2012 W2 Health Care Reporting

There is a great deal of confusion on whether an employer has to include Health Insurance on the W2 of employees.

  You will read in many places it is mandatory.

  On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the Patient Protection and Affordable care Act (PPAC). As part of its primary purpose to facilitate health care reform, the PPAC includes key tax provisions that affect businesses. Many business and employers waited to fully implement these provisions until the Supreme Court determined the fate of the health care reform law. Now, however, businesses must comply with the rules under PPAC.

    Although it was optional in 2011, Form W-2 reporting is mandatory for 2012 and thereafter. Employers must disclose the aggregate cost of applicable employer-sponsored coverage provided to employees annually on the employee’s Form W-2. Regardless of whether the employee or the employer pays for the coverage, the aggregate cost of the coverage reported is determined under rules similar to those used in determining applicable premiums for purposes of the COBRA continuation coverage requirements of group health plans.

  HOWEVER, if you really try to read the law you will find the terms indicating the law ‘generally’ applies to ‘certain employers and with respect to certain types of coverage’. 

  Further from the actual law  “Reporting for the employers covered by the transition relief, and with respect to the types of coverage covered by the transition relief, is not required until future guidance is provided, and in no event will reporting by these employers and with respect to these types of coverage be required on any 2012 Forms W-2 (generally required to be furnished to employees in January 2013)”.

BOTTOM LINE….

  Did you have more than 250 employees in 2011?  Yes, I said 2011.  If yes, then you have to report it on the 2012 W2.  It really is that simple.

Posted in General, Income Tax, International Taxation, LLC's, Payroll Tax, Retirement Accounts, Sub S Corporations | 7,901 Comments

PENALTY ABATEMENT – FTA – A VERY BIG DEAL!

If you file or pay late… and you have been compliant for the last three years (that means you filed and paid on time), there is a little known program called FTA for First-Time Abate program.

 

You must REQUEST this relief since the program is NOT mentioned in the tax return instructions NOR on the balance due notices!

 

There are a few other technical issues BUT THIS IS A BIG DEAL!

 

The Code Sec. 6651(a)(1) failure to file penalty is usually 5% of the unpaid taxes for each month or part of a month that a tax return is late not to exceed 25% of the unpaid taxes. If a taxpayer files his tax return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

 

Posted in General, Income Tax, International Taxation, LLC's, Sub S Corporations | 5,382 Comments

2012 SUV Depreciation

If in 2012 you purchase and put into use a$60,000 SUV with a gross vehicle weight greater than 6,000 pounds, you can expense $25,000.  Then, half of thre remaining  $35,000 cost ($17,500) qualifies  for 50% bonus depreciation.  Finally, you can deduct 20% of the $17,500 balance.  Thus, the first year write off is $46,000. 

 

All of the above calculations assume the vehicle is used 100% of the time (as written documentation must show).  The deduction would be reduced by the % below 100%.  If you only use it 80% of the time for business, then only 80% of the above figures applies.

 

And, USED SUV’s do not receive the bonus deprecation.

 

For lighter vehicles the depreciation is limited to $11,060.

Posted in General, Income Tax, International Taxation, LLC's, Sub S Corporations | 7,598 Comments

Meals & Entertainment Deduction

IRS says….   

Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal.

 

You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. The rules and definitions are summarized in Table 2-1.

You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests.

·        Directly-related test.

·        Associated test.

Both of these tests are explained below.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

Directly-Related Test

To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that:

·        The main purpose of the combined business and entertainment was the active conduct of business,

·        You did engage in business with the person during the entertainment period, and

·        You had more than a general expectation of getting income or some other specific business benefit at some future time.

Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter.

You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. It is not necessary to devote more time to business than to entertainment. However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test.

Associated Test

Even if your expenses do not meet the directly-related test, they may meet the associated test.

To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is:

·        Associated with the active conduct of your trade or business, and

·        Directly before or after a substantial business discussion (defined later).

