Knight Accounting and Technology

There are some huge changes in the works.  I just wrote this article for the Summit Daily News and thought I’d repost it here for all to see.

If you own a small business, there are a number of drastic changes to your business operations included in the recently approved HIRE Act, and many more on the way as a result of the healthcare bill and a tax extenders package currently working its way out of committee.

The HIRE Act is a positive step for businesses.  While you should consult your own CPA, HR or payroll expert regarding the details, the Hiring Incentives to Restore Employment Act was passed on March 18^th, 2010 and provides tax breaks to companies who hire the unemployed.  Simply put, if you hire an employee between February 3^rd, 2010 and January 1, 2011 and that employee has not been employed for more than 40 hours during the previous 60 days, the employer does not have to pay the usual 6.2% of Social Security tax on that employee’s wages through the end of the year.  The employer can also receive a credit up to $1,000 if the individual remains employed for a full year. 

If you believe you have employees that meet this criteria (family members don’t count, nor can you terminate an existing employee without cause just to replace them with a formerly unemployed employee!), you should work with your payroll provider immediately.  Employees will need to sign an affidavit certifying their previous work status, and the credit can be claimed on the 2^nd Quarter Form 941 which is due July 31^st.

The healthcare bill also offers a few benefits for small businesses, but many of these are phased in over the next eight years.  The only change we’ve seen so far in 2010 is a credit available on the 2010 tax return for small businesses with fewer than 25 employees who offer health benefits to their works.  If your company fits this scenario, you and your tax advisor should work through the formulas available at www.irs.gov.  

Other small business changes lurking on the horizon are not nearly as favorable to businesses, and will cost businesses thousands of dollars in additional taxes and administrative work. Two changes on the horizon for 2011 are limits to FSA and HSA contributions, and a new employer requirement to report the aggregate value of benefits they provide for health coverage on their employees’ W-2’s.  The latter has sparked rumors across the internet that health benefits will become taxable and that’s not the case, they will just be reported as additional information.  Unfortunately, details aren’t available yet, so we’ll all have to stay tuned towards year end.

The most dramatic change to small businesses is buried deep in the healthcare bill.  Beginning in 2012, businesses will have to issue 1099-MISC forms to all vendors they pay more than $600 to for goods or services.  Under current law, you don’t have to issue 1099’s to corporations and you don’t have to issue 1099’s for the purchase of goods, only services.  Beginning 2012, if your business buys a $600 computer from Office Max, they will need to collect Office Max’s address and tax ID# at the time of purchase and send them a 1099 at year end.  I predict that even the smallest businesses will need to send dozens more 1099 forms a year, while larger businesses will be sending hundreds or thousands of additional forms.  This will increase costs for small businesses both on the front end to collect and track the information, and at year-end to issue the 1099’s.  In my opinion, this is the costliest nightmare to face small businesses in decades!

The last notable change applies only to S Corporations.  Currently, S Corp owners are allowed to pay themselves a reasonable salary and take the rest of the company profit as distributions, which are not subject to the 15.3% Social Security and Medicare tax paid on the owner’s salary.  This saves many S Corporations tens of thousands each year.  If the tax extenders package is passed, this benefit will no longer exists for those S Corporations in service fields such as accounting, law, health, engineering, architecture, consulting, and investment management.

As always, I will do my best to keep small businesses in the loop on these upcoming changes through my blog at www.cpamichele.com.  In my 10 years as a CPA, I’ve never seen so many changes in such a short amount of time, and who knows what surprises lie ahead!

This myth is circulating the internet and email, and I just want to clarify the truth.  The myth is that the value of your health insurance will be added to your W-2 starting in 2011 and therefore your taxable income will increase by the same amount.  The truth is that the value of your health insurance will need to be printed for informational purposes on your W-2 starting in 2011, but will NOT be added to your taxable income and you will NOT owe taxes on the value of your health insurance as long as your company maintains a pre-tax health plan (which most do!)

