Take advantage of the Small Business Health Care Tax Credit

If you are a small business owner with employees who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35% of the premiums paid. Employers with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify.

The maximum credit for tax years 2010 to 2013 is 35% for small business employers and 25% for small tax-exempt employers such as charities. On Jan. 1, 2014, this rate will increase to 50% and 35%, respectively.

You can carry the credit back or forward to other tax years even if you did not owe tax during the year. And since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

Eligibility

To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year.

The amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 full-time equivalent employees, or if the average wage is more than $25,000, the amount of the credit you receive will be less.

Claiming the Credit

In order to calculate the credit, you must use Form 8941, Credit for Small Employer Health Insurance Premiums.

If you are a small business, include the amount as part of the general business credit on your income tax return.

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don’t usually do so.

Remember… If you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.

For more information, check out the Small Business Health Care Tax Credit page on IRS.gov.

Daniel Stoica Accounting Professional

There’s still time to contribute to your IRA.

Did you know that you have until April 17, 2012 to set up a new IRA or add money to an existing IRA and have it count for 2011? Although you must make all elective deferrals to employer-sponsored 401(k) plans by December 31, 2011, the April deadline for new IRAs or existing IRAs is good news for those taxpayers who need some extra time to add to their 2011 contributions. You can normally contribute up to $5,000 to a Roth or traditional IRA. If you’re 50 or over, the amount increases to $6,000.

It is normally best to try and make the maximum annual contribution to an IRA because of the tax advantages of investing through an IRA. Contributing to an IRA has a use-it-or-lose-it nature because you can’t make up for years that you did not contribute the maximum amount. For instance, if you contributed only $2,000 in 2010, you cannot make up the difference in 2011. But you can start making the maximum contribution THIS year!

For more information, speak with a tax professional.

Daniel Stoica Accounting Professional

The Earned Income Tax Credit (EITC) is a popular tax credit for low-and moderate-income workers and working families. Approximately one in five eligible taxpayers do not claim the EITC, but many who do claim the credit do so incorrectly or are even ineligible. In order to ensure that the credit is taken by those taxpayers who do qualify, the IRS is now requiring all paid tax return preparers to file a due diligence checklist, or Form 8867, with any federal tax return that is claiming the EITC. This form is normally required to be completed and filed in a preparer’s records, but now the form must also be included with the returns.

Unlike most deductions and credits, the EITC is refundable, meaning that taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit is $5,751.

To make sure that eligible taxpayers receive the correct credit amount, this new reporting regulation requires preparers to file the Form 8867 with each return that claims the EITC, effective January 1, 2012. In addition, the penalty for noncompliance with the due diligence requirement has increased from $100 to $500.

More information about EITC and the due diligence requirement for tax return preparers is available on IRS.gov.

Daniel Stoica Accounting Professional

At the end of the calendar year, many taxpayers make last-minute charitable contributions in order to help others AND reduce their taxable income.

For information about charitable contributions, check out this “mini-course” endorsed by the IRS: http://www.stayexempt.irs.gov/Mini-Courses/Can_I_Deduct_My_Charitable_Contributions/can_i_deduct_my_charitable_contributions.aspx.  This 20-minute course covers monetary donations as well as the donation of household goods such as clothing or furniture.

Generally speaking, to deduct a charitable donation of money, a taxpayer needs to have a written communication from the charity showing the name of the charity as well as the date and amount of the contribution. A bank record such as a canceled check, bank statement or credit card statement will also suffice if the name of the charity as well as the date and amount paid to the charity is included on the bank or credit car record. It’s also important to verify that the charity is a qualified one.

For more information about charitable donations, either monetary or clothing and household goods, visit the link above or visit the “Charities and Donations” section on the IRS website (www.irs.gov). You may also want to speak with a tax professional.

Daniel Stoica Accounting Professional

In a word, no.

Many taxpayers find themselves in a situation where they cannot pay their tax obligations for a particular tax year.  If that’s your situation, you can opt to make monthly payments through an installment agreement if you’re not financially able to pay your tax debt immediately. You can find out more about installment agreements at http://www.irs.gov/individuals/article/0,,id=243335,00.html.

However, if you are currently paying your tax obligation through and installment agreement, any refund due to you in a future year will be applied  against the amount that you owe.

