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Archive for the ‘Taxes’ Category

What Are Your Payroll Tax Obligations in 2011?

Posted on January 5th, 2011 by BizFilings Team
Category: HR, Small Business, Taxes, Work For Myself

How do you handle your payroll tax obligations in 2011? The New Year brings a reduced payroll tax for 2011 and extends the current income tax brackets through 2012.taxes

So what does this mean for employers?

According to the experts at Business Owner’s Toolkit, employers should take action to begin using the new withholding tables and minimizing the Social Security tax withheld as soon as possible in 2011, but no later than Jan. 31, 2011. Additionally, employers have until March 31, 2011, to make adjustments if Social Security is over-withheld during the month of January.

“The employer’s tax rate remains at 6.2 percent; also, the Medicare (Hospital Insurance) tax remains at 1.45 percent for both the employer and employee. Thus, the total ‘Social Security’ tax burden this year is 13.3 percent, rather than the 15.3 percent in previous years. This reduced Social Security withholding will have no effect on employee’s future Social Security benefits,” cites www.toolkit.com.

Pending further action from Congress with respect to payroll taxes, the employee portion of the tax will revert to 6.2 percent in 2012.

Consult the IRS percentage method tables for income tax withholding to learn more.

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Many Small Businesses Asserting Problem is Not Tax Credits But Low Demand

Posted on December 21st, 2010 by The BizFilings Team
Category: Business Inspiration, Form My Business, Grow a Business, Lines of Credit, Small Business, Start A Business, Taxes, Work For Myself

In light of Thursday night’s Congressional passage of the $801 billion tax credit package, many small business owners are pointing out that it is not tax credits that businesses are in need of – it is greater demand.

“I don’t think (the tax cuts) will matter much at all. I have such confidence in my business that even without the tax cuts I would have taken the money off my home line,” small-business owner Susan Povich, referring to a credit line on her home mortgage, told Reuters.

President Barack Obama’s tax plan, which passed through the House of Representatives at midnight Thursday night, will extend Bush-era tax cuts that would have expired at the end of this year until 2012 – a measure Republicans have touted as crucial in promoting business growth and job creation.

However, the private sector is currently sitting on a massive trove of liquid assets which, in light of economic conditions, they are merely hesitant to spend. According to Federal Reserve data, as of September, $1.9 trillion in cash is currently held by private business, accounting for 7.4 percent of total company assets – the highest rate in more than 50 years.

With such a bounty of funds waiting to be unleashed, economists and lawmakers have been trying to determine measures to provoke spending and hiring on a massive scale – a surefire kick-start to entrepreneurs forming a company and widespread economic recovery.

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Last Call for Taking Advantage of Some Tax Credits and Deductions for 2010

Posted on December 15th, 2010 by BizFilings Team
Category: Small Business, Taxes, Work For Myself

The end of 2010 means it may be your last chance to maximize a number of tax credits and deductions – unless Congress acts to extend these provisions beyond 2010 before it adjourns.taxes

No better time than the present – since it’s a risk to bet on Congress when planning for your future. Take advantage of what you can now.

A few of the major provisions set to expire at year’s end include:

  • Say good-bye to the American Opportunity Credit. This credit provides many taxpayers a credit for a broad range of educational costs. In 2011, minus congressional action, the education credit resorts to the far more limited Hope Credit. To take advantage of these fleeting moments with the American Opportunity Credit, step up 2011 educational expenses in 2010. For example, the experts at  www.toolkit.com recommend that you pay that second semester tuition bill for your college junior or senior by Dec. 31 because post-2010, only the first two years of post-secondary education tuition is eligible for the credit. Dish out the dough for all those required books and supplies for all your students this year as well. These expenses are applicable to the American Opportunity Credit but not the Hope Credit.
  • Make energy-conscious home improvements. You can save up to $1,500 on your 2010 income tax bill if you make purchases toward the end of the year to improve your home’s energy efficiencies. The non-business energy-property credit is available for certain energy-efficient home improvements, spanning major purchases to more minor items implemented before the end of the year. Keep in mind that the $1,500 limit is a combined 2009 and 2010 limit. This means if you claimed the full amount of credit last year, you will not be able to do so this year.

