Inspirational Quotes: Tax & Business Tips

06/15/09 - Built-In Gains Period Reduced by 2009 Economic Recovery Act

The built-in gains tax applies the highest corporate tax rate (currently 35%) when a C Corporation elects to become an S Corporation, which absorbs "built-in gains" into its income.  Built-in gains are items for which a former C Corporation had accrued an economic benefit when it became effective as an S Corporation.  Typically, property and any other appreciated items contribute to built-in gains.  For example, if a corporation owned a piece of land worth $200,000 when it became an S Corporation, and the land had a basis of $120,000, the built-in gain would be $80,000.
 
Generally the built-in gains period extends to the corporation's first 10 years as an S Corporation.  Therefore, companies often avoid selling any items subject to the built-in gains tax until the ten year period has expired.  However, the 2009 Economic Recovery Act has reduced the period to seven years for the 2009 and 2010 tax years.  Essentially, companies that became S Corporations in 2002 and 2003 will no longer be subject to the built-in gains tax in 2009 and 2010, respectively.

5/25/09 - All About S-Corporations

Many small businesses now choose to operate as S-Corporations rather than C-Corporations or one of the other various types of partnerships.  A shareholder in an S-Corporation enjoys limited personal liability (similar to a shareholder in a C-Corporation), as well as relief from double taxation (similar to a partner in a partnership).  In other words, the shareholder is not personally liable for acts of the corporation and profits from the business flow through to the taxpayer's individual return.
 
In an S-Corporation, a shareholder may take distributions, or money, out of the corporation tax-free as long as the company still has equity.  In addition, any income that flows through from the corporation to the shareholder's individual return is not subject to self-employment tax, as opposed to flow-through income from a partnership.  Many people view this as one of the greatest tax loopholes, but the IRS is attempting to change this view by focusing on unreasonable compensation. 
 
Although the IRS has no specific definition of what is considered "reasonable compensation," it is fair to assume that no annual compensation would be considered unreasonable when a shareholder takes out significant distributions each year.  Why?  When a shareholder receives no compensation but takes out large distributions, he or she is basically receiving compensation, but avoiding payroll taxes.  Not only is that a problem for the IRS, but it could also be a problem to the shareholder when it is time for them to draw Social Security and they have not paid their fair share into the system.
 
What does it take to be an S-Corporation?

 

 - First you have to be a C-Corporation
 - 100 or fewer shareholders (family members can count as

   one shareholder)
 - Only individuals, estates & trusts can be shareholders
 - Only one class of stock in terms of rights to money
 - All shareholders must agree to S election
 - S election must be made by March 15th to be considered an S-

   Corporation for the entire year.  If election is made after March

   15th, the corporation cannot claim S status until January 1st of

   the following year.
 

Please contact our office for further questions

regarding S-Corporations.

3/2/09 - Reduced Estimated Tax Burden in 2009 for Individuals With Small Businesses

To the extent that tax isn't collected through withholding, taxpayers generally are required to make quarterly estimated payments of tax, in an amount determined by the required annual payment. The required annual payment is the lesser of 90% of the tax shown on the return or 100% of the tax shown on the return for the prior tax year. However, under Code Sec. 6654(d)(1)(C) , the prior-year percentage is 110% if adjusted gross income (AGI) for the preceding year exceeded $150,000). An underpayment results if the required payment exceeds the amount (if any) of the installment paid on or before the due date of the installment.  

The period of the underpayment runs from the due date of the installment to the earlier of (1) the 15th day of the fourth month following the close of the tax year or (2) the date on which each portion of the underpayment is made. If a taxpayer fails to pay the required estimated tax payments under the rules, a penalty applies, determined by applying the underpayment interest rate to the amount of the underpayment for the period of the underpayment. The penalty for failure to pay estimated tax is the equivalent of interest, which is based on the time value of money.  

Taxpayers are not liable for a penalty for the failure to pay estimated tax in certain circumstances (e.g., for U.S. persons who did not have a tax liability the preceding year; if the tax shown on the return for the tax year (or, if no return is filed, the tax), reduced by withholding, is less than $1,000; or the taxpayer is a recently retired or disabled person who satisfies the reasonable cause exception).  

