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5 Business Tax Breaks for Disasters

On the heels of Hurricane Florence, businesses should be aware of tax breaks to help them through weather disasters resulting from nature or humans. Tax relief can help ameliorate the financial cost from the damage or destruction to your business property. Business Tax Breaks for Disasters Filing Extensions When disaster strikes, the IRS may give businesses more time to meet certain tax responsibilities. For example, following Hurricane Florence the IRS announced relief for victims of that disaster: Businesses with extensions (e.g., calendar-year partnerships and S corporations whose 2017 extensions run out on September 17, 2018) have until January 31, 2019, to file. Individuals and calendar-year C corporations with a filing extension for their 2017 returns on October 15, 2018, have until January 31, 2019, to file. Individuals and businesses can pay estimated taxes for 2018 that were due on September 17, 2018, and the final installment that will be due for C corporation on December 17, 2018, and for individuals on January 15, 2019, by January 31, 2019. Quarterly payroll and excise tax returns normally due on October 31, 2018, can be timely filed by January 31, 2019. In addition, penalties on payroll and excise tax deposits due on or after September 7, 2018, and before September 24, 2018, could be abated as long as the deposits were made by September 24, 2018. Disaster Loans Businesses may be able to obtain low-interest disaster assistance loans through the SBA. A Business Physical Disaster Loan can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory, and business assets. An Economic Injury Disaster Loan can provide relief even if you don’t have any physical injury. Treatment of Insurance Premiums As the Boy Scouts say: Be prepared and carry sufficient insurance for protection. Your premiums are fully deductible. Insurance to consider: Property insurance. This is part of a Business Owner’s Policy. Flood insurance. This is a separate policy; learn more from FEMA. Business continuation coverage. This policy pays the bills (e.g., rent, wages) when a disaster shuts you…

Foxconn Hiring 3,000 Veterans in Exchange for Tax Credit

When running a business, keeping costs down and retaining good employees are two of life’s major challenges. But what if you could do both at the same time? Foxconn just announced its plans to launch a military veteran recruiting campaign with 20 stops across the country to help staff its new flat screen manufacturing facilities in Wisconsin. Its goal is to hire 3,000 veterans, and at a potential annual tax benefit of $9,600 per employee per year; that’s nearly $29 million per year in tax credits, which are far more valuable than tax deductions. Interested in these sorts of tax credits for your company? Here’s some information on the Work Opportunity Tax Credit (WOTC) plan. Why Would the Federal Government Allow Such a Large Tax Credit? Approximately 250,000 Americans transition from the military to civilian life each year. Many struggle to find jobs for a variety of reasons. Some can’t find civilian jobs in the field they were trained in the military. Some lack civilian business connections. And some are disabled, and have a more difficult time finding gainful employment. In response, the WOTC was created to entice business owners to hire unemployed veterans. Specifically, the Obama Administration created the Returning Heroes Tax Credit, which provides up to $5,600 for hiring unemployed veterans between January 1, 2016 and December 31, 2019, with amounts varying based on how long the veteran had been unemployed. This amount is doubled, up to $9,600, under the Wounded Warrior Tax Credit, if the new employee has a service-connected disability. It’s the U.S. Tax System, so of course, certain restrictions apply. Also, before the credit can be taken, the employment needs to be verified through a very specific process. Keep in mind that, since this is a tax credit and not a tax deduction, certain tax-exempt organizations can receive this credit as well, and take the credit towards their employer’s share of Social Security taxes. Is Foxconn Doing This for Tax Credit? or Good PR? Foxconn, a Taiwanese electronics manufacturer, may have ulterior motives behind this campaign. It has received a host of negative press after…

Startup Helps You and Your Employees Deduct Pre-Tax Spending

An application called Alice will help business and their employees take advantage of pre-tax spending to the tune of hundreds or thousands of dollars every year. A Peek at the Alice Pre-Tax Spending App Alice gets connected to the payroll of participating employers and once it is up and running, it monitors the pre-tax eligible items employees spend. The items can be everything from childcare related expenses to prescriptions, ride-sharing, parking, monthly train passes and more. The savings also extend to the business. According to the company, Alice can save employers around 8% of every dollar spent pre-tax by their employees. It does this by lowering Social Security, Medicare, local taxes, and unemployment premiums a business would have to pay. The pain point Alice has solved is removing the complexities of implementing this type of benefit by a company, especially a small business. ? What is Pre-tax Spending? According to Alice, there are 10 categories of everyday expenses which count toward pre-tax spending. The amount you spend in these categories is not taxed on your paycheck. So when your employees spend more in pre-tax, the amount of money your company pays in Social Security, Medicare, local taxes, and unemployment premiums is lower, benefiting both parties. Alice can increase the take-home pay of enrolled employees by an average of $583.06. This, of course, can be higher depending on how much the employee spends in eligible expenses. Here is a full list of the eligible expenses. Mass-transit (train, subway, ferry, etc) Parking (street parking, garages, etc) Ride-sharing (UberPool, lyft via chariot vanpooling) Child care (daycare, nannies, some pre-school) Adult care (includes transportation costs) Day Camp (summer, before school, after school) Eye care (glasses, contacts, vision exam, etc) Dental care (cleanings, x-rays, procedures) Medical expenses (doctor co-pays, coinsurance, etc) Prescriptions (mail order, pharmacy, etc) Real World Math and Saving as Explained by the Company Sarah Sarah commutes via the train, spending $121 on a 30-day transit card. That works out to $4.03 per day which is $1,472.17 per year Sarah’s marginal tax rate is 35%. By paying for transit with her debit card…