As always, make sure to check with your accountant to ensure you cover all bases relative to your business.

P.S. Tax and business attorney Barbara Weltman reminds us that today is the due date for the final installment of corporate estimated tax for 2010. Review your income and expenses to date so your corporation doesn’t overpay what’s owed; it won’t receive any interest on the money. It’s better to make a mistake on the side of underpaying what’s owed since underpayment penalties today are modest because of low-interest rates. Corporate estimated tax rules are explained in IRS Publication 542.

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NASE Applauds President and Congressional Leaders for Bush-Era Tax Compromise

Posted on December 14th, 2010 by Kristie Arslan
Category: Business Inspiration, Small Business, Taxes, Work For Myself

k-arslanKristie Arslan, Executive Director of the National Association for the Self-Employed (NASE), released the following statement on the compromise between President Obama and Congressional leaders on extending the Bush-era tax cuts, leading the way for economic relief for the small business community and the middle-class:

“The compromise between President Bush and Congressional leaders on extending the Bush-era tax cuts is a win for the small business community,” said Arslan. “During this time of economic uncertainty, small business owners need this economic relief for their very survival. Over 23 million individual small business owners will now be able to keep their businesses on a path to a recovery without the threat of closing their doors due to a big tax bill in April. NASE applauds President Obama and Congressional leaders for working in a bipartisan way for America’s middle-class.”

About the author

Kristie Arslan is the Executive Director of Legislative Offices for the National Association for the Self-Employed. The NASE is the nation’s leading resource for the self-employed and micro-businesses, bringing a wide range of benefits to help entrepreneurs succeed and to drive the continued growth of this vital segment of the American economy. The NASE is a 501(c)(6) non-profit organization and provides big-business advantages to hundreds of thousands of micro-businesses across the United States. For more information, visit the association’s website at www.NASE.org.

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Tips for Preparing for End-of-Year Taxes

Posted on December 1st, 2010 by BizFilings Team
Category: Business Inspiration, Small Business, Start A Business, Taxes, Work For Myself

TaxesThe first day of December signals the warning bell that the end of the year is approaching quickly.

As a small business owner, you are very aware of what that means … year-end tax preparation.

Don’t fret. Here are a few tips to keep in mind when wading through the paperwork:

1. Maximize tax credits for hiring employees. Under the Hiring Incentives to Restore Employment (HIRE) Act, you have the opportunity to take advantage of two tax breaks for hiring and retaining employees by the end of the year. The Business Owner’s Toolkit team spells these breaks out for you:

  • Employers who hire unemployed workers at any time during 2010, after Feb. 3, may be eligible for an exemption from the 6.2 percent employer-portion of the Social Security tax typically incurred on payroll.
  • Employers can claim a second tax benefit in 2011 of an additional credit of up to $1,000 for any eligible employee hired in 2010 and retained for at least one full year. The credit may be claimed for a retained worker for the first tax year ending after March 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, since retained workers must be qualified employees, the credit applies only for individuals hired after Feb. 3, 2010, and before Jan. 1, 2011.

2. Fuel your income.  Yes, you read it correctly. Postponing income is the standard advice recommended by most accountants. There are still many cases where this recommendation still applies. However, every taxpayer will carry the burden of the largest tax hike in American history scheduled for the  New Year – unless Congress addresses this hike before the end of the year. (Let’s hope for a miracle!) Income taxes and numerous credits and deductions, capital gains taxes and even estate taxes are all scheduled to balloon, barring one more major piece of legislation from Washington, DC in 2010. As an example, if legislation is not passed, and you are currently in the highest tax bracket of 35 percent, this bracket will elevate to 39.6 percent if the tax cuts expire. This means you would benefit from moving income into the current year when it will be taxed at a lower rate. The good news is that if you are self-employed, you have more wiggle room over when you receive income than other workers do. As we move into December, make sure you bill your customers and clients promptly. It’s also important to follow up on past-due accounts.

To learn more about preparing for end-of-year taxes, visit the Business Owner’s Toolkit website.