New law. Effective on Feb. 17, 2009, the Recovery Act provides that notwithstanding Code Sec. 6654(d)(1)(C) , for any tax year beginning in 2009, in computing the amount of the required annual installments of estimated income tax of any qualified individual, "required annual payment" means the lesser of (1) 90% of the tax shown on the return for the tax year, or (2) 90% of the tax shown on the return of the individual for the preceding tax year. ( Code Sec. 6654(d)(1)(D) , as amended by Act Sec. 1212; Committee Report)  

A qualified individual means any individual if the AGI on the tax return for the preceding tax year is less than $500,000 ($250,000 if married filing separately) and the individual certifies that at least 50% of the gross income shown on the return for the preceding tax year was income from a small trade or business. For estates and trusts, AGI is determined under Code Sec. 67(e) . A small trade or business is one that employed no more than 500 persons, on average, during the calendar year ending in or with the preceding tax year. ( Code Sec. 6654(d)(1)(D) )    © 2009 Thomson Reuters/RIA. All rights reserved 

12/1/08 - Business Standard Mileage Changes for 2009

Business standard mileage rate for 2009 decreases; other rates also decrease:
IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 55¢ per mile for business travel after 2008. That's 3.5¢ down from the 58.5¢ allowance for business mileage in the last six months of 2008. Further, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 24¢ per mile, down 3¢ from the 27¢ per mile allowance for the last half of 2008. Rev Proc 2008-72, 2008-50 IRB , IR 2008-131

 

 Source:

RIA Daily Updates - 11/25/2008

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2008 Changes in Section 179 Deductions for Vehicles

2008 Changes in Section 179 Deductions for Vehicles 

  

The Economic Stimulus Act of 2008 may benefit your small business with the following changes in the Section 179 Deductions for new vehicles: 

• If you purchase a new vehicle for at least 50% business use in the 2008 calendar year, you can elect to take the 50% bonus depreciation in the first year, in addition to the Section 179 deduction. The maximum depreciation deduction is $10,960.00 for cars and $11,160.00 for light trucks, vans and SUV’s. (See chart below for details)  
• The 50% bonus depreciation may also be combined with the $25,000 limitation on cars, trucks or vans that weigh more than 6,000 pounds, but do not exceed 14,000 pounds. (See Example 1 below) 
• You may also deduct up to $250,000 of depreciation expense on heavy trucks and vans if your total new equipment purchases do not exceed $800,000 for the year. (See the IRS website for additional information: http://www.irs.gov/formspubs/article/0,,id=177054,00.html) 

EXAMPLE 1 

In 2008, Frank buys a new $60,000 Escalade and uses it 100% in his business. On his 2008 Form 4562, Frank can claim a $25,000 Section 179 deduction.  Next, he can deduct $17,500 worth of bonus depreciation [($60,000 - $25,000) x .50)] for a total deduction of $42,500.   

Deduction Limits for Vehicles
	2007		2008
	280F Depr.	Max Section	280F Depr.	Max Section
Description	Limit	179 Ded.	Limit	179 Ded.
Car - GVW (unloaded)	$3,060.00	$3,060.00	$2,960.00	$10,960.00*
up to 6000 lbs.
Truck or Van (including SUV's	$3,260.00	$3,260.00	$3,160.00	$11,160.00*
& minivans on truck
chassis)- GVW (loaded)
GVW (loaded) up to 6000 lbs
Car, truck or van (including	N/A	$25,000.00	N/A	$25,000.00**
SUV's & minivans), GVW over
6000 lbs. but not over 14000 lbs.
Vehicles-GVW over 6000
but not over 14,000 lbs that:
-Are designed to seat more
than nine passengers behind
the driver seat (for
example, a hotel shuttle van)
-Have an open cargo area
or covered box that is at least
six feet long and not readily	N/A	$125,000.00	N/A	$250,000.00
accessible from the
passenger compartment
(for example, a pick-up with
full-size cargo bed) or
-Have an enclosure fully
enclosing the driver
compartment and load
carrying device, do not have
seating behind the driver's
seat and have no body section
protruding more than 30
inches ahead of the windshield
(for example a delivery van).
Truck or van, GVW
(loaded) over 14,000lbs.	N/A	$125,000.00	N/A	$250,000.00
*For new assets placed in service during the 2008 calendar year that are used at least
50% for the business.  (These numbers are based on 100% business use.)
**May be combined with bonus depreciation if the SUV is new, used for at least 50%
business, and has a gross vehicle weight (GVW) rating of over 6,000 pounds.

 

10/6/08 - Intuit Online Backups

INTUIT ONLINE BACKUPS

Did you know that you can backup your personal data files online?  Online backups are a great way to protect your personal data files in the event a virus, power outage or human error erases everything on your computer.

Intuit offers online backups for as little as $4.95 a month for 1GB and $14.95 for 10GB.  Most data files, including QuickBooks files, can be backed up to these online data centers.  You can choose which files you want to backup and schedule automatic backups for times that are convenient for you.

This service is safe and secure, because your data is encrypted and stored in two separate online data centers.  If you ever need to access any of these files you can retrieve them using any computer that has an internet connection. 

