On December 16, 2014, the US Congress passed a much anticipated 2014 tax extenders bill that includes provisions for reinstating 50% bonus depreciation and increasing Section 179 back to 2013 limits of $500,000.
The bill still needs signed into law by Obama, but he is expected to do so.
See here for a more in-depth discussion.
The IRS published Fact Sheet 2014-09 in November with details on the key provisions of the Affordable Care Act (ACA) affecting individuals on their 2014 tax returns.
The main takeaway is that individuals that did not have health insurance coverage for the full year in 2014 must either apply for an exemption or pay a penalty, affectionately being referred to as a "shared responsibility payment."
That penalty can be steeper than you think; for 2014, it can be 1.0% of your income, and beginning on January 1, 2015, that rate jumps to 2.5% of income. So, let's say you file your 2014 tax return in March of 2015. By the time you realize what your 2014 penalty is, you will have already accrued three months of penalty for 2015. Not to mention that by March, open enrollment on the government sponsored marketplace will be closed and you will not be eligible for the credit subsidy!
Check out the entire IRS Fact Sheet here.
Her is another exchange from one of my late night escapades from the entrepreneur forums.
A stranger asks:
Forming a LP, LLC, etc is expensive: lawyer fees, tax implications. confusing: am i picking the right one? is it flexible to change?
Here is the helpful/practical advice:
It's a rather dirty secret of mine, but from time to time I patrol a few entrepreneur/small-business forums when I'm bored. I am comfortable with the fact that I am becoming more lame as time passes. Don't judge me.
On one of these forums I recently responded to someone interested in starting a small business who had some basic questions which I get frequent enough at my office that I decided to post the exchange here. Frankly, if everyone who walked into my office had been offered this advice BEFORE starting their business (rather than just "winging it"), my job would be a lot easier.
ENTREPRENEUR: "Where can I learn the absolute basics of small business accounting, taxes, and payroll?"
ME: "Can you be more specific?"
ENTREPRENEUR: "Mainly I'd like to learn, before starting a business, what State and Federal taxes I need to pay, how much the taxes will be, and when they need to be paid. Would simple accounting software be enough to manage my books? I plan on having revenue of under $10,000 in the first year. I'd also like to know how I would go about paying myself in a Sole Proprietorship and an LLC. Any information or guidance is appreciated!:"
What follows is my rather long-winded response. I hope this helps others in the same situation. Please forgive the casual tone and please be aware that the suggestion to ignore estimated taxes was absolutely not general advice. I believe it was appropriate given the facts provided but by no means should be misinterpreted as sound advice in all situations. For anyone interested, here is a link to the IRS instructions for individual estimated taxes.
Get Quickbooks Pro. Nothing more. Nothing less. It should be under $200. Do not let anyone up-sell you to a more sophisticated version of QuickBooks. All you need is "Pro." It will do the job and just about every accountant in the US is familiar with it. It is scalable up to, say $20 mil annual revenue.
For now, especially with $10k revenue, you will manage. Just record all transactions. You'll figure it out. When the volume of transactions grows, get some proper accounting advise.
Open a business bank account. Don't argue with me. Just do it. You MUST have a separate bank account for business transactions. Don't think you can just keep track of business and personal expenses out of your regular personal checking account. If you're serious about starting a business, open a separate checking account. Your accountant will thank me at the end of the year. Tell him I'll be sending him a bill.
Keep ALL business transactions separate from personal transactions. Don't go out to the bar and use your business credit card or bank account. It's lazy and will end up being expensive for you when an accountant has to sort it all out.
Start simple. If you are not concerned with liability, stick with a sole-proprietorship for now. All you need to do to start a sole-prop is get an EIN (even that is not necessary unless you have employees) and open a bank account. You can always decide later down the line to form an entity (LLC or S Corp) if things start to take off.
If you are concerned about liability, see an attorney and set up an LLC. Do not skip the "see an attorney" part, but get references from people you trust.
For the time being, don't let anyone talk you into an S Corp. The administrative costs of filing the corporate tax returns, among other things (like penalties for NOT filing the corporate returns on time) are just not worth it while you are small.
If you decide to stay simple and stick with a sole-proprietorship, but don't want to use your name in the business (eg. Smith's Landscaping) but instead would like to use something like (The Sultan of Landscaping) you will probably need to file for a "fictitious name". If this is the case, see an attorney. Your state laws may differ from mine.
If you cannot afford to talk to a CPA at the moment, you should plan on setting aside 40% of your "profit" for taxes for the time being.
I cannot go into detail about this. It would be a rather thick book by the time I finished. Just be aware that you are taxed on your PROFIT, not your revenue. Add up all your revenue, subtract all your expenses, then multiply that number by 40%. Set it aside.