What nuggets of wisdom would you share with other small business owners going through this for the first time?

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‘Tis the Season for Home Office Deductions

Posted on November 3rd, 2010 by BizFilings Team
Category: Grow a Business, Home Business, Small Business, Start A Business, Taxes, Work For Myself

taxesThe ghoulish costumes and Halloween decorations are by now most likely stashed into a box somewhere. Some of you may even be digging for your Thanksgiving treasures or other holiday trinkets at this very moment.

But don’t forget the most wonderful time of the year is really tax season.

OK, I’m exaggerating just a wee bit, but it’s not too early to start thinking about your home office deductions.

If even a part of your home is designated for business – say for doing paperwork or even storing records – you may be eligible to claim a tax deduction for some of your expenses.

If this is your inaugural year in business, you may have been exposed to several theories about the home office deduction. From one extreme, you may have heard it’s the best thing since sliced bread. And on the other end of the spectrum, you may have heard that claiming home office deductions draws unwanted attention from the IRS - like a “pick me for an audit” sign has just been plopped in your front yard.

The experts at Business Owner’s Toolkit cite that, “as a general rule, you should never shy away from taking a deduction you are legally entitled to. The same holds true when it comes to the home office deduction. Nevertheless, we recommend that you keep meticulous records of all your expenses and be prepared to back them up.”

When deciding which deductions you are “entitled to,” Business Owner’s Toolkit does not recommend writing off your pool table or hot tub. The government frowns upon that.

Here are some tips in helping you calculate your deduction amount:

  1. Find out if you qualify. The requirements of the home deduction are rigid. Your home must be used exclusively and regularly for business. Additionally, your home must also be used as your primary place of business OR be used to personally meet with customers or clients in the normal course of your business.
  2. Research. Determining the amount that you can deduct is dependent on many factors. Therefore, it’s important to figure out things such as what you spent for each item of the home office deduction. These factors include rent or mortgage interest as well as the size of the designated area that was used for work.
  3. Calculate your home office deduction. Business Owner’s Toolkit provides a nifty home office deduction calculator for your perusal.
  4. Go over examples. Review examples of what other small business owners claim as home office deductions.

As a bonus, a tax office deduction application tool has also been added recently to the Toolkit site to guide you virtually through the home office deduction process.

Do you have other tips to share with small business owners and home-based business owners who are just starting a business?

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Small Business Jobs and Credit Act Offers Tax Break

Posted on September 28th, 2010 by BizFilings Team
Category: Lines of Credit, Small Business, Taxes, Work For Myself

thelaw
Psst! Did you know that the recently passed Small Business Jobs and Credit Act includes a new tax break for self-employed individuals who pay their own health insurance premiums?

Current law dictates the self-employed are allowed to deduct premiums they pay for themselves and their immediate families from their income prior to computing income tax – but not before they configure their Social Security and Medicare tax (aka self-employment tax).

Under the Small Business Jobs and Credit Act signed into law by President Obama yesterday afternoon, self-employed individuals are allowed to deduct premiums from their income BEFORE calculating self-employment tax, but ONLY for 2010. According to Kathleen Pender, business journalist and writer of the Net Worth column published in the San Francisco Chronicle, “the bill will give the self-employed the same tax break that employers get on health insurance premiums they pay for their employees.”

According to her column, most self-employed individuals will save 15.3 percent of whatever they pay in premiums. “A person who pays $12,000 a year in premiums would generally save $1,836.”

There is a catch. The tax break is much less for higher-income individuals “because they don’t owe Social Security tax on income above $106,800 in 2010.”

“Remember that there are two parts to the self-employment tax: The Social Security portion is 12.4 percent on the first $106,800 in annual income, but nothing on income that exceeds that amount. (Income means self-employment income plus wages from a job, if any.) The Medicare tax is 2.9 percent on every dollar of income. Suppose you have $150,000 in income this year and pay $12,000 in insurance premiums, which reduces your income to $138,000. This new deduction saves you nothing on Social Security taxes because you don’t owe Social Security tax on income above $106,800. However, the deduction will reduce your Medicare tax because you owe Medicare tax on all of your income. The deduction will save you 2.9 percent of $12,000 or $348,” writes Pender.

