When cash flow is tight, you may be tempted to pay your suppliers first and your payroll taxes last. The IRS will take steps to minimize the liability as quickly as possible. They also have a powerful weapon available to collect such taxes. Whether or not you own the company, you could be determined to be a “responsible person” held personally liable for 100% of any payroll tax deficiency. For help with this or any other tax isssue, call the team at Simons Bitzer at 317-782-3070.
You may be a victim of identity theft and not have a clue that this has happened to you until you get a notice from the IRS telling you that –
* You filed more than one tax return, or someone has already filed using your information.
* You owe taxes for a year even though you didn’t file a return because you weren’t required to file.
* You were paid wages from an employer where you did not work.
If you get such a notice, the IRS wants you to respond immediately so that they can correct the problem and secure your tax account. For more information, please contact the team at Simons Bitzer at (317) 782-3070.
Emotions add zest to life. They propel us to our feet when our favorite running back scores a touchdown. They warm us at an inspirational concert or movie. But in the realm of business, emotions sometimes hinder good choices. In fact, business owners and managers often let emotions dominate the decision-making process.
This is especially true when choices are based on “sunk costs.” Broadly defined, sunk costs are past expenses that are irrelevant to current decisions. For example, many firms hire consultants who sell and install software. In some cases, a company is still waiting –three or four years into the contract term — for a functional and error-free system. Meanwhile, costs continue to escalate. But are those costs relevant? Managers, especially those who initially procured the software and contractor, may reason that pulling the plug on a failed contract would be “wasting all that money we’ve spent.”
Not true. That money is “sunk”; it’s beside the point. Deciding to continue with a non-performing contract instead of staunching the flow of cash and changing course is irrational. It may be difficult to admit that a mistake was made. It may bruise the ego of the decision maker. But abandoning a failed contract is often the wisest decision. The only relevant costs are those that influence the company’s current and future operations.
Let’s say your firm hires a new salesman. You spend thousands of dollars sending him to training seminars. You assign mentors who take time from their busy schedules to provide on-the-job coaching and oversight. But despite your best efforts, the new hire isn’t working out. He doesn’t fit your firm’s culture; he doesn’t grasp the company’s goals and procedures; he doesn’t generate adequate revenues for the business.
As a manager, what should you do? At some point, you may need to terminate that employee and start over with someone else. But what about all that time and money you spent training and mentoring the new salesman? Those costs are irrelevant; they’re “sunk.” You can’t get them back. So the best decision — as of today — may involve cutting your losses and starting anew.
Other examples of sunk costs may be found in the areas of product research, advertising, inventory, equipment, investments, and other types of business expenses. In each of these areas, companies spend money that can’t be recovered, dollars that become irrelevant for current decision making. Throwing good money after bad won’t salvage a poor business investment — or a poor business decision. With questions or for further expertise, please contact Simons Bitzer at (317) 782-3070.
Our customers look to us for many ways to save money, primarily in income tax and financial issues. We realize that we are exposed to so many other money-savings ideas and we often fail to pass on some of these ideas. Although this idea may not fit everyone, it’s just an example that we’d like to share.
Because of the unusual features of Section 179, bonus and MACRS depreciation, most clients do not realize that there are excellent cash flow and income tax savings available just by timing asset purchases. For example, we have told some clients that large dollar assets should be purchased at the very end of the 3rd quarter so as to minimize the effect of the mid-quarter depreciation rule, maximize tax deductions and minimize cash flow effects. For the client who qualifies for bonus or Section 179, we tell them to wait until the last day of the year, since they get the same deduction. Conversely, we sometimes tell our clients to avoid asset purchases in the first 2 quarters of the year because the effect on cash flow is negative when compared to the tax benefit. Not all, but some customers can benefit from this guidance without any action or research
According to IRS.gov, the Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations
The rate for business miles driven during 2013 increases 1 cent from the 2012 rate. The medical and moving rate is also up 1 cent per mile from the 2012 rate. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
A law passed in 2008 requires brokers to report an investor’s basis in stocks and mutual fund shares when these investments are sold. The final step in these new reporting requirements was to become effective for debt instruments and options on January 1, 2013.
The IRS has announced a delay in the effective date, moving it to January 1, 2014. This one-year delay is in response to complaints that the earlier deadline did not give brokers and other financial institutions time to build and test systems to handle the complicated basis reporting requirements.
Generally, all sources of income are subject to income tax unless specifically excluded. Here are some sources of money that are not taxable:
* Money received as a loan.
* Gifts and inheritances.
* Child support received.
* Welfare benefits.
* Worker’s compensation (generally).
* Damages received for physical injury or sickness.
* Cash rebates from purchases.
* Meals and lodging for the convenience of the employer on employer’s premises.
Some sources of money that may or may not be taxable depending on the circumstances:
* Life insurance proceeds.
* Scholarship grants.
One source of income that is often overlooked is generated by bartering. If you trade goods or services for other goods or services with another person, both of you need to report the fair market value of the goods or services as income on your tax return.
This list is by no means all inclusive. If you would like additional information about tax, business, or financial matters, please contact Simons Bitzer & Associates at (317) 782-3070.
The “Affordable Care Act of 2010” requires employers to report the cost of coverage under an employer-sponsored group health plan on the employee’s W-2 for 2012.
However, the IRS is easing this requirement for small companies. Employers issuing fewer than 250 W-2s will not need to include the cost of health care on W-2s for 2012. For these employers, the 2012 reporting is optional. Also, such reporting will not apply for future years until the IRS publishes guidance giving at least six months of advance notice of any change in the filing requirement.
With questions or for more information, please contact Simons Bitzer at (317) 782-3070.
Normally, when companies sell properties, they must pay taxes on any gain they receive. Like-kind exchanges, transactions in which companies trade properties, may be carried out without any immediate tax consequences. They must satisfy IRS rules, however, which include:
- The properties must have the same “nature or character,” as set forth in IRS guidance.
- The exchanges can be business or investment properties put to a productive use.
- The exchanges can’t involve inventory, most securities and some other assets.
- Taxes must be paid on any cash or non-similar property that is part of the deal.
Keep in mind that like-kind exchanges are tax-deferrred transactions, not tax free. When a company eventually sells the property it received in an exchange, it must pay tax on any gain from its original investment. In the meantime, though, the business/company can use the funds it would have paid in taxes and it has acquired a new property that may better suit its needs without necessarily making a cash outlay.
On the flip-side, with the 15% capital gains rate set to expire, you’re not certain to what rate you are deferring, advises Kevin Aaron, Tax Specialist at Simons Bitzer & Associates. “That makes tax planning even more important in 2012,” states Aaron.
Please contact our office at (317) 782-3070 if you would like to determine whether like-kind exchanges can be a good strategy for your business as well as insights on their tax impact.
Keep repairs separate from major improvements. Ordinary repairs and maintenance on business equipment and buildings are deductible business expenses. Improvements which materially add to the value of the propoerty or significantly prolong its useful life must be depreciated over a period of years. To avoid losing tax deductions for repairs and maintenance, make major improvements completely apart from repairs and maintenance.