In the ever-shifting sands of U.S. tax law, it’s increasingly difficult for business owners to stay abreast of changes.
“How does a small-business owner keep up? You can’t,” said Rod Link, a partner at Professional Accounting & Tax Services Inc., who offers tax advisory services through Mayfield-Link.
“I don’t mean that negatively, but the amount of information that comes to our office … it’s a part-time job just keeping up with the changes,” he added.
Link and other area tax experts agree, however, that there are a few changes in particular that business owners need to be aware of and discuss with their tax advisers for 2010 and 2011.
Benefits for hiring The Hiring Incentives to Restore Employment Act, enacted on March 18, offers a tax exemption and a general business tax credit to employers who hire the previously unemployed, said Ted Smith, an independent CPA affiliated with Compere and Robinette CPAs.
“It was intended for anyone you hire that had been unemployed for 60 days prior to you hiring them – a simple qualification,” Smith said.
In return, the employer is exempted from paying the 6.2 percent Social Security tax match on employees’ wages through the end of the year.
“Second, if they retain that person for 12 months or more, they are entitled to take up to a $1,000 general tax credit on their next return, which in this case would be the 2011 tax return,” Smith said.
Immediate asset depreciation The 2010 Small Business Jobs Act, signed into law Sept. 27, allows businesses to immediately depreciate the expense of new assets instead of depreciating over several years, said Jacob Sanders, supervisor at Elliott, Robinson and Co.
This change can apply to some vehicles, equipment, factory machinery, office furniture – basically business investments in fixed assets, Sanders said.
Smith said the act also raised the deductible limit from $250,000 to $500,000 and expanded the definition to include real property such as real estate and leasehold improvements.
As a result, business owners who materially impact the value of a building through build-outs, more efficient heating and cooling systems or lighting improvements can deduct the expense this year, rather than expensing over 15 years, Smith added. 1099s for all
Depending on the cost of the work, the Small Business Jobs Act requires rental property owners to issue 1099 forms beginning in 2011.
“Landlords have to issue a 1099 to anyone they pay in excess of $600 per year,” Link said. Both he and Smith emphasized that the new rule includes payments made to companies, not just contracted workers.
Adding to the hurt: stiffer penalties for not sending 1099s.
“It’s very clear that Treasury is intent on getting those 1099s, not only in increasing the umbrella over how many people you have to issue 1099s to, but making sure you have incentive to do it,” Smith said. “Otherwise, they’re going to penalize you, and it’s per-1099.”
He said the smallest penalty is $30.
“If you have 10 1099s you didn’t file, the smallest fine you’re going to get is $300. Depending on when you file, it could go up to $3,000,” he said. “I think that’s another one that’s going to catch a lot of people by surprise.”
The issue gets even more complex in 2012, when all businesses have to file 1099s for every company they do more than $600 in business with, including suppliers, hotels and restaurants.
The 2012 change is required as a result of Section 9006 of the Patient Protection and Affordable Care Act, and could have been repealed by proposed – but not passed – amendments to the Small Business Jobs Act.
“That (requirement is) going to potentially cause a lot of heartache,” Smith said. “The (regulations) aren’t out on this to know exactly how this is going to work, but if we’ve got $600 in business meals to a participating restaurant, we now have to issue a 1099, which now means we have to have their tax ID number.”
Terry Hicklin, owner of Joplin-based Candy House Gourmet Chocolates told Springfield Business Journal earlier this month that while it’s too soon to determine how much it will cost businesses to process the additional 1099s, the expanded requirements are likely to create a bookkeeping nightmare and cost at least $5 apiece.
Self-employed health insurance deductions There also are some changes for self-employed individuals’ health insurance coverage, starting with this year’s tax filings. While self-employed individuals already can deduct their expenses for health insurance coverage, doing so did not affect self-employment taxes, Sanders said.
“They’ve changed that so any premium that the owner is paying for insurance for himself or his family can now be used to reduce self-employment tax,” Sanders said. Now, Link added, health insurance costs are considered a business expense for the self-employed – and the implications are huge.
“The current (White House) administration estimates tax savings to be $1.9 billion,” Link said.
Cell phone usage It may seem a minor thing from a tax standpoint, but another change is that the IRS no longer requires a log of cell phone use, as the phones are no longer considered listed property.
“To date, you had to maintain a log to differentiate between the business and personal use,” Link said, noting that only business use qualified for a deduction.
“Just for the IRS to come into the 21st century and say, ‘OK, cell phones are a real, true part of business these days’ was a huge step forward for us,” he added.
Preparation versus planning Even with all the changes on the horizon, it’s likely that there will be more to come.
“I think we’re going to see a lot of tax changes in the next couple of years,” Sanders said. Link agreed, noting that business owners need to understand the difference between tax preparation and tax planning.
“Very few people receive tax planning,” he said. “They think they are, but when you excel at those things, you have a quarterly meeting with your tax professional and you can forecast your plan,” he said.[[In-content Ad]]