Your Taxes: Many tax changes on horizon for small business
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 health care 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 March 18 and provides tax breaks to companies who hire the unemployed. Simply put, if you hire an employee between Feb. 3, 2010 and Jan. 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 percent 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 2nd Quarter Form 941 due July 31.The health care 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 http://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-2s. 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 health care 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 1099s to corporations and you don’t have to issue 1099s 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 1099s. 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 percent 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 http://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!Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. http://www.cpamichele.com
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