Some facts about installment agreements and refunds:

• The IRS will automatically apply the refund to the taxes owed.
• You must continue making your installment agreement payments as  scheduled and in full because your refund is not applied toward your  regular payment, and therefore any payments due under the installment  agreement must still be made in full.
• Regardless of whether you are participating in an installment  agreement or payment plan with the IRS, you may not get all of your  refund if you owe certain past-due amounts, such as federal tax, state  tax, a student loan, or child support. For more information you can  contact Financial Management Service (FMS) toll-free at 800-304-3107.

If you have any questions about installment agreements or refunds you are owed, contact a tax professional.

Daniel Stoica Accounting Professional

The IRS routinely evaluates the standard mileage rates that are used to calculate the deductible costs of using a vehicle for business, medical, moving or charitable purposes. This evaluation is based on an annual study of the fixed and variable costs of operating an automobile, and the IRS adjusts the rates accordingly. Because the fixed and variable costs of operating a vehicle have not drastically changed since June 2011, the last time a standard mileage rate adjustment was announced, the 2012 rates will not change much.

Beginning on January 1, 2012, the standard mileage rates for the use of cars, vans, pickups or panel trucks will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is not changing from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

If you have questions about the best way to handle miles you have driven for business, charitable, medical or moving purposes on your taxes, contact a tax professional.

Daniel Stoica Accounting Professional

If you are self-employed, you most likely have to pay self-employment tax. Self-employment tax consists of Medicare and Social Security taxes for individuals who work for themselves and is similar to the Medicare and Social Security taxes that are withheld from the pay of most people who earn wages.

In order to figure self-employment tax, you should use Schedule SE (Form 1040).

You must pay self-employment tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. For church employees, your income needs to be $108.28 or more.

Generally, you must pay self-employment tax on net earnings from self-employment.  If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ to figure net earnings from self-employment.

If you have earnings subject to self-employment tax, use Schedule SE to figure your net earnings from self-employment.  Before you figure your net earnings, you generally need to figure your total earnings subject to self-employment tax.

Note: The self-employment tax rules apply no matter how old you are and even if you are already receiving Social Security or Medicare.

If you have questions about self-employment tax, consult with a tax professional.

Daniel Stoica Accounting Professional

Did you know that there is an independent organization within the IRS called the Taxpayer Advocate Service (TAS)?  The TAS helps taxpayers who are going through economic difficulties such as a lack of adequate food, housing or transportation. This organization also works with individuals who are trying to resolve a problem with the IRS or who feel that the IRS system is not working properly.

The Taxpayer Advocate Service claims that it is the voice of the taxpayer at the IRS, and its services are free and tailored to meet the needs of taxpayers. Taxpayers may be eligible for TAS help if they have tried to resolve their tax issues through regular IRS channels but have gotten nowhere or they feel that IRS procedures are not working properly. They also help taxpayers whose problems are costing a great deal of money and difficulty, and that help may also include the cost of professional representation.

Individuals as well as businesses may receive help from the TAS.

The Taxpayer Advocate Service has offices in every state. Taxpayers can call 1-877-777-4778 for more information and to see if you qualify.

Daniel Stoica Accounting Professional

If the IRS has made a determination concerning a tax issue, as a taxpayer you may turn to Appeals if you do not agree with their determination. Appeals provides taxpayers an opportunity to discuss disagreements they may have concerning the application of tax law, and the mission of Appeals is to settle tax disagreements in a fair and impartial basis and also avoid going to the Courts and a formal trial.

The following information will help you determine if you qualify to speak with Appeals:

-If you received an IRS correspondence explaining you have the right to come to Appeals to dispute an IRS decision.
AND
-You do not agree and are not signing an agreement form sent to you.

If the above are true, then you may be ready to request an Appeals conference or hearing. This page explains how to request an appeals conference or hearing.

Appeals is not applicable to you if:

-You cannot afford to pay the amount you owe and agree that you owe the amount
-The correspondence you received from the IRS was a bill and there was no mention of Appeals.

If you cannot identify the requirements, or if you do not meet the conditions for coming to Appeals as explained above, contact the person in the IRS you are working with or Customer Service for assistance at 1 (800) 829-1040.

These online videos can also help you understand what to what to expect of the Appeals process.

Daniel Stoica Accounting Professional