- Are you ignoring this new tax credit? - Health care legislation passed in 2010 included a tax credit for small busin... http://t.co/2TkCDtpB
- If you have foreign investments, you may have a new filing obligation http://t.co/wz812KvB
- Meetings underway on payroll tax cut extension - Last December, the 4.2% social security tax rate that workers pay o... http://t.co/UxKUA5HR
- IRS plans random small business audits - The IRS plans to conduct random audits of 2,500 returns from 2010 filed by ... http://t.co/MDzP0RrA
- If you are self-employed or have self-employed income, you may be eligible to deduct part of your health insurance premiums.
Are you ignoring this new tax credit?
Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.
* Take another look
If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements and be sure you’re taking advantage of this tax break. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.
* Can your business qualify?
In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.
When you’re self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you’re not considered an employee for purposes of the credit.
Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).
If you have foreign investments, you may have a new filing obligation
If you own foreign investments, you may have an additional federal tax filing requirement this year.
Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.
What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.
Tip: In some cases, you may also need to file Form 8938 for tax year 2010.
Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.
You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.
Penalties for failure to file Form 8938 start at $10,000.
Meetings underway on payroll tax cut extension
Last December, the 4.2% social security tax rate that workers pay on wages was extended through February 29, 2012.
Now a Congressional conference is being held to find a way to extend the lower tax rate through the end of 2012. The sticking point is lack of agreement between Republicans and Democrats on how to pay for the extension, estimated to cost $100 billion.
House Democrats have expressed the hope that the conference will be completed by the Presidents’ Day recess scheduled for the week of February 20. The legislation would extend the current 4.2% payroll tax rate through December 31, extend unemployment insurance benefits, and prevent cuts in reimbursements to Medicare providers.
Several legislators want to include tax extenders in the payroll tax cut legislation. These “extenders” include such provisions as the research and development credit for businesses, the optional deduction for state and local sales taxes, and the $250 deduction for school supplies purchased by teachers. Though these tax breaks appear to be universally popular, finding a way to pay for them remains the big issue.
As you do your 2012 tax planning, keep the uncertain legislative picture in mind.
IRS plans random small business audits
The IRS plans to conduct random audits of 2,500 returns from 2010 filed by corporations with less than $250,000 in assets. The results will be used to update the IRS formulas for selecting returns for audit.
The IRS is also trying to improve tax compliance among sole proprietors. According to a Treasury report, sole proprietors accounted for 20% of the $345 billion tax gap calculated for 2001.
Customer Refunds: Are You Doing Them Right?
Refunds. You probably wince at the word. Some – like customer refunds for returns – are fairly uncomplicated, thanks to QuickBooks’ tools. Others, not so much. You may find yourself unable to balance your accounts receivable.
There are numerous scenarios that necessitate the use of credit memos, including overpayment, order cancellations and bad debt write-off. It’s critical that these are entered correctly. If they aren’t, you may lose a lot of the time that QuickBooks helped you save as you try to chase down a few dollars.
Figure 1: QuickBooks helps you identify refunds quickly.
Sending money back
Let’s say a customer pays for an order but cancels before it ships. You could:
- Apply the balance to an existing invoice
- Keep it as an available credit
- Issue a refund
Click Customers | Create Credit Memos/Refunds. Select the correct customer and job (and A/R account, if you have more than one). Enter the items just as they appear on the invoice. When you’re finished, click Save & New. The Available Credit window opens, displaying your options:
Figure 2: The Available Credit window displays your credit balance options.
You would select Give a refund and click OK. The Issue a Refund window opens and should already be filled in. If everything is correct, click OK. The refund check has now been entered in the checking register, ready to be processed.
WARNING: If the invoice was paid with a credit card, it gets complicated. Your instructions will depend on whether you are using Intuit Merchant Service for QuickBooks or another merchant account service. You’ll also have to deal with transaction fees. We can help you deal with this.
Other refund options
If the customer has open invoices, you may want to choose Apply to an invoice in the Available Credit window. A list opens; just select the correct invoice. Or if you want to have those extra funds available for other invoices but don’t want to apply them immediately, click Retain as an available credit. When you want to use them, click the Apply Credits button in the lower right corner of the invoice.