According to MarketWatch.com, “the one-year tax deduction for sole proprietors on health care costs for payroll tax purposes on their 2010 tax returns is expected to save self-employed business owners approximately $456 to $968 in taxes next year.”

For more information, visit The National Association for the Self-Employed (NASE).

How will the Small Business Jobs and Credit Act help your plight as a small business owner?

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How Will the Change in Taxation Affect Your Small Business?

Posted on August 24th, 2010 by BizFilings Team
Category: Grow a Business, Incorporate a Business, Incorporation, Small Business, Taxes

TaxesDid you know there’s a new tax provision tucked in the health care bill passed earlier this year that could carry an impact on your small business?

The Patient Protection and Affordable Care Act requires that all companies issue 1099 tax forms to any corporation or individual – not just to contract workers – from which they buy more than $600 in goods or services within a given tax year. This law is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

According to CNN Money, “the bill makes two key changes in how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.”

Bill Rys, tax counsel for the National Federation of Independent Businesses, also said, “It’s a pretty heavy administrative burden, particularly for small businesses without large in-house accounting staffs.”

So under the new rules, if you buy a costly new guitar to support your career as a musician, you will have to send the retailer a 1099 at the end of the year for that purchase. If you run a floral shop, you will have to send 1099s to each of your suppliers. The more sources you rely on for your business, the more 1099s you will have to issue.

Do you need the Advil yet?

Karen Kobelski, our general manager at BizFilings, recently addressed this issue in a press release. She said, “Incorporating adds a layer of credibility which could be critical as companies may look to reduce the number of companies they conduct business with to alleviate 1099 paperwork. Formalizing a business as a corporation or LLC may help small business owners compete on a more level playing field with larger competitors.”

To  learn more about incorporation and its benefits when stacking up against the competition, just visit  our Learning Center at BizFilings.com. 

How do you think this law will impact your business?

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Does Formation Location Matter to Your Business? Ask LeBron James

Posted on July 9th, 2010 by John L. Duoba
Category: My Startup Success, Small Business, Start A Business, Taxes

lebronjamesLet’s say you have a sure-fire idea for a business. It is guaranteed to work. You have everything lined up, and you can see it will be profitable right away and over time. It is not a matter of will you have success, but how much and how will you manage it? But first, you must decide where to launch the business, and how local factors may impact it.

Of course, I’m talking about NBA basketball star LeBron James’ decision to leave Cleveland for Miami. (What else could it be?)

According to some published reports, one of the factors used by Miami Heat management to lure James (besides his two big-star free-agent friends) was the fact that Florida has no state income tax, while Ohio has a 6 percent rate. James could have secured a bigger contract had he stayed in Cleveland, but apparently he and his team did the math – just like any small business owner must do when launching a new enterprise.

Sure, as it should be, the primary considerations were the organization, the co-workers, the path for professional growth (championships!), ancillary opportunities for new revenue (endorsements!), etc. – which sound pretty typical for a startup company. But the cost, tax and regulatory environments are other factors to be considered, because of the impact to the bottom line.

James is likely to  earn $100 million in endorsements and $100 million in basketball salary over the next five years. Half of the salary will be earned in Florida (with no state income tax) and half will be earned at road games in other NBA cities (subject to local and state income taxes). The endorsement money will all be earned in Florida.

So with $150 million in earnings for his new startup business venture located in Miami, James will pocket an extra $9 million in tax savings by leaving Ohio. This doesn’t even consider the enhanced future endorsement opportunities for moving to a more high-profile market (and the further tax savings).

The same principles hold true for any small business owner. Let’s take the annual owners’ salary down to a fraction, say $200,000. The difference in state income tax rates results in $12,000 a year in extra money. Depending on the house, that money could go a long way toward covering a new mortgage after the move. Or it could be the difference between profit or loss, keeping or letting an employee go. After all, the margins in small business are not quite as forgivable as in LeBron James’s world.

