Businesses prepare for tax season

Businesses have several issues to consider when putting together their 2006 tax returns, including the end of the federal excise tax on long distance, new limits for wages subject to Social Security taxation and losses incurred by the recent ice storm.

Hold the phone (tax)

Among the changes is the federal excise tax on long-distance telephone service. The Internal Revenue Service announced in May that it will no longer collect the tax, which was originally created in 1898 to help fund the Spanish-American War.

Of note for businesses: The removal of the excise tax is accompanied by refunds on all such taxes billed between Feb. 28, 2003, and Aug. 1, 2006. The refunds, which IRS officials have estimated could total as much as $15 billion, can only be claimed on 2006 tax returns.

“Most phone plans have changed over the years – you’re usually charged a flat fee now instead of by length or distance,” said Anne Hook, a certified public accountant with Dunton & Associates LLC in Springfield. “But the IRS had been collecting (the tax) anyway. They lost about five court cases in a row, and so they finally conceded that they shouldn’t be charging this anymore.”

Companies looking to collect the excise tax refund need to know their total phone bills during the refund period; they also need to have at least their April and September 2006 phone bills to determine the rate at which they were taxed.

Wages and wheels

Also different for the 2006 tax season is the maximum amount of an individual employee’s wages subject to the Social Security tax. That amount has increased to $94,200 from $90,000. In 2007, the amount of an individual’s wages subject to the Social Security tax will increase again to $97,500. Those increases, Hook said, are primarily due to inflation.

Also, companies that put into use a qualified alternative fuel, fuel cell or hybrid vehicle after 2005 can claim the Alternative Motor Vehicle Credit. The credit can range from $250 to $4,000, depending on the model of vehicle purchased.

The tax credit is a change from the previous incentive – a tax deduction – for clean-burning vehicles. While a deduction is subtracted from income, reducing the amount of adjusted gross income on which tax is paid, a credit is subtracted directly from the amount of tax owed.

After the ice

And nothing, it seems, can avoid impact from the recent ice storms. Companies that suffered casualty losses or damages from the storm can deduct those damages from their 2006 tax returns, even though the storm occurred in 2007, said accountant Brooke Liggett with Kirkpatrick, Phillips & Miller, CPAs PC.

The potential deduction, Liggett said, is possible because of the presidential declaration of the region as a disaster area warranting federal assistance.

The key to receiving the deduction, she added, is documentation.

“Good record keeping is essential – businesses should keep supporting documents for all expenses and insurance proceeds received,” she said.

Need Help?

The U.S. Small Business Administration estimates that the cost for businesses to comply with federal tax regulations will reach $102 billion this year. In an effort to make the tax process easier, the federal government’s business Web site, www.business.gov, includes links to needed forms as well as information on tax compliance and penalties for failure to comply.

Business Tax Basics

Businesses, of course, operate somewhat differently from individuals when it’s time to pay annual taxes.

Brooke Liggett, certified public accountant and supervisor with Kirkpatrick, Phillips & Miller, CPAs PC, said that corporations pay estimated taxes quarterly.

“The partners or members of these entities can make quarterly tax estimates,” she said, “or if they are employees of the company, their taxes can be paid through payroll and withheld from their gross pay.”

Business taxes are estimated at the time the annual returns are filed. For example, a company’s payments for 2007 are estimated when its 2006 returns are completed.

“The estimates are based on prior year taxable income and any expected increases or decreases in both taxable income and tax rates,” Liggett added.

Unlike corporations, partnerships and S-corporations don’t pay federal income tax because revenue from these companies is passed to the shareholders or partners. [[In-content Ad]]