It’s only February 10th, and I’ve already come across this problem dozens of times.  If you worked multiple jobs during the year or if you are a student who worked during school, but are still claimed as a dependent on your parents return, you are facing a big surprise at year-end…you owe taxes or have a smaller refund than ever before.  Why?  It’s all due to the Making Work Pay Credit.  This credit, which was established by President Obama back in April, required payroll departments to withhold $6 – $13 less per pay period from each person’s check.  At year end, each worker would have $400 less in withholdings and on the tax return, a similar $400 credit would be applied to even it out.  No harm, no foul, right?  Well, for many working individuals, it’s not that simple.

Here’s where it’s causing a fiasco.  If you worked 2 jobs, you had a total of $800 less withheld, but you still only get a $400 credit on your return, so you owe back that $400.  If you were a student and worked, your employer would have $400 less withheld, but since your parents most likely still claim you as a dependent on their return, you don’t qualify for the Making Work Pay Credit, so you owe $400.

Unfortuantely, there’s no way around this for 2009, but you can make changes for 2010.  Ask your employer for a new W-4 (or, if you are starting a new job, you will get a form when you start), and while you can keep the same Single/O or Married/2 or whatever you normally file as, but you can add an additional amount to withhold on line 6 you should enter an additional amount of $18 for a bi-weekly payroll or $40 for a monthly payroll.

I was just made aware of a few typos on my 2009 Individual Tax Organizer.  Please accept my apologies!  I have re-posted an update organizer on the Downloads page on my website.  I will not be mailing out new organizers, but the changes are easy to make.  In the Retirement Plan Contributions section of the organizer, I ask for your 2008 contributions, but this should read 2009 contributions.  Also, that section is repeated both on page 1 and page 3.  You only need to fill it out once.  Again, my apologies!

OK, so it’s still a few days from being signed into law, but there are no indications that it won’t be.  Both the Senate and House voted yesterday to make all charitable donations for Haiti relief deductible on 2009 tax returns, if made to qualified charities (visit http://www.irs.gov/app/pub-78/ to see if your favorite charity is properly registered with the IRS) by March 30, 2010.

Thank you for any and all that you are doing for the relief efforts.  I spent time in Haiti in college and it’s a wonderful place filled with extrememly generous people.  If you are looking for donation ideas, please visit my favorite charity, www.shelterbox.org.

I suppose now’s a good a time as any to announce that we’re pregnant and due July 21st! I’m having a rough first trimester again this time around, but can’t wait to meet the little angel growing in my belly!

Anyways, why is this post under my shopping & savings category? Because I found a great offer on a website today for a FREE nursing cover. They make great gifts for any pregnant woman in your life, or if you’re expecting yourself. All you need to do is go to www.uddercovers.com for a free nursing cover ($32 value), and enter CHRISTMAS in all caps in the promotion section. There is an $8.95 shipping charge, but it’s still a great deal if you’re in the market or looking for a special gift.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

We’ve all heard “no new taxes” in campaign speeches throughout the years, but how is the governemnt planning to pay for some of the breaks being offered to individuals?  By increasing fees and penalties paid by small businesses!  The latest example of this trend is the late filing penalties for S Corporations and Partnerships.  S Corps are due 3/15 each year, and 9/15 if a proper 6-month extension is filed.  Partnerships are due 4/15 each year, and 9/15 if a proper 5-month extension is filed.  If you file after that, the penalty is increasing to $195 per shareholder per month, which is quite an increase over the $50 per shareholder fee that existed only 2 years ago.  Of course, you can avoid thees penalties by filing on time, but I don’t think this is the end of fees being assessed and increased in the near future.

New this year, the IRS is adding yet another option for getting your tax refund.  In addition to a paper check (which I NEVER recommend), direct deposit to a checking or savings account, and making an IRA contribution, this year you will also be allowed to purchase U.S. Savings Bonds.  These Series I Savings Bond can be purchased in increments of $50, $100, $200, $500, and $1,000, but cannot be redeemed for 12 months after you receive them.  And, if redeemed within the first five years, the three most recent months’ interest will be forfeited.  While you can only have Savings Bonds issued in your own name during the 2010 filing system, you will be able to add co-owners, such as child and grandchildren in the future.

It’s Official!  The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010). 

The Act has also extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.  For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.  The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

For more on these new credits, visit my source: http://www.federalhousingtaxcredit.com/home.html.