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Tax Planning for the Long Haul; The Good, the Bad, and the Ugly in the Tax Code; Take Credit for Your Business; Steer Clear of Tax Scams

Tax Planning for the Long Haul
The Good, the Bad, and the Ugly in the Tax Code
Take Credit for Your Business
Steer Clear of Tax Scams
Profile: Callanan & Klein Communications: Streamlining the Workflow
Make Your Business Case

Tax Planning for the Long Haul

When it comes to taxes, most business owners don’t want to pay any more than the bare minimum legally required—nor should they. Still, the prospect of an audit by the IRS or a state taxing agency can be daunting, and that’s not an unreasonable fear. Michael Rozbruch, a tax expert and CEO of Tax Resolution Services, says the IRS is likely to increase the number of small businesses it audits this year. In fact, the IRS has requested more than a 5 percent increase in enforcement activities for 2011. The best way to avoid the hassle and expense of an audit while still minimizing tax liability is to make tax planning a year-round activity.

“For anyone planning to start and/or grow a business, it’s more important than ever to know audit red flags and avoid tax problems,” Rozbruch says. “While it’s perfectly legal to work within existing law to avoid paying more than what is required, cheating the government on taxes is criminal and can result in severe penalties—even jail.”

Two areas where SMBs are prone to get into trouble are payroll taxes and sales and use taxes. The IRS and state agencies zero in on them because they often represent the biggest source of potential additional tax revenue. Whether your business uses a third party such as a payroll service to handle these taxes or does it in-house, it’s important to make sure your remittances are accurate and timely.

Of course, U.S. tax laws are renowned for their expansiveness and complexity, and even the best-intentioned of businesses can be tripped up by the mish-mash of deadlines, reporting and filing requirements, exemptions, credits, etc., with which they may have to comply. A good starting point is to create a tax-planning calendar. The information it contains may vary based on factors such as type of business entity, industry, and tax year end date, but some common items that should be included are: filing dates for corporate and individual tax returns, deadlines for extension requests, remittance dates for quarterly taxes, and a reminder to start planning any year-end tax moves in November.

On a daily basis, business owners should keep careful track—and meticulous records—of any business-related expenses that may be deductible. Don’t overlook items such as interest paid on loans to finance the growth or expansion of your business, banking fees paid on business accounts, etc. A spreadsheet tabulating weekly, monthly, and quarterly totals can be a valuable resource for your tax advisor or preparer.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended a number of favorable provisions for SMBs through December 31, 2011. It’s a good idea to meet with your tax advisor early in the year to make sure you are taking advantage of any breaks for which you might be eligible.

As Benjamin Franklin so aptly observed, “In this world, nothing can be said to be certain, except death and taxes.” So far, no one’s come up with much of an answer to the first certainty, but making tax planning a year-round activity can help minimize the impact of the second.

Inc. Resource: How to Prepare for Next Tax Season Now

Hopefully at this point in the year, you’ve finished reveling in your tax refund or you’ve quit bellyaching about the hefty bill you had to fork over. Now, it’s time to do the unthinkable and start planning for next tax season.

Learn more

The Good, the Bad, and the Ugly in the Tax Code

As with most things tax-related, there is both good news and bad news for businesses in 2011. Two of the brightest spots are an expansion of Section 179 expense deductions and “bonus” depreciation on qualified assets purchased after the 179 deduction limit is reached.

Section 179 of the Internal Revenue Code was created by the federal government to encourage businesses to invest in themselves. It allows businesses to deduct the full purchase price of qualifying equipment and/or software from their gross income in the year it is purchased, rather than having to spread the deduction out over several years through depreciation. Small business advocates consider Section 179 one of the few incentives contained in recent stimulus bills that actually help small businesses, although larger businesses also benefit. For 2011, the maximum amount of equipment purchases businesses can deduct rises to $500,000 from its previous cap of $250,000.

The are additional benefits to Section 179. If your business will be purchasing more than $500,000 of qualifying capital equipment in 2011, you can claim “bonus” first-year depreciation of 100 percent on amounts totaling up to another $1.5 million.

Those combined savings can really add up. For example, a business making $650,000 in capital equipment purchases this year can write off the total amount. Assuming a tax rate of 35 percent, that means a reduction in taxable basis of $227,500, effectively lowering the total equipment cost to $422,500. Under prior rules ($250,000 cap on Section 179 deduction and 20 percent first-year depreciation on the remaining $400,000), total equipment cost would have been $544,500. The business potentially saves $122,000. (Find more information about changes to Section 179 at Section179.org).

Burton Speers, tax principal at Mengel Metzger Barr & Co., a multi-office CPA firm in western New York, points to some other positive developments in the tax code for small and medium-size businesses:

• Provisions for a 100 percent exclusion from federal tax on the sale of qualified small business stock have been expanded.
• The allowable deduction for business startup costs has been doubled to $10,000, subject to certain limitations; startup costs in excess of $10,000 are allowed as a deduction over 15 years.
• Rules related to substantiating business use of cell phones have been softened, making it easier to claim the deduction.
• A tax-free fringe benefit for employer-provided transit passes or parking is extended to $230 through 2011; it had been scheduled to drop to $120.

On the negative side of the ledger, proposed changes to 1099 reporting requirements have many small business advocates up in arms. The new rules, which were attached to the health care bill and are set to take effect in 2012, require all businesses to file 1099 forms for goods as well as services, if those goods cost more than $600 annually. They also remove the distinction between corporations, which previously did not have to receive the forms, and unincorporated entities, which did. Opponents—including the National Federation of Independent Business and the National Association of Manufacturers—argue the resulting recordkeeping complexities for small and medium-size businesses would be mindboggling.

