The “ABCs” for New Businesses | Tax Tip of the Week | No. 51 July 28, 2010
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Starting a new business can be an unbelievably exciting time! Unfortunately, due to various governmental agency compliance issues, it can be an overwhelming undertaking.
The statistics don’t lie. Most new businesses will not make it past their first year. The big question is why?
In most cases, it is due to a lack of accounting systems. A new business can be losing money and not even know it.
We’ve also seen situations where the new entity was not compliant with a tax or government agency. Getting behind with payroll taxes, sales tax, or income taxes can be a hole that is seemingly impossible to climb out of. The penalties and interest associated with back taxes or failure to file can be a huge hit to any business, but especially a new business.
Practicing your ABCs
The above is a lot of doom and gloom. But if you practice the ABCs of business you can build the foundation needed to succeed in the market place. What are the ABCs you ask? The ABCs are having an active relationship with an Attorney, a Banker, and a CPA who can give you the extra leg up your business needs to get past the first year hump—and on its way to future success. Below are just a few of the foundational building blocks a great financial team can help with:
- Entity Choice: An Attorney can help your business choose the right legal entity for asset protection and for tax saving strategies. (For more information see Tax Tip #45: Considerations for choosing an entity.)
- Accounting Software: A seasoned accounting team should be able to get you up and running on accounting software that us right for your new business. You need to know if you are selling your products for the right prices and if your overhead is in a good place. Good accounting software and systems will answer these questions and more. (For more information see Tax Tip: Getting Organized part II).
- Banking Relationship: A good relationship with a local banking team can help your business set up separate checking, savings, & credit accounts that are necessary for running a business. Having these accounts separate from your personal accounts can help you with asset protection issues as well make your accounting for income & expenses easier. You will also need their assistance if you plan on taking credit card payments for your goods and services.
It is a big step when you start your own business—it is best not taken alone. Don’t forget your ABCs!
What’s your story?
Do you have a story about when you started your business? What did you learn?
As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
Rick Prewitt – the guy behind TTW
…until next week.
Often Misunderstood – The Gift Tax | Tax Tip of the Week | No. 50 July 21, 2010
Posted by admin in : Tax Tip , add a commentBackground: One of the biggest reasons that the federal gift tax law exists is to keep taxpayers from avoiding federal estate tax by giving away their money or assets during their lifetime.
The gift tax is often misunderstood since it is not the recipient that owes the tax but the giver.
Generally speaking, one may be responsible for paying federal gift tax if you give away a lot of money or other assets. Under current federal tax law, up to $13,000 annually may be gifted to any number of individuals without incurring a federal gift tax liability. There is also a one million dollar lifetime limit on gifts. Any gifts exceeding these amounts will most likely require the filing of an IRS Form 709.
Planning opportunities exists to minimize the potential gift tax
If properly executed, gifting may be a very effective estate planning tool. Any large gifts need pre- planning so that neither the giver nor recipient owes a gift tax.
Some other considerations when making large gifts of money or assets follow:
- You and your spouse can gift annually up to $26,000 to any number of persons.
- The gift is money or assets given away without any expected return.
- Giving away money or assets while you are still alive may provide large tax savings to your beneficiaries.
- Paying someone else’s medical expenses is exempt from these rules. However, you must pay them directly to the medical institution to qualify.
- Gifts of educational expenses are also exempt. These include payments directly made for education, books, supplies, and other related living expenses.
- Charitable gifts and gifts to your spouse are also not subject to the gift tax.
Note: As it currently stands for 2010, the federal estate tax was repealed for one year only (don’t confuse that with the Ohio Estate Tax – it is still very much alive and well). However, beginning next year, all estate and gift rates will revert back to their 2001 levels. So in 2011, each estate can exclude only $1 million of their estate tax-free to their beneficiaries. Any estate value above that is subject to federal estate tax. Please be watchful for any new legislation as Congress continues to debate these issues.
Anything you’d like to add?
We know many of the topics covered in TTW can get complicated quickly. The gift tax is a great example. Let us know what has worked for you or if you need clarification.
