Debt Ceiling Negotiations Have Big Effect on Small Business
If the debt ceiling negotiations fail, and the United States defaults on obligations everyone will see a double digit increase in their interest rates on borrowing ,and the value of the US dollar will experience even further decline. Food and energy costs have already taken a hit because of the acceptance of the US government that the US dollar should be devalued because of our poor credit rating. Failure to accept a debt ceiling will unleash unlimited interest rates on any borrowing by US companies and also result in further price increases for commodities such as energy,food, and precious metals.
This means that any borrowing by small businesses will result in an increase of double digit basis points on any type of borrowing, be it lines of credit or debt secured by hard or soft assets.
According to Steve Wynn this will be another “wet blanket” on business formation and job growth.
Mitigate Tax Penalties and Interest By Paying On Time
If you calculate and pay your tax liability in a timely manner before the end of the year you may avoid tax penalties and interest for late payments which you would incur if you waited to pay them with your annual tax return.
Penalties and interest for late payments and late filings may amount to hundreds or thousands of dollars depending on the size of your business.
Let us insure that your tax liabilities are paid on time during the year to avoid IRS and/or MADOR penalties and interest.
Call Blaine at (978) 604-4253
Take A Mid Year Check Up for Your Business. How Were You Doing for the First Six Months of 2010 Versus the First Six Months of 2011??
Every business has to take a mid year check up. Every business should compare their first six months of 2010 (1/1/10-6/30/10) to the same period for 2011. If your revenue is down you have to find out why. If your expenses are up you must investigate the reason.
You may have tax liabilities you didn’t anticipate even though business was down from 2010. Or you may be paying too many taxes.
Every business’ best practices should include an annual and rolling budget with monthly reports showing actual results to projected. You have to determine your target margin for products or services, and if you have more than one business line you should have a profit and loss statement that lets you drill down into the profitability of your various products and services.
We can also help you with pricing strategies and cost reduction strategies. Let’s both look “under the hood” of your enterprise and see what’s really going on. We believe mid year is an optimal time to do this so you can make “mid course corrections”.
Call Dr. Blaine at (978) 604-4253 for your mid year check up or email him at patstax@gmail.com.
The Cost Savings Facts About Our Accounting, Tax, and Bookkeeping Outsourced Services
If you hire a $15 an hour employee you will pay 7.65% in FICA taxes, 2-14% in state unemployment taxes, and .3 % in worker’s compensation insurance. So your $15 an hour employee is actually going to cost you around $ 21 per hour, not to mention the hike in your unemployment insurance if you have to fire or lay them off. If bookkeeping staff are added to make your total business employees 11 FTE’s (11 40 hour employees) in Massachusetts you will have to provide them with health insurance, which may cost more than the salary you pay them. Also $15 an hour is a low average for competent bookkeeping help, which may range up to $18-$20 per hour. At these rates total costs would range from $22 to $25 per hour. You would also have to add in costs for your own supervision and review or a third party who would perform high level tasks such as tax filings for substantially more than $25 per hour.
Outsourcers such as Patriot Tax and Bookkeeping, Inc. assume all these taxes and risks. All you will have pay is a reasonable rate per on going service on site or off site or special project and that’s that. We guarantee all our work per written corporate policies, so you can rest assured that you’re getting your money’s worth for the work done and the high level of the work done.
Call Blaine at (978) 604-4253 or email patstax@gmail.com.
Relief From the Leasehold Improvement 39 Year Life Through 2010 Section 179 Changes
Typically depreciated assets are recovered through the lifetime of their service. For a commercial lease this would be five years. Unfortunately for the lessee the congress has passed legislation that mandates that the recoverable life of leasehold improvements equal the recoverable life of the building costs, which are 39 years versus 5 years.
A temporary reduction to a 15 year cost recovery period was enacted by congress in 2004. This expired in 2009, so the cost recovery period for leasehold improvements reverted to the 39 year period.
For 2010 relief may be sought by revisions to Section 179 property, which now includes leasehold improvements. Rather than taking costs evenly over a 39 year period, leasehold improvements that are part of a lease, placed in service after three years in which the building was placed in service, and are contained in Section 1250 property (property that is disqualified for long term capital gain treatment). The cost of enlargement of the building, elevators. escalators, and any structural improvements of common areas are not qualified for the immediate Section 179 expense.