Inc. Resource: Tax Strategies

Tax planning is a year-round event if you want to minimize your business’s tax bill. Whether it’s surviving an audit, capitalizing on business deductions, or finding tax-friendly ways to run your business, this Inc.com guide can help reduce your tax obligations and make paying taxes less anxiety provoking.

Learn more

Take Credit for Your Business

Allowable deductions are a great way for small and medium-size businesses to lower their tax bills. Tax credits are even better. While deductions reduce the total amount of income on which a business pays taxes, credits provide a dollar-for-dollar reduction in your tax bill. How big a difference is that? For a company with $1 million in gross revenues and subject to a 35 percent tax rate, a $1,000 deduction would net just $35 in tax savings, while a $1,000 tax credit would reduce taxes due by $1,000.

Why on earth would governments extend such largesse towards businesses, you might ask. In most cases, they do so as an incentive to promote a desired behavior on the business’s part. Health care is a great example. Starting with tax year 2010, the IRS is offering a tax credit to small businesses that begin offering health care coverage to their employees. (Check this IRS link for more details.) A business with 15 employees and a $600,000 annual payroll that contributed $90,000 towards employee health care premiums would receive a tax credit of $2,100 each year through 2013 and $3,000 beginning in 2014. (Use this Tax Credit Calculator to determine your potential tax credit.)

Other tax credits worth noting that are available to SMBs include:

• The research and development tax credit, which has been extended through the end of 2011and is available to businesses that introduce new products, improve current products, and/or develop or enhance their processes.
• The Work Opportunity tax credit, also extended through the end of this year, which provides financial incentives for employers to hire workers from certain disadvantaged groups. In general, it is worth 40 percent of up to $6,000 of an eligible worker’s wages during the first year of employment.
• A tax credit for employers who provide child-care facilities, which has been extended through 2012.

All told, the IRS offers about 30 different tax credits to businesses. Use this link to access the list and links to the forms needed to file for them.

Inc. Resource: How to Write Off Travel and Entertainment Expenses

Are you perplexed by the 13-page IRS guidelines for deducting travel and entertainment expenses? Inc.com’s shorter (less complicated) guide will help you find deductions and hopefully avoid an audit.

Learn more

Steer Clear of Tax Scams

Every year, the Internal Revenue Service issues its “Dirty Dozen” list of tax scams, many of which are of particular interest to small and medium-size business owners. In some cases, SMBs are the target of these schemes. In others, sadly, they are the perpetrators. In either case, the IRS, not surprisingly, has a keen interest in these activities and monitors them closely. IRS Commissioner Doug Shulman advises that taxpayers “should be wary of anyone peddling scams that seem too good to be true.” He also warns that his agency will pursue anyone suspected of engaging in scams.

Among the “Dirty Dozen” scams the IRS warns businesses to watch out for are:

• Return preparer fraud. There were widespread reports last year of tax preparers telling clients they had to pay back stimulus payments and then pocketing the money, says Robert Siciliano, an identity theft expert and security consultant, and the same scam is cropping up again this year. “Make sure you do research and choose your tax preparer wisely,” he advises.
• Phishing. This is a tactic used by scam artists to dupe victims into revealing sensitive personal and financial information online. IRS impersonation schemes increase during tax season, the agency warns, and may take the form of emails, tweets or phony websites. Often, the scam artists try to mislead taxpayers by telling them they have a refund coming but must reveal personal information to claim it. If you receive a suspicious email purporting to come from the IRS, do not open any attachments or click on any links in the email. Instead, forward the email to the IRS at phishing@irs.gov.
• Identity theft via tax return. “It seems crazy to think that someone would actually file a tax return in your name, but it’s being done,” Siciliano reports. Scammers get hold of enough information to file a return in the name of another person or business and simply make up financial data that will result in a refund being issued. Victims report it can take months to get the matter resolved, and then their future returns stay on a special IRS watch list for years. Filing early can reduce your potential exposure to this scam.

The complete IRS “Dirty Dozen” list, can be found here.

Profile: Callanan & Klein Communications: Streamlining the Workflow

In 2010, Callanan & Klein Communications, a boutique public relations firm serving the Boston market, won Comcast’s 2010 Productivity@Work contest. The hardware and software packages the company won are boosting productivity, streamlining business processes and helping the firm focus more of its energy and resources on business growth.

“Prior to implementing Microsoft Communication Services, including Microsoft Exchange and Microsoft SharePoint 3.0, through Comcast Business, collaboration consisted of gathering individuals in a conference room or emailing documents back and forth,” says Erin Callanan, a principal in the firm. “We would spend a significant amount of time trying to track down the latest lists or figuring out who had the most updated version of a document. “This was lost time—something that is extremely valuable to every small business.”

Today, all of Callanan & Klein’s documents are stored in a central location, and its overall workflow is greatly streamlined its workflows. “If I need to track down a client’s logo, I know just where to go,” Callanan explains. “No longer do I have to go scrolling through my email files trying to remember when it was sent.”

Streamlined work processes have been key to the productivity gains Callanan & Klein has achieved, but there have been other benefits as well. “It’s the little things, like not having to worry about synching up my smartphone so I have the most up-to-date calendar or contacts, or the ability to collaborate on a document and know immediately when changes have been made,” she says. “In addition to creating a more streamlined approach to delivering results for our clients, it allows us to refocus the lost time on growing our business.”

Learn more about how Microsoft Communication Services, including Exchange, SharePoint 3.0, and more — all of which are included free of charge as part of Comcast Business Internet — can streamline your operations.

Make Your Business Case

We’d like to highlight your success story in Productivity@Work. If you have a challenge that Comcast Business Services has helped you solve, or you have a unique story to tell about your accomplishments, briefly tell us about it in an email to: Editor_at_newsletter@cable.comcast.com, and your business may be the next one you see in Productivity@Work.

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