Kevin Meehan of Wealth Enhancement Group, is that investors rarely hold funds or other investments directly. Everything gets funneled through brokerages. You wait for your brokerage, which is waiting for your fund-of-funds, which is awaiting forms for all the funds it holds. An extension until Oct. 15 is only a partial solution for taxpayers with late tax forms: They still must pay an estimate of what they owe by April 15, even if the full return comes later.
3. The tax code is more complicated.
If all else fails, blame Congress. Taxpayers already must follow different rules for wages, capital gains, and two types of dividends—those that get taxed at a lower tax rate and those that don’t meet the “qualified” criteria. In 2013, yet another tax category was added, a 3.8 percent net investment income tax on married couples earning more than $250,000 per year.
Under a 2010 law, taxpayers also now must report all their overseas holdings—a process that sometimes requires the close reading of K-1 footnotes, Zatorski says. Finally, there’s the alternative minimum tax, or AMT, a parallel tax system designed to limit the deductions that wealthier Americans can take. Plenty of those affected aren’t particularly wealthy. About 4.2 million people were ensnared by the AMT in 2014, the Tax Policy Center estimates, up 8 percent from the year before. The AMT alone can almost double how long it takes to fill out a tax return, the National Taxpayer Advocate says.
Tuesday, December 3, 2013
Closing Your Fiscal Year
Some people look forward to December 31 because of the parties, the people and the abundant optimism for the coming year.
But if you're a business owner or managing executive, all you're probably hoping to survive your firm's fiscal year end.
A fiscal year end - or closing of the books - marks the completion of a one year accounting period. The date of your company's fiscal year-end may or may not be on December 31 - it can be on any day throughout the year, depending upon the date you and your accountant set when your corporation papers were filed.
Most small businesses employ the year end strategy, except for retail entities. Another common year end date - or fiscal year end date - is June 30. The default IRS system is based on the calendar year, so fiscal-year taxpayers have to make some adjustments to the deadlines for filing certain forms and making certain payments. In many instances, even fiscal year taxpayers must adhere to the calendar-year deadlines.
Additionally, the year-end date is different for different business entities because every company's needs are different. Retailers typically choose to establish their year-end date sometime in Spring because of their sales cycle. Many retailers see a heavy selling season in November and December, making it virtually impossible to produce annual financial statements, count inventories, etc. because its manpower will be going toward selling its product.
It's important that you check with a reputable accounting firm when closing your books on another fiscal year. Here's a quick list of year-end procedures that you might find helpful, courtesy of MSN.com.
- Verify the closing options that you have selected.
- If you are using Inventory management, complete the inventory closing process.
- Complete month-end and other period closings in all modules other than General ledger, including exchange adjustments on unrealized transactions.
- Complete month-end and other period closings in General ledger and print financial reports for the month and quarter.
- If your company is a consolidation company, complete steps 1 through 4 for each subsidiary, and set up the subsidiary accounts to consolidate data. If the data for the subsidiary companies is in a separate database, export the subsidiary data to use in a trial consolidation.
- To close the fiscal year for a subsidiary company, refer to Prepare a consolidated company for a consolidation and Perform an online consolidation.
- Complete year-end closing activities in all modules, other than General ledger, that might create some ledger postings, such as processing year-end depreciations in Fixed assets.
- Create the new fiscal year. For more information, refer to Create new year (form).
- Set appropriate periods to Stopped for the current fiscal year.
- Back up your company's data.
- Make adjusting entries. Click General ledger > Periodic > Fiscal year close > Closing sheet to create and post all necessary adjustments, including adjustments to taxes and write-offs.
- Print final financial statements.
- Print 1099 statements for vendors that require the statements.
- Transfer opening balances for ledger accounts to a new fiscal year.
- You can reset number sequences. Click Basic > Setup > Number sequences > Number sequences.
- Print the final reports for the fiscal year, including financial statements, such as the operating statement and the balance sheet, and
- publish the statements as required by law.
There is nothing simple about year-end closings and caution is recommended if you're going to try and do this yourself. But you can do it if you follow the rules!
If you would like to get some input from a reputable accounting firm, contact Neikirk, Mahoney & Smith PLLC at 502-896-2999.
Thursday, November 3, 2011
2011 TAX PLANNING STRATEGIES FOR BUSINESSES
Here are some tax planning opportunities for small businesses and their owners. Have a look and let me know if you have any questions.
1 Available first-year depreciation and expensing of capital assets purchased for business use have reached historical highs. For the remainder of 2011, most tangible business property purchased new (original use) is eligible for a 100% first-year bonus depreciation deduction. Absent further action from Congress, bonus depreciation will revert to a 50% first-year deduction in 2012 and there has even been talk of repealing bonus depreciation altogether. Also, the annual limitation on expensing business property (IRC Section 179) placed in service in 2011 is $500,000 with an overall investment cap of $2,000,000. These annual limits are slated to revert to $139,000 and $560,000, respectively, in 2012. The moral of this story is that if your business needs equipment, then you should strongly consider buying before the end of the year.
2 Growing businesses that may be looking to hire a new employee or two before should be mindful of the work opportunity tax credit that is available to employers who hire qualifying workers (generally the unemployed and certain veterans) to fill new positions before the year’s end.
3 The brave self-employed out there, if they have not already done so, should investigate and consider self-employed retirement plan options. Although making that annual retirement plan contribution can be a cash flow burden, remember that as much as 40% of that tax-deferred payment is tax savings you would have paid anyway.
4 Unfortunately, many businesses are projecting a 2011 bottom-line loss. Contrary to popular belief, losses present their own unique set of tax planning opportunities. Owners of business entities that are expecting to receive “pass-through” losses in 2011 should consult their tax advisor about basis limitations and opportunities to ‘generate’ basis before year-end.
[Please note that the ideas and information presented herein may not provide benefit to each and every taxpayer. The reader should take caution to discuss any tax strategy, not just those listed above, with his or her tax advisor prior to implementation.]
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