As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
Mark Bradstreet – author of this week’s TTW
Rick Prewitt – the guy behind TTW
…until next week.
What’s in Store… Maybe | Dissecting the Healthcare Bill – Part 4 of 4 | Tax Tip of the Week | No. 49 July 14, 2010
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This week we will look at provisions of the Healthcare Bill that take effect in 2013 – 2018.
Looking this far ahead is unpredictable. Who knows how many changes may take place within Congress and the Federal Administration during this time period–or how the winds of politics may shift. However, these highlights give us a roadmap of what to expect:
2013
- Maximum health Flexible Spending Account (FSA) contributions capped at $2,500/year and increased annually by inflation.
- Increases Medicare Part A payroll tax rate by 0.9% on earnings over $200,000 for individuals and $250,000 for married filing joint returns. Note: this increase is only on the employee share of Medicare and not the employer’s share.
- Self-Employed individuals and couples will also pay an additional 0.9% Medicare care tax with incomes above these levels.
- An added Medicare tax (3.8% total) will be assessed on the investment income of individuals and couples meeting the above-stated thresholds. This means there will be an additional tax on all interest, dividend and capital gains income.
- The ability to deduct medical expenses on your Schedule A personal tax return will increase from the current “floor” of 7.5% of AGI to a 10% “floor”. Note: taxpayers over 65 will keep the 7.5% level until 2016.
2014
- Employer and individual mandate to buy health insurance begins. Both self-employed and W-2 employees must buy individual polices if their employer does not provide coverage.
- For low-income individuals, a premium assistance credit becomes available.
- Businesses with 50 or more employees must provide health coverage or pay a $2,000 penalty per employee.
- Penalties will also be assessed against individuals who do not buy health coverage.
- Various “Voucher Programs” will be introduced to help pay for health coverage.
2017 – 2018
- A 40% excise tax will be assessed to employers offering “Cadillac Insurance Plans”. Currently, this is defined as plans where the cost of health coverage for individuals exceeds $10,200 or exceeds $27,500 for family plans.
- States may allow large groups (greater than 100 employees) to purchase coverage through Exchanges.
What Do You Think?
Looks like we’re in for a long ride with the Healthcare Bill! We’ll continue to cover changes in the Tax Tip of the Week, but let’s talk about it. Post your comments here. What do you think about the Healthcare Bill? What are your concerns and comments? Join in the conversation!
As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
Rick Prewitt – the guy behind TTW
…until next week.
A Compliance Nightmare for Small Businesses | Tax Tip of the Week | Dissecting the Healthcare Bill – Part 3 of 4 | No. 48 July 7, 2010
Posted by admin in : Tax Tip , add a comment1099 Nightmare
On page 737 of the Healthcare Bill is a three-paragraph section that has nothing to do with hospitals, doctors, drugs or health insurance. Starting January 1, 2012 all business entities will be required to issue 1099s to all individuals and business with which they spend $600 or more annually for goods and services.
Currently, businesses must file 1099-MISC forms only to individuals and unincorporated business for goods and services provided. For example, a small business contracts with an individual to design a web site for the company. The cost is $1,200 to perform the work. A 1090-MISC is issued to that contractor to insure the income is reported on that contractor’s personal tax return.
The intent of the new reporting requirements is to capture an estimated $2 billion in taxes on income that currently goes unreported each year.
So starting in 2012, if a small business purchases a computer from Staples, they will need to get Staples’ federal identification number and address in order to issue them a 1099. Same goes for the provider of their internet services, office supply company, software vendor, utility company, etc.
These reporting requirements will add a HUGE compliance problem for American businesses. Small companies, especially, just don’t have the manpower to track down the information and submit 100 or more 1099s each year. And what about all the companies on the receiving end? There is going to be a flood of 1099s pouring into Office Max, Apple, Proctor & Gamble, etc. each year.
Fortunately, Representative Dan Lungren (R- Calif.) has introduced a bill to roll back this provision. We offer him our support!
We’ll keep you posted.
Questions or comments? In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit our web site.
Rick Prewitt – the guy behind TTW
…until next week.