Figure 3: When issuing a refund, QuickBooks can hold those funds to be applied to invoices later.
Sometimes, customers overpay an invoice or statement charge, or make a down payment for which there is no invoice. This is easy to fix. Open the Customer Payment screen (Customer Center | Transactions | Received Payments) and double-click the related payment. In the screen’s lower left corner, you’ll see this:
Figure 4: Click the correct option here.
Click the correct button, then Save & Close. The Issue a Refund window opens; you’d treat it the same way you did when you dispatched a return refund.
Another use
You can also use credit memos to write off bad debt if you are using the accrual method of accounting.
If you don’t already have a Bad Debt item in your item list, set up a new item as an Other Charge. Name it “Bad Debt” and match it to the correct account.
Open the Credit Memo window and select the customer, then select Bad Debt as the item. You’ll get a message saying that the item is associated with an expense account; click OK. Enter the write-off amount minus sales tax if taxable (be sure the Tax column is correct) and click Save & Close.
WARNING: Enter two lines on the credit memo if it combines both taxable and non-taxable items (both charged to the Bad Debt account), one for each type. Be sure that the Tax Columns are correct.
The Available Credit window opens. Select Apply to an invoice. Put a check mark next to the correct one and click Done.
Make refunds make sense
It seemed easier in the days when you just wrote a check for a refund or made an entry in a paper ledger, didn’t it? Using QuickBooks credit memos, though, helps you maintain records that follow standard accounting procedures and simplifies our understanding of your files. We’ll be glad to help you make sure that this sometimes-complex task is done right from the start.
Basis reporting expands this year
Your broker statement for 2011 reported the basis in the stocks you acquired last year. This basis reporting requirement expands this year to include mutual fund shares and stock acquired in a dividend reinvestment plan. The cost basis for these investments is included in reports that brokers send to the IRS. The IRS will compare this information with the basis you report on your tax return when you sell the investment.
More tax deadlines ahead
Don’t miss these deadlines if they apply to your business:
February 15 – Brokers must provide 2011 Forms 1099-B and 1099-S to customers.
February 28 – Send Forms 1099 with Form 1096 to the IRS. If you file these forms electronically, you have until April 2 to file with the IRS.
February 29 – Send Copy A of employee W-2s for 2011, along with Form W-3, to the Social Security Administration. If you file electronically, you have until April 2 to file.
March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
New worker classification program announced by IRS
Companies that have had worker classification issues are being offered a settlement program by the IRS. The program, labeled the “Voluntary Worker Classification Settlement Program,” will let employers who previously misclassified employees as independent contractors make a minimal payment to settle the tax dispute. The program will give eligible employers substantial relief from federal payroll taxes they may have owed in the past. Employers must pay just over 1% of wages paid to reclassified workers for the past year, and they must agree to treat these workers as employees going forward.
Do I Need to File a Tax Return This Year?
You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing status, age and the type of income you receive. However, the Internal Revenue Service reminds taxpayers that some people should file even if they aren’t required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.
Even if you don’t have to file for 2011, here are six reasons why you may want to:
- Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
- Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.
- Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
- American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.
- Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.
- Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit.
Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.
For more information about filing requirements and your eligibility to receive tax credits, please contact our office at 866-895-1614.
Some business meals are 100% deductible
Are you watching what you eat at work? Though that may not seem like a tax question, how you account for meals can affect your business tax return.
One reason why: While you can generally deduct only half the cost of meals related to your business activities, the tax code includes specific exceptions that allow a deduction of 100% of what you spend on food and beverages in certain situations.
Here are three exceptions to the general rule.
* Meals provided to your employees on a social basis. That once-a-year holiday party qualifies for 100% deductibility as a “recreational, social, or similar activity,” as long as it is primarily for the benefit of all your employees.
* Food with nominal cost. Do you supply bottled water, morning-meeting donuts or office snacks for your staff? “De minimis” employee benefits — those small items your business pays for that are not considered taxable income to your employees — are typically 100% deductible.
* Items available to the public. Food served at seminars, promotions, or a “new office warming” reception where you invite the public is 100% deductible.
Remember that you’ll still need to keep detailed records to substantiate your deductions for meals and food served under these exceptions.
We’ll be happy to help you review your expenses and set up a system to account for items that qualify for a more generous deduction.