The limit for Section 179 expense of leasehold improvements is $250,000 of the overall annual limit of $500,000.
Section 179 Change for 2010: Certain Real Property Improvements May be Immediately Expensed
The Section 179 Deduction for Items, which may be subject to depreciation has always allowed an immediate deduction of expenses for capital items. Most accountants choose not to avail their clients of the election when they start their businesses due to the initial tax losses of a start up electing rather to use the depreciation over time so it may be applied to net sales as the business grows.
New for 2010 is the Section 179 deduction for not only equipment and vehicles but for capital improvements to real property.
The immediate expensing of all costs associated with real property improvements include:
Any improvements to owned property subject to depreciation.
Any leasehold improvements that are part of a lease, apply only to space occupied by the lessee, does not involve elevators, escalators, enlargement of the building, common areas.
Taxpayers can deduct up to $250,000 in any year subject to taxable income limitations.
Any unused Section 179 deduction expenses may be depreciated in following years.
Rental Property Tax Reporting Tips
Rental property activities are typically reported on the federal Schedule E Income from Rental property on your 1040 individual income tax return unless you are in the business of owning rental property such as a licensed broker, then rental activities would be reported on Schedule C if a sole proprietor or sole member LLC ,or on corporate , partnership, or trust tax returns. Rental income is reported on a cash basis and you must indicate whether you received the information through a 1099 from the renter.
You may deduct all expenses associated with renting the property. These include advertising, management fees,qualified mortgage interest, property and liability insurance, property taxes, water, sewer and other utilities not paid by renters, repairs and maintenance, snow plowing and landscaping, depreciation on the property, and any landlord expenses incurred including travel to and from the property, office supplies, and tools and supplies, telephone expenses, and any other personally reimbursed costs incurred.
Building depreciation costs include the acquisition price for the building(s) only and not the land costs. Any building improvements will be added to the purchase price as depreciable costs. For residential rental property the building costs are depreciated over 27.5 years. Upon sale of the rental property any depreciation claimed must be subtracted from the tax basis of the sale. This means any depreciation taken on the property will be recognized as a short term or capital gain if the property was held one year or longer.
If the property is owner occupied you must allocate costs according to the square feet of the rental property to total square feet. Common areas will be allocated according to the rental proportion of square feet. If you occupy the property the portion of your main residence’s property tax and mortgage interest costs may be deducted as itemized deductions on Schedule A of your personal tax return.
Patriot Poll Says 57% Of Customers Want You To Call Them on Monday
Patriot Tax and Bookkeeping, Inc, has recently conducted research as to what day customers preferred to be contacted by their vendors. A random poll among business people in the Boston area has revealed that 57% preferred to be contacted on Monday and the rest to be contacted on Thursday. The theory behind these preferences is that people want to get the details of their businesses done early in the week to clear their schedules for marketing and managing overall operations for the rest of the week.
File Under: No Thanks I’ll Take The Cash
IRS reminds filers about savings bond option
The IRS is reminding those who haven’t filed their tax returns that they can receive their refunds in the form of savings bonds, payments to retirement accounts, mutual funds, as well as in the form of cash directly deposited to a checking or savings account.
By March 4, the IRS had issued more than 52 million refunds worth $161 billion for an average refund of $3,070.
For tax year 2010 returns, there are new savings bond options. Last year, if the taxpayer chose to receive a savings bond as part of the refund, it could only be issued in the taxpayers’ name. This year, taxpayers can designate anyone to receive a savings bond and also designate the co-owner or beneficiary. Also a new section was added to Form 8888, Allocation of Refund (Including Savings Bond Purchases), for entering savings bond information so that taxpayers no longer need to enter a pre-specified routing number. Instead, taxpayers will enter the bond owner’s name. The savings bonds will be mailed to the taxpayer or the person designated on the form.
Taxpayers who claim a tax refund on Form 1040 can use Form 8888 to split their refunds. Refunds can be directed into bank accounts and other financial institutions where their mutual funds or retirement accounts are managed and to purchase U.S. Series I Savings Bonds. Taxpayers can choose to use a portion of the refund to buy up to $5,000 in low-risk savings bonds, which earn interest and protect owners against inflation. The bonds must be purchased in $50 increments. Direct deposit of any remaining refund amounts is no longer required. Paper checks can be requested for the balance.