Thinking of Changing Your Business Structure in Light of Latest Tax Reform? Read This First

With the dramatic drop in the corporate tax rate to 21% and the introduction of the new 20% qualified business income (QBI) deduction for owners of pass-through entities, there has been growing focus on whether businesses should change their legal status to take advantage of new tax breaks. Impact of a Change in Business Structure Here is a brief overview of the consequences of changing entity status. Going from S to C Status An S corporation that wants to use the flat 21% corporate tax rate can revoke its S status and become a C corporation if the shareholders vote for it (at least 50% must agree). The revocation is effective on the date specified in a notice sent to the IRS. If the date is mid-year, then the corporation has two short years (one as an S and one as a C). If there’s no date provided, then the revocation is effective as of the first of the year of the notice if received by the IRS on or before the 15th day of the 3rd month of the corporation’s tax year, or the first of next year if the notice is received later. For example, if a calendar-year S corporation files a revocation in September 2018 with no specified date, it will be effective on January 1, 2019. Under a special rule, any accounting adjustment attributable to the revocation of S status can be taken into account ratably over six years beginning with the year of the change. The caution here is that if things don’t work out as planned (e.g., Congress changes the tax rules again), the corporation usually cannot make a new S election for five years. Going from Sole Proprietor to Corporation Incorporating to gain the use of the flat 21% corporate rate usually can be done on a tax-free basis. And this gives the owner the non-tax benefit of personal liability protection. But incorporating adds another level of tax administration, namely the filing of a separate corporate return (and likely other state-level obligations). And it makes the business subject to other tax rules applicable…

30% of Small Businesses Think They’re Overpaying on Taxes

The complexities of the US tax code are notorious, so it shouldn’t come as a surprise when a new Clutch survey indicates 30% of small businesses think they are overpaying. Even though close to a third of businesses believe they are paying more than their share of taxes, 95% said they are confident about the accuracy of their financial records. This contradiction further highlights the challenges small businesses face when it comes to finance and taxes. In addition to some revealing insights, Clutch is also providing four tips so small businesses can better manage their finances in 2018. When a business manages it finances improperly, it affects the overall operations of the organization. Everything from growth to hiring the best talent can be hindered if a company can’t clearly see its financial status. For small businesses operating with limited resources, the ramifications are more consequential. Riley Panko, Senior Content Developer and Marketer, Clutch, put it best in the report, “Small businesses often fail to manage their finances until it’s too late.” Small businesses have to be aware of their strength and weaknesses and use the best available resources to them to ensure they don’t find themselves in this positions. Panko goes on to say, “Successful small businesses must know how to manage their finances properly. Using outdated or improper financial and accounting processes, however, may be inhibiting small business revenue growth.” Clutch carried out the survey with the participation of 302 small business owners or managers involved in the financial business decisions of their organization. Clutch said the goal is for small businesses to use the report so they can understand where their accounting is failing and figure out the best processes for managing their finances. Findings From the Survey In a decision Panko call risky, more than one-quarter of small business owners and managers or 27% said they don’t have a separate bank account for the business. This not only creates a problem for their business finances but their personal one also when it comes time to do taxes and other record keeping. More than two thirds or 67% also use the…

CNBC AND SURVEYMONKEY RELEASE LATEST QUARTERLY SMALL BUSINESS SURVEY

America is currently in a state of transition. With the Trump administration making radical changes to tariffs and tax laws, many small business owners aren’t exactly sure how these laws will affect them. While many are optimistic, many others are cautious. Earlier this month, CNBC, First in Business Worldwide, and SurveyMonkey, a global provider of survey software products, announced the results of their quarterly CNBC/SurveyMonkey Small Business Survey in which they aim to measure the vitality of the American economy as well as the view from Main Street on jobs, taxes and other hot topics. Each quarter, CNBC and SurveyMonkey poll over 2,000 small business owners. In addition to measuring small business confidence nationwide, the large sample size gives CNBC the power to uncover trends by geographic region and among specific small business cohorts. This survey provides a crucial window into the response of small business owners to the new tariffs and tax laws. According to the 2018 Quarter 3 survey, 58% of small business owners surveyed say overall business conditions are good, up from 53% in Q2, and up 39% from the third quarter of 2017. While the past year has seen conditions improve for small businesses, many have concerns about how the changing tariffs and tax laws will affect them going forward. First in January 2018, and more recently in June, Trump  increased tariffs on many foreign goods such as solar panels, steel, and aluminum, which protected industries in those arenas but also drove up the prices of goods for American consumers and businesses in other arenas. As a result of these tariffs, China, the European Union, and Canada, among others, have implemented retaliatory tariffs. While these tariffs were put in place to protect domestic industries such as the American steel industry, which receives a boost from the fact that it is now cheaper to buy from them than foreign options, they actually do more harm to smaller, local businesses than good. A secondary, unintended result of these tariffs is a ripple effect of increased costs to businesses that use those products in making their goods. For example,…

