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!

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.

Check out my latest Summit Daily Article, the Perils of Paperless Banking.

I’m now a columnist for the Summit Daily!  While I’ve published several textbooks in the past and been featured in a national publication, TaxPro Journal, there is something very special about being in our hometown newspaper.  The article itself, How to Protect Yourself from IRS and Email Scams, can be found at this link: http://www.summitdaily.com/article/20090929/BUSINESS/909289980&parentprofile=search.  Please check it out, and if there’s any topics you want to read more about, please let me know!

Intuit just announced that QuickBooks 2010 is scheduled for pre-orders on September 28th.  As a QuickBooks Pro Advisor, I can get a discount if you are interested.  I’m not sure what the normal pricing will be this year (I usually recommend that you check out Costco for great deals on Intuit products), but if you want to get the hands on the software as soon as its released, I can order QuickBooks Pro for $149.95 or QuickBooks Premier for $279.95.  Please let me know if I can help!

Welcome to my first blog!  I’m finally making the jump to the digital age, and this is my first step.  I hope to use this blog as a way to communicate ever-changing tax tips and tricks to my clients, and I hope that anyone else who happens to stumble upon it will find the information useful.