Don’t Ignore Health Care Coverage Tax Credit
Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.
If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.
In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could also qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.
When you’re self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you’re not considered an employee for purposes of the credit.
Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).
For assistance in determining eligibility for this tax credit or for making the calculations to obtain the credit, contact Simons Bitzer at (317) 782-3070.
Upcoming Tax Deadlines
Don’t miss these deadlines if they apply to your business:
February 15 – Brokers must provide 2011 Forms 1099-B and 1099-S to customers.
February 28 – Send Forms 1099 with Form 1096 to the IRS. If you file these forms electronically, you have until April 2 to file with the IRS.
February 29 – Send Copy A of employee W-2s for 2011, along with Form W-3, to the Social Security Administration. If you file electronically, you have until April 2 to file.
March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
With questions or for assistance in your tax planning and preparation, please contact Simons Bitzer at (317) 782-3070.
Be Diligent About Saving Your Tax Records
You’re probably getting ready to sort out last year’s financial records and prepare for this year’s recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.
Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. In cases where income is underreported, however, they can audit for up to six years. To be safe, we suggest keeping your tax records for seven years.
Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. Finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Recordkeeping is required for charitable deductions
Don’t forget to obtain the documentation you need for all of your 2011 charitable contributions. Without this documentation, you risk losing the deduction. Even gifts under $250 require a bank record or receipt from the charity.
With questions or for help in preparing your 2011 taxes, please contact our office at (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Gather Documents for your 2011 Tax Return
If you haven’t started already, consider gathering the items you need to file your 2011 tax return including W-2s, 1099s, and other forms you receive from your employer, broker, banker, etc. Review the documents carefully. If you detect errors, contact the sender immediately for a corrected copy.
With questions or for assistance preparing your tax returns, contact Simons Bitzer at (317) 782-3070 for a complimentary consultation with one of our tax specialists.
Does Your Child Need To File a 2011 Tax Return?
You should determine whether or not your child needs to file a 2011 tax return. A return is needed if wages exceeded $5,800, your child had self-employment income over $400, or investment income exceeded $950. If the child had both wages and investment income, other thresholds will apply.
With questions, please contact our office at (317) 782-3070 and schedule a complimentary consultation with one of our tax specialists.
Don’t Forget the “Nanny Tax”
If you paid a household worker, such as a gardener, housekeeper, or nanny more than $1700 in 2011, you may be liable for payroll taxes on the wages paid. The same applies if you will pay more than $1800 to these people in 2012.
With questions or for more information, please call (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Corporate Minutes Support Tax Position
Writing up the minutes of board of directors’ meetings is not usually a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.
Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.
Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.
If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.
Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.
If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping. With questions about tax planning throughout the year, please contact Simons Bitzer at (317)782-3070 and speak to one of our tax specialits.
IRS announces business mileage rate for 2012
The IRS recently announced that the mileage rate for business driving in 2012 will be 55.5¢ a mile. The rate can be used for cars, vans, pickups, and panel trucks.
Companies that don’t want to keep track of the actual costs of using a vehicle for business purposes may use this standard mileage rate instead. An annual study of the fixed and variable costs of operating an automobile is used to determine what the standard mileage rate will be for a given year.
In addition to the mileage rate, a separate deduction may be claimed for parking fees, tolls, interest relating to the purchase of the automobile, and state and local personal property taxes.
The standard business mileage rate can’t be used for automobiles used for hire (e.g., taxicabs) or for fleets of automobiles used simultaneously by the taxpayer. Nor can the standard rate be used if the vehicle was previously depreciated by other than the straight-line method, including using bonus depreciation or the Section 179 deduction.
When the business mileage rate is used, depreciation will be considered to have been allowed at a rate of 23 cents a mile. This depreciation reduces the taxpayer’s cost basis in the vehicle. If you have questions or would like your own mileage log, please conact our office at (317) 782-3070.
Highlight these January tax deadlines on your calendar
Happy New Year everyone! It seems as though everyone is back in action and looking forward to the New Year! Start the year off right by marking these important January tax deadlines on your calendar and avoid unnecessary penalties.
* January 17 – Final 2011 individual estimated tax payment is due, unless your 2011 tax return is filed and taxes are paid in full by January 31, 2012.
* January 17 – Due date for calendar-year trusts and estates to pay final installment of 2011 estimated tax.
* January 31 – Employers must furnish employees with W-2 statements for 2011. 1099 information statements for 2011 must be furnished by payers. (Deadline for 1099-B and consolidated statements is February 15.)
* January 31 – Employers must generally file 2011 federal unemployment tax returns and pay any tax due.
With questions or for more information about filing your 2011 taxes, please contact our office at (317) 782-3070.
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