Remember when you first started your business? Unless you intended to operate as a sole proprietorship or single member LLC with no employees, one of your first interactions with the IRS was to apply for your employer identification number (EIN). After you submitted the application (Form SS-4), the IRS assigned you a nine-digit number. You shared the number with a bank to open your business account, and you’ve been using it on your income and payroll tax returns ever since.
You probably seldom think about your EIN, since it will generally last the life of your business. That’s true even if your business name changes or you move to a new address or add more locations, such as additional stores.
Your EIN will even survive the sale of your business when the buyer purchases the assets, liabilities, and charters. Also, you can continue to use the same EIN when your “C” corporation elects to become an “S” corporation.
There are situations, such as if you incorporate your partnership or sole proprietorship, when you’ll need to request a new EIN. The same applies when you switch from a corporation to a partnership or sole proprietorship.
In the past, the IRS seldom contacted you about your EIN. However, beginning in January 2014, you’ll have to provide updated information about the name and taxpayer identifying number of the person who controls, manages, or directs your business.
We’ll be in touch once the new form is available. As always, please call if you have questions.
Did you buy health insurance on the government website? If so, you may be eligible for a federal tax credit that begins this month. The new “premium assistance credit” will help offset health insurance policy premiums when your income is within an established range.
The determination of your eligibility to receive the credit, and the amount you qualify for, is calculated on the website as you complete your insurance application. Once you select a plan, you choose how much of the credit (if any) to apply to your premium. If you elect to use some or all of the credit to offset the premium, that amount is paid directly to the insurance company. You pay the remaining premium out-of-pocket.
When you complete your 2014 tax return, you’ll calculate the actual credit you are eligible for. The difference between the actual amount and the amount advanced to the insurance company affects the tax on your return. For example, when the advance payments are more than the credit you actually qualify for, you’ll owe the difference. Depending on your income, the amount you have to pay back may be limited.
Instead of having the credit reduce your premium, you can decide to pay for your policy out-of-pocket throughout 2014, and claim the credit when you file your return. The credit is refundable, so you might receive a refund even if you owe no income tax.
Be aware of special rules. For instance, if you’re married, you must file a joint return to claim the premium assistance credit, and you cannot take the credit if someone can claim you as a dependent. In addition, you may not be eligible if you purchase health insurance through a plan sponsored by your employer.
Because the credit is based on income, any changes in your financial situation during the year can affect the amount you’re eligible to receive. We urge you to call us to schedule regular tax reviews throughout 2014.
It seems like a Catch-22 situation. Due to a rule change, in 2014 you can only claim the federal “tax credit for small employer health insurance premiums” when you purchase qualifying health insurance through the government-established website, or “exchange.” Yet business enrollment on the exchange has been delayed until November of this year. How can you qualify?
Since the credit has been increased to 50% of the cost of health insurance premiums that you pay on behalf of your employees during 2014, the question is important to your tax planning.
The good news is you can still claim the credit when you purchase a qualifying health insurance plan. In fact, if your business is located in a state that operates its own insurance marketplace, the delay will not affect you at all.
In other states, you can buy a qualifying health insurance plan directly from an insurance company or through an insurance broker or agent, the way you always have. The difference is you’ll fill out an application to determine your eligibility for the premium credit.
Other rules for claiming the credit still apply, including employing fewer than 25 full-time equivalent workers with average annual wages of less than $50,000.
Give us a call. We’ll explain how the new rules work and help you decide what option offers the best tax advantage for your business.
When adding up deductions for your 2013 federal income tax return, be aware of two changes to Schedule A (Itemized Deductions).
- Overall limitation. The total of certain itemized deductions may be limited when your AGI exceeds an established “threshold.” For 2013, the threshold is $300,000 when you’re married filing a joint return ($250,000 when you’re single).
This reduction does not apply to your medical expenses, investment interest, casualty and theft losses, or gambling losses. However, it will reduce the total of your remaining, non-excluded deductions by three percent of the amount of your AGI over the threshold.
For example, say you’re married filing jointly and your AGI is $350,000. Since the threshold for your filing status is $300,000, your AGI exceeds the threshold by $50,000. Three percent of $50,000 is $1,500, which is the amount you would subtract from your total non-excluded itemized deductions.
The limitation is capped at 80% of total deductions, which means you can claim at least 20% of your itemized deductions no matter what your income is.
Other factors can affect your total itemized deductions, including your exposure to the alternative minimum tax. Please call us for details.
If either or both of the surtaxes that took effect in January 2013 apply to you, be prepared to see additional forms included with your federal income tax return this year.
- “Form 8959, Additional Medicare Tax,” is used to report the 0.9% surtax on your wages, Railroad Retirement Tax Act compensation, or self-employment income. The surtax kicks in if your income is greater than $250,000 when you’re married filing jointly, or $200,000 when you’re single.
Your employer was only required to withhold for this tax if your salary exceeded $200,000, without regard to income you or your spouse earned elsewhere. That means you may not have had enough tax withheld. You’ll use Form 8959 to reconcile the difference between what your Form W-2 shows as withheld and what you actually owe.
