SCORE Minnesota

Small Biz Tax Tweaks, Tasks & Tips

July 29, 2010

Complying with IRS laws can be especially taxing (yes, I intended it as a pun!) for small business owners who already have too much to do in too little time with too few resources. And, take it from me, the penalties for non-compliance can easily outlast the life of your business.

My late husband and I had a small business together for many years. I thought we had a pretty good division of labor. We both brought revenue in. But, he took care of the business operations, which included all of the day-to-day accounting and quarterly tax filing. Thanks to his astute financial management and a great accountant, we enjoyed many of the typical tax deductions the IRS allows a small business. And, it worked beautifully until he was diagnosed with terminal cancer. Then, instead of bringing money into the business, he was bedridden and I  became his full time care giver.

We tried filing for Social Security disability benefits. But, the time had come to pay the proverbial piper. He was ineligible because he hadn’t paid enough in over the previous ten year period to qualify! If we hadn’t had such wonderful friends and family to help us, I don’t know what we would have done.

The moral “take away” from my story is that what small business owners do or do not do today relative to taxes has far reaching implications for the future. So, it is imperative that you understand your legal obligations relative to the tax code. Personally, I would highly recommend that you consult with a reputable tax accountant if you have any questions.

July 1^st marked the beginning of the second half of the 2010 tax year. For those of you who are just starting your businesses, the following tax tweaks, tasks and tops may be new information . For those of you who have existing businesses, they may be good reminders.

Tax Tweaks For 2010

The small business health care tax credit (up to 35%of premium costs) is designed to encourage employers of low to moderate income workers to offer health insurance coverage.

The standard mileage rate deductions have dropped from 2009. Business use of cars has dropped from 55 cents to 50 cents a mile. Mileage for medical or moving purposes has dropped from 24 cents to 16.5 cents a mile.

In 2010, a business can delay reporting the income resulting from the cancellation of debt for up to 5 years.

The American Recovery and Reinvestment Act of 2009 provided credit to businesses that offered COBRA premium assistance to eligible laid off workers.

For certain US-based business activities, there is a 9% deduction for domestic production activities. This deduction only applies to certain US-based business activities. So, you need to check to makes sure your business qualifies.

Starting on July 1, 2010, the IRS placed a 10% excise tax on indoor UV tanning services.

The expanded Work Opportunity Tax Credit, which is designed to motivate businesses hire target populations facing barriers to employment was expanded to include unemployed veterans and certain disadvantaged youth.

The HIRE Act provides an exemption on social security payroll taxes for wages paid to qualified employees between March 19, 2010 and December 31, 2010.

Tax Tasks for 2010

File appropriate reports on time!
Do your best to turn and reduce excess inventory before year end.
If you have employees, make sure you withhold the correct taxes.
Get the facts on limitations to what interest on business loans is deductible.
Be prepared for an audit by keeping thorough records:

1.Travel and entertainment

• Date and place of meeting
• Name of individual (s) and company (s)
• Purpose of meeting
• $ receipts (airfare, car mileage, lodging, meals, tips, entertainment, etc)

2. How long?

• Financial-7 years
• Real estate-forever!
• Tax returns-forever!
• Home improvement-as long as you own it + 7 years

Tax Tips for 2010

If you are starting new business this summer, Karen Brehmer, Stakeholder Liaison
Internal Revenue Service, has some helpful tips from the IRS. She has provided SCORE with six tax tips the Internal Revenue Service wants new business owners to know.

1. Make sure you determine the best business structure you are
going to establish. The type of business entity will determine which tax
form you have to file. The most common types of business are the sole
proprietorship, partnership, corporation and S corporation.

2. The taxes you must pay and how you pay them will be determined by the type of business you operate. The four general types of business taxes are
income tax, self-employment tax, employment tax and excise tax.
3. You business is identified by your Employer Identification Number. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.

4. Keeping excellent records ensures the successful operation of your
new business. You may choose any record keeping system suited to your
business that clearly shows your income and expenses. Except in a few
cases, the law does not require any special kind of records. However,
the business you are in affects the type of records you need to keep for
federal tax purposes.

5. Business taxpayers must compute taxable income on a contiguous annual
accounting basis called a tax year. Some businesses can determine when their fiscal year begins and ends. Others are required to use the calendar year (Jan-Dec).

6. Business taxpayers must use a consistent accounting method,
which is a set of rules for determining when to report income and
expenses. The most common accounting methods are the cash method
and an accrual method. Under the cash method, you generally report
income in the tax year you receive it and deduct expenses in the tax
year you pay them. Under an accrual method, you generally report income
in the tax year you earn it and deduct expenses in the tax year you
incur them.

For more information on taxes and IRS regulations for small business, contact:

Karen Brehmer
Stakeholder Liaison
Internal Revenue Service
SB/SE Stakeholder Liaison Field
1550 American Blvd E  MS 4700
Bloomington MN 55425
Phone:  651-726-1555
Fax:      651-726-1582
karen.a.brehmer@irs.gov
http://www.irs.gov/publications/p583/index.html

To learn more about how to start, operate and grow a successful business contact SCORE by clicking the link on the right to the office nearest you or click here to request free face to face counseling.

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Susan Fronk, St. Paul SCORE
View more posts by Susan Fronk

Filed under: Accounting, Business Planning, Entrepreneurship, Management, Small Business News, Start-Up, Tax

Tags: American Recovery and Reinvestment Act, changes to tax laws, COBRA, IRS, IRS requirements, small business tax deductions, small business taxes