You are technically required to pay those taxes quarterly, but if you are cannot afford to see a CPA, then that means you probably aren't making enough money for the penalty and interest to really add up to much. At 10K revenue, don't worry about the estimated taxes for now. Just be aware that the tax will be due, plus penalty and interest.
You can buy the Quickbooks payroll add-on which will bring the cost up to maybe $350 for Quickbooks. But if you don't have any employees (beside yourself), you don't need it. If you don't have any employees, you don't have to set up a payroll account and file payroll returns (unless you have an S Corp, which is another reason not to have an S Corp for now).
If you do have employees, I don't see how your business is going to operate on 10K revenue. But if you really must have employees, payroll is THE FIRST THING that you will want to outsource. There is too much law to keep up with. There certainly are people who manage it on their own, but if you ask me, it's just not worth it. Annual cost to have a third party administer your payroll for one employee should be around $1200 or less (the incremental cost of adding additional employees is small). If you can't afford that, you probably can't afford employees.
But if you must do it yourself, like I said, Quickbooks has a pretty good module for that.
GOOD LUCK!!!! Let me know if you have any more specific questions. I'd be glad to help where I can.
IRS tax scams are becoming increasingly prevalent. The IRS has issued a warning about a pervasive phone scam. Be aware that the IRS always sends taxpayers a written notification of any tax due via the U.S. mail. More importantly, the IRS will never ask for credit card, debit card, or prepaid card information over the telephone. If you get a phone call from someone claiming to be from the IRS, and you think you owe taxes, hang up and call McKinley & Co. at (814) 849-8586 or the IRS at (800) 829-1040.
It is also important to know that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS does not ask for PINs, passwords, or similar confidential access information for credit card, bank, or other financial accounts via email or any other means.
Ref: Thomson Reuters/Practitioners Publishing Company Tax Action Memo-1680 July 15, 2014
In a recent IRS FAQ, the IRS reiterated that arrangements in which an employer reimburses its employees' for the cost of individual (i.e. not 'group') health plans on a pre-tax basis is prohibited.
In the past, employers have been permitted to reimbursed an employee for the cost of health insurance policy premiums (or pay those premiums directly) and exclude those payments from the employee's gross wages. Such an arrangement is called an "Employer Payment Plan", and as a result of the Affordable Care Act (ACA), are now considered to be "group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing." Employer Payment Plans cannot be integrated with individual policies in order to satisfy these market reforms, and therefore may be subject to a $100/day excise tax, per employee!
The bottom line is that employer reimbursements (or direct payments to the insurer) for the cost of an employee's individual health insurance policy can no longer be made on a pre-tax basis. This does not prohibit the employer from making those same payments on an after-tax basis.
Effective January 1, 2014, the Pennsylvania Department of Labor & Industry is requiring employers to file their quarterly Unemployment Compensation (UC) and wage reports electronically on the Department's online UC Management System.
Details of the mandate can be found here as well as some other news and recent law changes. Of particular note, is this legislation:
"Under Act 75 of 2013, signed by Governor Corbett on Oct. 23, 2013, if an individual is overpaid UC benefits because the employer or agent of the employer failed to respond in a timely or adequate manner to a request by the department for information regarding the individual's eligibility for compensation, the employer's account will no longer be credited when the overpayment is established."
Get those "requests for separation information" back to the Department as soon as possible. They are due no later than 14 days after the Department issues them.
The Internal revenue service released the 2014 Standard Milage Rates for taxpayers' optional use in computing the deductible costs of operating an automobile for business, charitable, or medical purposes.
The rates for 2014 are as follows:
$0.560 per mile for business miles
$0.140 per mile for charitable miles
$0.235 per mile for medical miles
As a comparison, the rates for 2013 were:
$0.565 per mile for business miles
$0.140 per mile for charitable miles
$0.240 per mile for medical miles
For more information, see:
IRS Notice 2013-80
IRS Notice 2012-72
On the heals of the 16-day government shut-down earlier this month, the IRS has now announced that it will not begin accepting 2013 federal income tax returns until January 31, 2014 at the earliest.
IRS Commissioner Danny Werfel said, “readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right. The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation's taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”
The IRS urges that there will be no advantage to paper-filing your tax returns rather than waiting for e-filing to become available. As always, even with the delay, e-filing with direct deposit will be quickest way to get a refund.
The IRS has released the per diem rates that will apply to reimbursements paid to employees on or after October 1, 2013 for travel away from home. The rates for 2013-2014 are:
$251 for travel to any high-cost locality, of which $65 is considered meals.
$170 for travel to any other CONUS locality, of which $52 is considered meals.
The rate for incidental expense only is $5.
For details and a list of high-cost localities, see IRS Publication 2013-65.