With the exception of those who actually work at the IRS, no one really knows exactly what it’s like behind those formidable, metaphoric doors. But what we can do is help our clients understand why this tax season, and let’s face it – the last few tax seasons, have been a challenge, to say the least. Here’s what you need to know, and what you need to get through this tax season.
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Tax Prep 101
Get Your Business Tax Records in Order.
With the tax deadline quickly approaching, we’ve decided to provide you with some helpful tips on how to better prepare your business records for tax season. Ensuring your records are organized and complete ahead of time ensures that your taxes will be done more accurately and efficiently, resulting in your tax return being filed in a timely manner.
The IRS requires businesses to keep adequate records for tax deductions. The best advice we can provide you with is to follow the KISS principle for record keeping; that is, Keep It Simple and Safe.
Here are a few ways to help you keep your records in order!
Stay Organized.
Use a large container and inexpensive file folders to help stay organized throughout the year so you know where everything is.
Limiting Your Categories.
Start with the five major categories for a business — Assets, Liabilities, Income, Expenses and Owner’s Equity/Retained Earnings. Creating individual folders for income, expenses, bank statements and credit card receipts, travel, asset purchases, and outside services (independent contractors) allows you to keep track of your records in a more organized and accurate manner.
Income and Receipts.
Keep all deposit slips and be sure to note what customer the checks were from. Keep register tapes and credit card charge slips from customers. Keep invoices you have sent out.
Purchases and Recurring Expenses.
Keep all bank and credit card statements, canceled checks, and credit card slips or receipts from in-person purchases. Keep all invoices and other receipts and don’t forget to use petty cash slips so you can capture small cash expenditures. Also, for payments to vendors providing services, be sure to get a completed W-9 before you pay them. The IRS is becoming more strict on MISC-1099 filings and this ensures you’re not on the hook for potential penalties.
Make Notes on Statements.
We highly suggest that you make notes on your bank statements and credit card receipts. If there is no detail available on deposits or receipts make a note of who the income came from and who the check was written to.
Asset Paperwork.
Any paperwork that shows proof of assets purchased during the year should be kept on file. All information about business assets, starting with the purchase price and including setup, delivery, and training should be recorded. Keep track of maintenance and other expenses for use of the asset and don’t forget to record accumulated depreciation.
Travel Expenses.
Whenever going on a business trip, make sure to capture all your travel paperwork for each trip. Keep a log of all travel by car; log every trip – when and where you went, who you saw and why. Keep receipts for all expenditures for air travel, lodging and meals.
Emails.
Any emails that are received relating to your finances, receipts, etc. should be kept in a separate folder for your records.
Employment Taxes.
Keep all employment tax records for at least four years.
Hopefully these tips will point you in the right direction toward getting more organized and relieving stress when tax time rolls around both for you and your accountant.
A Breakdown of the Healthcare Penalty for Individual & Employers
By Ryan Webber
On March 23, 2010 the Affordable Care Act was signed into law by the President and transformed the way small businesses and individuals will be able to shop for, compare and purchase health insurance. The Act, which was upheld by the U.S. Supreme Court in June 2012, preserved the law’s “individual mandate” requiring most Americans to have health insurance by January 1, 2014 or pay a penalty.
The Affordable Care Act promotes employers with 2 – 50 employees to provide health insurance to its employees. However, employers with less than 50 employees are exempt from requirements to offer coverage. Nevertheless, most employees of exempt employers must still find insurance privately or use their State or Federal exchanges to find affordable health insurance for themselves. To avoid the penalty, employers with more than 50 full time employees must offer them a health insurance package privately that meets certain requirement standards (Essential Health Benefits) or pick a plan in their State or Federal exchanges.
While individuals are not required to have health insurance today, beginning on January 1, 2014 most individuals must have it or pay a penalty on their individual income tax return. The penalty would start at $95 a year ($47.50 per child under 18), or up to 1 percent of household income, whichever is greater, and rise to $695, or 2.5 percent of household income, by 2016. Household income is defined by the Internal Revenue Service (IRS) as a taxpayers modified adjusted gross income less exemptions. The amount the taxpayer is assessed cannot exceed the cost of a specified level of annual premiums offered by the exchanges.
This penalty will also be assessed on employers with more than 50 full time employees that do not offer health insurance. The penalty will be $3,000 per employee, but it is not to exceed $2,000 x (full time employees minus 30). For example, if an employer had 51 full time employees and did not offer coverage that met the requirements, the employer would have to pay a penalty of $2,000 X 21 = $42,000. However, the penalty will not be greater than the penalty that would apply if the employer offered no coverage at all. Only full-time employees (not full-time equivalents) are counted for purposes of calculating the penalty. After 2014, the penalty amount may be indexed.
As written, the law prohibits the IRS from seeking to put anybody in jail or seizing their property for simple refusal to pay this penalty. The law says specifically that taxpayers “shall not be subject to any criminal prosecution or penalty” for failure to pay. It also states that the IRS cannot file a tax lien (a legal claim against such things as homes, cars, wages and bank accounts) or a “levy” (seizure of property or bank accounts). Currently, the only means the IRS has of collecting the penalty is to essentially garnish tax refunds for people or entities that overpaid their taxes.
Please note that small business owners with fewer than 25 full-time equivalent employees, who pay an average wage of less than $50,000 a year, and who pay at least half of employee health insurance premiums are eligible for a tax credit. The tax credit will help these small businesses offset the cost of covering their employees. Currently, the tax credit is 35 percent of the cost of premiums. The credit increases to 50 percent in 2014. The credit phases out as firm size and average wage increases. The credit is capped based on the average health insurance premium in the area where the small business is located.