An illustration of this impact also can be found at Business Owner’s Toolkit, where an infographic lists the best and worst states for starting a new business, based on a number of local factors, including state income tax. As it turns out, Florida is in the top five.

We’re not recommending this be the deciding factor in starting a business - there are too many other influences that are more important. But it’s hard to ignore.

Just ask LeBron James.

About the author

John L. Duoba is publisher/managing editor of the small business resource Business Owner’s Toolkit and is eagerly awaiting any maximum contract offer from any state, regardless of tax rates.

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America’s Self-Employed: Not So ‘Bunny’

Posted on June 17th, 2010 by Kristie Arslan
Category: Home Business, Small Business, Taxes, Work For Myself

k-arslanThe Obama Administration is trying desperately to create jobs and boost our sluggish economy. But the public increasingly thinks the President’s economic policies are making things worse. The latest Pew Research Center survey clearly illustrates the pessimism that continues to loom like a dark cloud over the nation. For the first time, more people now believe that Administration policies have made economic conditions worse (29%) than have made them better (23%).

For the nation’s self-employed, the root of that pessimism is frustratingly simple: the Administration talks a good game about supporting small businesses while quietly issuing backdoor rules and regulations that pull the rug out from under our entrepreneurs. It’s as though they just don’t appreciate who small business owners are, how they operate and why one more IRS reporting requirement can make the difference between just making it and packing it in.

As an advocate for the nation’s self-employed businesses and micro-business owners, I attend a lot of meetings on Capitol Hill and with the White House. My general impression is often that our policymakers are out of touch with the overall employment picture. They don’t seem to appreciate that being your own boss means that you have a job. More often than not, it means you have a great job.

Enter the National Association for the Self-Employed’s Not So ‘Bunny’ campaign. The NASE is undertaking this public awareness effort to shake up the unfortunate perception that if you are your own boss and work from home, your job is not as valuable as an office or factory job. Not only do the self-employed contribute nearly a trillion dollars to our nation’s economy every year, but their businesses allow them to successfully provide for their families and contribute to their local communities.

The vast majority – 95% – of all small businesses in the United States are either self-employed entrepreneurs or micro-businesses with fewer than 10 employees. There are about 25 million such businesses, which may have a storefront or be run out of a home office. Their small size makes them acutely aware of economic conditions and policy changes.

Though vulnerable to tough economic times, self-employed businesses have grown faster than all other segments of the economy in recent years and are historically a key driver of economic recovery after recession. In fact, business startups reached their highest levels in 14 years during 2009, suggesting that laid-off workers are choosing to join the ranks of the self-employed rather than take their chances in a job market that remains unstable.

With a growing number of Americans embracing entrepreneurialism, Washington should be finding ways to support the self-employed and help them drive the country’s economic recovery. Instead, we see numerous current policy issues with dramatic negative impacts on the self-employed, including:

  • New IRS reporting requirements that will force any business that pays more than $600 per year to a vendor for business services, inventory or property to issue a Form 1099 to that vendor;
  • Continued lack of a standard home office tax deduction that would allow millions of self-employed individuals access to tax relief to which they are entitled; and
  • Exclusion from the small business health care tax credit in the recently passed health reform law if you are self-employed to face skyrocketing health care costs in the years ahead.

If Congress and the Administration do not take action to help America’s smallest businesses, the nation’s job generators might just find themselves sitting at home, out of work and in their slippers.

The NASE’s “bunny slippers” campaign includes members of the organization, including a tax accountant, a graphic designer and a disc jockey. To learn more about the campaign and the NASE’s legislative priorities, please visit: http://www.NASE.org/campaigns/NotSoBunny.

Kristie Arslan is the Executive Director of Legislative Offices for the National Association for the Self-Employed (NASE). The NASE is the nation’s leading resource for the self-employed and micro-businesses, bringing a broad range of benefits to help entrepreneurs succeed and to drive the continued growth of this vital segment of the American economy. The NASE is a 501(c) (6) non-profit organization and provides big-business advantages to hundreds of thousands of micro-businesses across the United States. For more information, visit the association’s website at www.NASE.org.

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