During 2010, more than 99,000 bonds were purchased using Form 8888, totaling more than $11 million dollars. To check the status of a bond purchase request, go to the “Where’s My Refund” section of IRS website, www.irs.gov. If the IRS has already processed the refund and placed the request for the bond, then the tax filer should contact Treasury Retail Securities at 1-800-245-2804.
Canceled Debt on a Foreclosure or Short Sale Can be Exempt From Taxes
IRS debt guidance really hits home
Sunday, March 13, 2011 – Updated 3 days ago
WASHINGTON — The IRS has issued fresh guidance on how to handle canceled mortgage debt in the upcoming tax season — just as hundreds of thousands of homeowners have negotiated loan modifications or short sales or have been foreclosed upon during the past year.
It’s a huge issue, widely misunderstood by consumers, and involves potentially billions of dollars of tax liability.
When most debts are canceled by a creditor, such as unpaid balances on student loans or credit cards, the forgiven amounts are treated as ordinary, taxable income by the Internal Revenue Code. But under a special exemption adopted by Congress covering distressed home mortgages, many owners can escape the ultimate double-whammy: getting hit with extra taxes because your mortgage went seriously delinquent or you lost your house.
In its latest guidance, the IRS focuses on several key points that owners — and former owners — need to know. Tops on the list: Just because a lender wrote off a portion of your mortgage debt, this doesn’t mean you automatically qualify for special tax treatment. To the contrary, there are essential tests you need to pass to qualify: The debt your lender canceled must have been used by you “to buy, build or substantially improve your principal residence.”
There’s a lot packed into these words, so it’s important to parse them carefully. Start with the house itself. It can’t be your second home; it can only be your main residence, and fully documentable as such.
Next, the unpaid mortgage balance your lender canceled as part of a modification, short sale or foreclosure cannot have been used for non-qualifying purposes, like for something other than acquiring or constructing the house or making capital improvements to it. Refinanced mortgage debt used for kids’ tuitions, vacations, buying cars or paying off credit card bills won’t make the grade.
The IRS offers a hypothetical example of how borrowers can mess up their chances for tax relief. A taxpayer took out a first mortgage of $800,000 when he purchased his home years ago. Thanks to strong appreciation in property values, the house was soon worth $1 million and the owner refinanced the mortgage to $850,000. The loan balance at the time of the refinance was down to $740,000, and the owner used the $110,000 in cash-out proceeds to buy a new car and pay off credit card debts.
Bad move. A year or two later — presumably well into the recession and housing bust — the home value had plunged to between $700,000 and $750,000. The owner then convinced his bank to allow a short sale for $735,000 and to cancel the remaining $115,000 of unpaid debt.
Does the owner get tax relief on the full $115,000 under Congress’ special exemption? No way, according to the IRS. He only escapes income taxes on just $5,000 of the $115,000 because he spent the other $110,000 on a car and credit card balances — neither of which counts as “qualified principal residence” debt.
Greg A. Rosica, a tax partner with accounting giant Ernst & Young, says misunderstandings of the rules about mortgage debt forgiveness are “commonplace.” People often don’t know that the money they used for vacations and other purposes “just will not qualify” under IRS rules. Taxpayers who walk away from their houses may be liable for taxes, said Rosica, if at some point the property “no longer was their primary residence” — say it was converted into a rental property.
The IRS highlighted some other key points in its guidance:
• Mortgage cancellation relief is capped at $2 million for singles and married taxpayers, $1 million for married owners filing separately.
• Anyone who’s had mortgage debt cancellation as part of a loan modification or foreclosure should go to IRS.gov and download Form 982 and IRS Publication 4681 for additional filing details. Alternatively they can call 800-TAX-FORM to request copies. Lenders who write off unpaid mortgage balances typically provide borrowers with a year-end IRS form 1099-C cancellation of debt statement, including the amount of the loan forgiven and the fair market value of the property.
If you’ve had mortgage debt canceled but have never received a 1099-C from your lender, get in touch and request it if you want to avoid federal tax hassles