Associated with trade or business. Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. The purpose may be to get new business or to encourage the continuation of an existing business relationship.

Substantial business discussion. Whether a business discussion is substantial depends on the facts of each case. A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit.

The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. It is not necessary that you devote more time to business than to entertainment. You do not have to discuss business during the meal or entertainment.

Meetings at conventions. You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. However, your reason for attending the convention or meeting must be to further your trade or business. The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting.

Directly before or after business discussion. If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion.

If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Among the facts to consider are the place, date, and duration of the business discussion. If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day.

Example.

A group of business associates comes from out of town to your place of business to hold a substantial business discussion. If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. The expense meets the associated test.

This info is copied from irs.gov, Publication 463.

http://www.irs.gov/publications/p463/ch02.html#en_US_2011_publink100033880

Posted in General, Income Tax, International Taxation, LLC's, Sub S Corporations | 7,350 Comments

Completed-Contract Method of Accounting

The completed-contract method of accounting is used by contractors and manufacturers. Unlike the percentage-of-completion method which recognizes revenues and gross profit in the applicable periods of the construction or manufacturing process, and not only in the period when the construction has been completed, under the completed-contract method of accounting, revenue, expenses, and gross profit is deferred until the completion of the contract. If at the end of the business fiscal year of a company work on a contract remains incomplete, no revenue, expenses, and profit on that contract is recognized in the current year on the income statement; all costs and billings are retained in respective balance sheet accounts.

The completed-contract method does not accurately reflect revenues, expenses, and profits in the period in which they are earned.  The tax advantage is the deferral of all tax liability to future periods. Generally this method of accounting may be used by contractors and manufacturers averaging less than $10 million in annual revenues if it is initially elected as their tax accounting method.

The journal entries utilized with the completed-contract method are similar to those of the percentage-of-completion method, except there are no entries recognizing revenue or gross profit during the construction or manufacturing process: no transactions relating to that contract are posted to revenue and expense accounts until completion of the job.

Posted in General, Income Tax, International Taxation, LLC's, Sub S Corporations | 6,055 Comments

Sales Tax Collection Allowance in Florida eff. July 1, 2012

New law requires sales and use tax dealers to file and pay tax electronically to receive a collection allowance

For sales and use tax returns and payments due on or after July 1, 2012, dealers may deduct a collection allowance only when they:

·        File sales and use tax returns electronically;

·        Pay tax electronically; and

·        Electronically file and pay tax (“e-file and e-pay”) timely.

If you currently file paper tax returns and/or pay by check, cash, or money order and wish to continue receiving a collection allowance after July 1, you may:

·        Use the Department’s website to enroll for e-Services or to electronically file and pay tax without enrolling (no fee). You will need to provide your:

o   Sales and use tax certificate number and/or business partner number.

o   Federal employer identification number (FEIN) or social security number (SSN).

o   Contact information.

o   Bank routing/transit number and bank account number.

·        Buy software from a Department-approved vendor.

Print step-by-step instructions on how to enroll for e-Services.

If you would like to know more, read the Tax Information Publication or Frequently Asked Questions about the law change

http://dor.myflorida.com/dor/taxes/sales_tax.html

 

Posted in General, Income Tax, LLC's, Sub S Corporations | 6,937 Comments

Income Tax – the first law

July 1, 1862

First Income Tax bill

President Abraham Lincoln signed the first income tax bill, levying a 3% income tax on annual incomes of $600-$10,000 and a 5% tax on incomes over $10,000. Also on this day, the Bureau of Internal Revenue was established by an Act of Congress.

Posted in General, Income Tax, International Taxation, LLC's, Newsletter Topics, Sub S Corporations | 4,275 Comments

Currency versus Money

What is the purpose of money? What are its characteristics?  To easily exchange goods or services.  Money (the dollar bill) itself is of no value.  It is the utility of the gold or silver it represents that is of value.