10 Business Tax Breaks Gone from 2018 Returns

The Tax Cuts and Jobs Act made many favorable changes for businesses, including a lower corporate tax rate, a new 20% business income deduction for owners of pass-through entities, and favorable rules for writing off the cost of certain property investments. But it also ended—permanently or temporarily—the ability to claim certain write-offs that businesses have come to know and love. Business Tax Breaks That Went Away in 2018 Here’s what you won’t see on 2018 returns: Entertainment Expenses Until now, you could deduct 50% of the cost of entertaining customers, clients, vendors, and other business associates. Starting in 2018, no deduction can be claimed for entertainment cost, not matter how reasonable or essential it is for your business. So if you take a customer to a ballgame, the cost is on you alone no matter how much business you discuss. Net Operating Loss Carryback If your business has a net operating loss for a tax year ending after 2017, you can no longer carry it back to offset taxable income in certain prior years and receive an immediate tax refund. Instead, the NOL is simply carried forward until it’s used up. The only exception is for farmers, who continue to have access to a 2-year carryback. Business Losses for High-income Owners If you are an owner in a pass-through entity (e.g., sole proprietorship, partnership, S corporation) and you experience a significant business loss, you may not be able to claim it all in the current year. For 2018 through 2025, “excess business losses” are not currently deducible but instead treated as a net operating loss that is carried forward (as explained earlier). Excess business loss means the excess, if any, of business deductions over the sum of business income plus $250,000, or $500,000 on a joint return (adjusted annually for inflation). Transportation Fringe Benefit Deduction You may choose to cover certain employee commuting costs and they aren’t taxed on this fringe benefit. In 2018, up to $260 per month for free parking, transit passes, or van-pooling is tax-free to employees; it remains exempt from employment taxes. But as the employer,…

A Brief Overview on How Tax Reform Affects Choice of Entity

The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but […] The post A Brief Overview on How Tax Reform Affects Choice of Entity appeared first on SmallBizClub.

Marijuana Startups: What to Know About Tax Section 280E

When is the sum of the parts greater than the whole? When it’s tax time in the cannabis industry. By now, everyone understands that the federal government does not recognize the decriminalization of cannabis, regardless of state law. Marijuana must be included in any federal law that deals with Schedule I controlled substances. This is where tax section 280E comes into play. If you’re i the marijuana startup biz, here’s what you need to know about this tax section: What Is Section 280E? The one federal law from which no one can escape is the Federal Tax Law. Specifically, 26 U.S. Code Section 280E states that all businesses engaging in the trafficking of cannabis is barred from taking tax deductions or credits of any kind. Translation: cannabis companies have to pay corporate taxes on all revenue. As of December 2017, the highest federal corporate tax rate was 35%. However, most corporations had an effective tax rate of 21%, and some even as low as zero, by offsetting revenue with allowable deductions such as operating expenses, employee salaries, travel expenses, bad debts, and equipment, to name just a few. Cannabis companies were stuck at the 35% rate unless they could take a 280E “Cost of Goods Sold” (COGS) Exception, which allows for the deduction for COGS, such as costs incurred in production and shipping, even where the goods are illegal under federal law. But there’s one caveat: very modern accounting systems for cannabis companies must be used because the exception went into place after the legalization and incorporation of cannabis businesses in most states. Strategize Twice, Incorporate Once The best, or maybe only, time to set up the requisite different accounting systems is during incorporation because to do it correctly, a marijuana startup actually has to create two companies. One company declares it handles all of the parts of the business that can’t take deductions due to Section 280E, such as marijuana production and distribution. The second company declares that it handles all of the “legal” business, such as production and sale of pipes, care services, and even owning and managing…

Georgia: New Sales Tax Compliance Requirements for Online Retailers

Georgia will require online retailers to file sales tax compliance returns beginning January 1, 2019, if their annual Georgia revenues exceed $250,000 or if they have more than 200 separate retail transactions within the state per calendar year. As an alternative to collecting Georgia sales tax from its customers and filing sales tax compliance returns, […] The post Georgia: New Sales Tax Compliance Requirements for Online Retailers appeared first on SmallBizClub.

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