For more information on this service please visit:

http://quickbooks.intuit.com/product/add_ons/online_data_backup.jsp?view=overview#tabAnchor

9/22/08 - How To Increase Limits for Federal Deposit Insurance Coverage

HOW TO INCREASE LIMITS FOR FEDERAL DEPOSIT INSURANCE COVERAGE:

   Check with your bank to see if they offer this service.

CDARS     (Certificate of Deposit Account Registry Service)

With CDARS, banks can offer you up to $50 million in Federal deposit insurance coverage. So you can manage all of your CDs through a single bank, without hassle.

With CDARS, you get One Bank, One Rate, One Statement^SM

• One Bank: Investors can access multi-million dollar FDIC insurance coverage by working with just one bank — the bank you know and trust.
• One Rate: Investors negotiate one rate for each CD maturity and enjoy the option of reinvesting them through a simple process.
• One Statement: Investors receive one easy-to-read statement summarizing all of their CD holdings.

With CDARS, you can say “goodbye” to running around town to multiple banks. No more opening up multiple title accounts in different rights and capacities of family members to maximize FDIC insurance at one bank. There also is no need to manually consolidate account statements or interest disbursements, which frees up your valuable time. You can enjoy the peace of mind associated with access to full FDIC insurance on your CDs. You’ve worked hard for your money. Now, let it work hard for you. As always, your confidential information remains protected.

http://www.cdars.com/index.php 

9/2/08 - Insurance Review Time?

INSURANCE REVIEW TIME?????

When was the last time you reviewed your liability and catastrophic insurance coverages?  You know you should review both coverages and premiums at least every three years.  This risk and its related cost is usually the least item looked at by a businessperson, but is normally a big cost item on the P&L.  Since you have not looked at it in a while, now is the time to call in your insurance agent or broker to review coverages and quote the renewal or change of existing coverages.  It would also be wise to ask two other insurance agents or brokers to review coverages and offer a quote.  You may be very pleasantly surprised to see what is wrong with your existing coverage or premium costs.  Be sure to tell your current insurance agent that you will be soliciting two other quotes so he or she knows where he or she stands.

5/12/08 - Stimulus Package Offers Equipment Purchase Incentives to Businesses

Stimulus Package Offers Equipment Purchase Incentives to Business   

Congress approved a $168 billion bill to boost the economy, paving the way for businesses to write off equipment purchases made this year more quickly.

The following provides insights into the business tax and bonus depreciation provisions:

Business Tax Provisions:

Elective Expensing (Section 179). In lieu of depreciation, small business taxpayers may elect to expense the cost of qualified assets (property) they purchase in the year when the assets are placed in service, within certain limits. Under section 179, small business taxpayers are allowed to expense $125,000 (indexed for inflation), and the phase-out threshold is $500,000 (indexed for inflation). Currently in 2008, the expensing limit is $128,000 and the phase-out threshold is 510,000. The proposal increases the expensing limit to $250,000 and the phase-out to $800,000 for 2008. The proposal is effective for taxable year 2008. This proposal is estimated to cost $900 million in 2008 and $100 million over ten years.

Bonus Depreciation. Generally a trade or business must recover the cost of property over a predetermined period of years. This proposal will allow a trade or business to depreciate an additional 50 percent of the cost of an asset acquired and placed into service in 2008 in that year. The types of property eligible for bonus depreciation will be the same as those included in the previous depreciation packages: (1) tangible property that had a recovery period not exceeding 20 years; (2) purchased computer software; (3) water utility property; and (4) qualified leasehold improvement property. The bonus depreciation will be allowed under the alternative minimum tax (AMT). The proposal is effective for calendar year 2008 beginning after the date of first Committee action. This proposal is estimated to cost $43.9 billion in 2008 and $7.4 billion over ten years.

4/7/08 - 5 Tips for Finding & Keeping a Bank

5 Tips for Finding and Keeping a Bank

Understand the basics.  Large or small, banks are interested in the same fundamentals-such as cash flow, collateral and the viability of your business.

Sell the bank on your company.  Provide solid information on its financial history, your business plan, and information about the kinds of loans you need and the terms you want.

Look for a good fit.  Let prospects know what kind of relationship you want with a bank.

Ask the right questions.  Find out where decision making takes place, how many people you will have to deal with, and if the bank is open to meeting with you and your advisors fairly regularly.

Commit time and energy to developing your relationship with the bank you choose.  Get to know more than one person at the institution so that if your bank is merged or acquired, someone familiar will probably still be there.

Brought to you by SCORE "Counselors to America's Small Business."

www.score.org