Is there a difference between money and currency?  Yes.  Money = gold or silver.  You can touch the hard metal object.  Currency is man’s invention to represent the money.  The dollar bill represents a debt.  The dollar bill you hold is a debt instrument from the United States government to you.  Look at the top of any currency denomination.  It says it is a NOTE.  A note is a promise to pay.  The promise is backed by USA’s gold or silver.

Could we solve financial problems by printing more paper money ourselves? Why or why not?  If you mean a state or individuals printing their own money absolutely not.  Might as well go back to barter system.

Could the government print more paper money to solve financial problems? Why or why not?  Only in the short term.  Must be closely monitored else can contribute to inflation.

What percentage of time would you estimate you use paper money for purchases? What else do you use?  10 percent.  Credit card usage is cheaper due to rebates and cleaner.

What is your preferred method to pay for purchases? Why do you prefer that method? Credit card leaves an audit trail and can challenge the purchase.  Credit card companies are often our friend when a dispute arises with a purchase.  Plus, I get 2 percent back on purchases with credit card.

Would you support changes in society that would make paper money unnecessary? Why or why not?  Yes.  It’s a digital world that makes things cheaper.  The cost to print currency is significant.

Do you think we still need to have paper money? Why or why not?  Yes at least in my lifetime.  It feels good to have cash in pocket.  Plus some goods and services are no one else’s business.  And occasionally the credit card machine does not operate properly.

Posted in Ask Question or Comment, General, Newsletter Topics | 3,321 Comments

First Time Home Buyer Credit Summary

The Housing & Economic Recovery Act is designed to help sell the large quantity of homes on the market starting in 2008.

This is a summary of the 3 versions

  • First Version 2008:The original credit was for as much as $7,500 for individuals who bought a principal residence in the U.S. between April 9 and Dec. 31, 2008, and who had not owned one for three years prior to the purchase date.
  • Second Version 2009 & 2009:  Congress increased the credit to as much as $8,000 for individuals who bought a principal residence between Jan. 1, 2009, and April 30, 2010, and who had not owned one within three years of the purchase date. The closing deadline was extended to June 30 for homes that were under contract as of April 30. The deadline was extended again to Sept. 30 for homes that were under contract as of April 30 and did not close by June 30 as planned.
  • Third Version 2009 & 2010:  This credit offered as much as $6,500 to homeowners who had owned a principal residence in the U.S. for at least five consecutive years in the eight years before the purchase of a new principal residence. The purchase date had to be between Nov. 7, 2009, and April 30, 2010. The closing deadline was extended to the same dates as the second version. 
Posted in General, Income Tax, Newsletter Topics | 3,160 Comments

1099s – Should I do them?

Some companies prepare 1099’s for everyone eventhough it may not be required. If you paid any individual more than $600 for personal services, then a 1099 is required (that includes paying an unincorporated landlord).

When we say individuals, that may be confusing. Clearly if you wrote the check to JONES, INC, that is a corporation but I’d get a W9 just in case.

Your vendors should complete a Form W9 available on irs.gov or click here http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103. THIS tells you what you need to know to determine whether a 1099 is required.

You do not have to do 1099’s for C Corps, S Corps, Partnerships or Trusts/Estates.

You also do not have to do 1099’s for LLC’s if they are taxed as a C, S or partnership.

You should have a W9 on file for each of your vendors to determine if a 1099 is requried.

So, if Individua/sole proprietor, or LLC without a tax classification is checked, then YES to do 1099.

As long as you are doing any, you should have a RECIPIENT’s identification number completed, else IRS may send a penalty notice.

The RECIPIENT’s identification number is usually the social security number but may be the federal ID# of a sole member LLC.

Clear as mudd? I doubt it. Been doing this for over 25 years and I’m still confused!

Posted in General, Income Tax, International Taxation, LLC's, Sub S Corporations | 2,348 Comments