- “Form 8960, Net Investment Income Tax,” is used to report the new 3.8% tax assessed on your income from interest, dividends, capital gains, some annuities, and passive income.
To calculate the tax, you compare your investment income less certain expenses to how much of your modified adjusted gross income exceeds $250,000 when you file jointly ($200,000 when you’re single). The tax applies to the lesser of the two.
Call us if you want more details or assistance with your tax filing.
You’ve probably heard of the consumer price index, or CPI, a government statistic that measures the change in the price of certain items over a specified time period. But you may not realize the CPI affects your tax return.
That’s because the CPI is used as a measure of inflation, and the tax code calls for mandatory inflation adjustments to many numbers, including the standard deduction and exemptions.
Here are the inflation-adjusted figures for your 2013 federal income tax return.
- Standard deduction. The standard deduction is the flat dollar amount you can use to reduce your taxable income when you do not itemize. For 2013, when you’re single or married filing separately, your standard deduction is $6,100, an increase of $150 from 2012. If you’re married and file a joint return, or are filing as a surviving spouse, the 2013 standard deduction went up $300 from 2012, to $12,200.
- Exemptions. Two types of exemptions are available. You can claim the personal exemption for yourself and your spouse. The dependency exemption is for qualifying children or relatives.
For 2013, each exemption will reduce your taxable income by $3,900, an increase of $100 from the 2012 amount.
Inflation adjustments also increased the upper limits of tax brackets for 2013, as well as other exclusions, deductions, and phase-outs.
With the burgeoning cost of pharmaceuticals, doctor visits, and hospital stays, staying healthy has become an increasingly expensive proposition. In addition, health insurers are passing along more and more of their costs in the form of higher deductibles, increased premiums, and larger co-payments. Out-of-pocket costs for even one hospital stay can break a household budget, and it may take years to recover.
That’s the bad news. The good news? You can control some of these ever-increasing health care costs by following a few simple strategies:
- Negotiate, negotiate, negotiate. You haggle when buying an automobile. Why not use a similar tactic when discussing items on your hospital bill? In fact, out-of-pocket costs for a surgery may even exceed the cost of that shiny vehicle sitting in the driveway. Fortunately, health care providers are often amenable to reducing invoiced amounts, and some may offer discounts for upfront payment. You might also research the cost of similar services in your area and use those figures as a starting point for negotiation. One place to start is healthcarebluebook.com.
- Scrutinize the bill. Hospitals are notorious for double billing and mischarges. When you receive the itemized bill, pore over it — line by line. Look for charges that don’t make sense ($50 charges for hospital supplies that are available for a dollar at the local department store); charges for services you didn’t receive (physical therapy that never happened); or more than one charge for the same item (separate charges for the hospital room and standard amenities like bed sheets). Examine the rates for these items as well. Your insurer may have negotiated lower rates, but you may have been charged more-expensive uninsured rates. And make sure all eligible out-of-pocket expenses are credited toward your deductible.
- Comparison shop before you buy. Unless you’re being treated for an emergency, you may have time to locate more cost-effective health care alternatives. For example, using a stand-alone MRI imaging center may cost significantly less than the same test if offered by a hospital. A walk-in clinic or urgent care facility is generally cheaper than a visit to the local emergency room. Switching to generic drugs, when available, can save you up to 60% over name-brand equivalents.
If in doubt, call your insurer’s hotline to ask for help. Remember: insurance companies have a vested interest in your good health.
Building a business from scratch involves hard work, long hours, and, statistically speaking, a high probability of failure. Yet as researchers Stanley and Danko noted in their landmark book, The Millionaire Next Door, “self-employed people make up less than 20% of the workers in America but account for two-thirds of the millionaires.” For those businesses that survive, the rewards can be substantial.
Unfortunately, many businesses die before they get started. That’s because entrepreneurs often fail to estimate start-up costs with reasonable accuracy. As a result, the company cash account dwindles to zero before sales catch up.
If you’re preparing to launch a new business, take a hard look at the following:
- Assets. Your company’s requirements will vary depending on the industry and market for your goods and services. But you should be able to construct a list of assets necessary to keep the business up and running for at least a year. If you’re establishing a company in a brick-and-mortar location, you’ll need to factor in equipment, furniture, point-of-sale cash registers, incorporation fees, licenses, signage, rental and utility deposits, and remodeling costs. A service-oriented firm may not carry substantial inventory, but a product-based company should estimate initial inventory costs as well. Equipment and furniture vendors should be able to provide reasonable cost estimates for such items.
- Expenses. Costs to launch a company will also include items not found on the balance sheet — outlays to keep the company running from day to day. These might include legal fees, website development costs, expenditures for office supplies, marketing materials, and rent and utility deposits. If you hire folks to help get the company off the ground, their salaries should be included in the expense estimate as well.
- Cash. Once you know how much your company will need for assets and expenses, it’s time to develop a budget. Estimate revenue and collections for at least three months. Be conservative. Add up the cost of assets and expected expenses, then deduct cash in the bank and projected revenue. The difference will be your cash shortfall. This is the amount you’ll need to garner from other sources, including bank and personal funds.
The more accurately you estimate the above items, the more likely your company will survive long enough to become profitable.