Category Archives: Small Business

Early Year-End Tax Planning To Take Advantage Of Possible Tax Reform

Wouldn’t you like to know about early year-end tax planning to take advantage of possible tax reform?

So, why do we think early tax planning is appropriate this year? Actually, with the prospect of major tax reform on the horizon, some strategies can be put into place before the end of the year that can substantially reduce your 2017 tax bill. That would be nice.

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Childcare Providers Enjoy Special Tax Deductions

Childcare providers, did you know that the tax law provides you with special tax breaks. Daycare tax breaks are not limited to childcare providers only. They also include those who care for the disabled and eldercare providers as well. These daycare tax breaks include deductions for travel, capital purchases, supplies, children’s meals and the business use of your home. Continue reading

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10 Questions to Ask When Starting Up a New Business

Starting up a new business is an exciting time, but it is also a time with many questions. While it may seem initially very easy to create a product, open a store, and start selling, the financial aspects of being successful are a bit more challenging. As you consider the process of starting up, work with a local financial planning team and tax professional to ensure you get your financial footing in place now. Ask these questions. Continue reading

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Growing Pains, Growing Business in Massachusetts

Are you the owner of a growing business, chances are you have business growing pains. You know that you need to wear many hats. Imagine your business has grown to the point that you can expand your services beyond the boundaries of your home state, Massachusetts in our case. You may need to file tax returns in the states you are doing business in. Here are a few things to look out for. Continue reading

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Do Not Forget Your Retirement!

2015_11_04 Do Not Forget About RetirementRetirement may be years away for some people. And, it may not be the most pressing issue on your mind these days. But we urge you, do not forget your retirement contributions, especially when there are generous government incentives involved.

There are a variety of retirement plans available to small businesses that allow the employer and employee a tax-favored way to save for retirement. Contributions made by the owner on his or her own behalf and for employees can be tax-deductible. Furthermore, the earnings on the contributions grow tax-free until the money is distributed from the plan. Here are some retirement plan options:

Simplified Employee Pension Plan (SEP)

This plan was designed to avoid the complications of a qualified plan. Contributions to the plan are held in the beneficiaries’ IRA accounts; hence, the title “simplified.”  Deductible contributions for 2015 are limited to the lesser of 25% of the participant’s compensation (up to $265,000) or $53,000. A SEP can be established and funded after the close of the year.

Qualified Plan (Keogh)

Generally, the rules surrounding a Keogh are more complex. This type of plan may include a discretionary contribution profit sharing plan or a mandatory contribution money purchase plan, or a combination of these. SEP plans are favored over Keogh plans by most self-employed individuals. For 2015, deductible contributions are limited to the lesser of 25% of the participant’s compensation (up to $265,000) or $53,000. These plans must be established before the end of the tax year, but contributions can be made afterwards.

Savings Incentive Match Plan for Employees (SIMPLE Plan)

Under this plan, the business owner takes a deduction, and employees receive a salary deferral. For 2015, the contribution limit is $12,500 (per employer or employee), with an additional catch-up contribution limit of $3,000 for participants aged 50 or older. The employer can match the contribution up to 3% of compensation or make a non-elective contribution of 2% of compensation.

Individual 401(k) Plan

The individual 401(k) plan is similar to the traditional 401(k) plan with added benefits for the small business owner. For 2015, the owner can contribute and deduct up to 25% of compensation plus an additional $18,000 salary deferral, up to a $53,000 maximum $59,000 for those who are age 50 and over). For employees, the contribution and salary deferral limit is $18,000, with an additional $6,000 catch-up contribution available to those aged 50 or over. Employers can match employee contributions.

New Qualified Pension Plan

If you do establish a new qualified pension plan for your business, you may be entitled to the “small employer pension startup credit.”  The credit is equal to 50% of administrative and retirement-related education expenses for the plan for each of the first three plan years, with a maximum credit of $500 for each year. Plan-related expenses in excess of the amount of the credit claimed are generally deductible as ordinary expenses of the business.

The first credit year is the tax year that includes the date the plan becomes effective, or, you may elect, the preceding tax year. Examples of qualifying expenses include the costs related to changing the employer’s payroll system, consulting fees, and set-up fees for investment vehicles.

Are You Looking Forward to Retirement?

If you would like assistance in selecting a retirement plan for your business or to explore the tax benefits relevant to your particular circumstances, please give Alex Franch, BS EA a call at 781-849-7200. Or you may visit one of our locations.

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photo credit: DSC03448 via photopin (license)

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Employee Travel: Preventing Tax Problems

employee travel, overnight, travel, business travel, Employee travel can signal tax problems. It can be a headache for the employer. It can be a headache for the employee to if the tax regulations are not followed. It is common practice for companies to send employees on business trips. If the rules are followed, the cost of employee travel will be fully deductible to the employer. The exception are meals, which are only 50% deductible, and are a tax-free reimbursement to the employee. In addition, the reimbursement is not subject to FICA or payroll withholding.

On the other hand, if the rules are not followed, the expenses are still deductible by the employer. However, the reimbursement must be added to the employee’s taxable wages. Those wages are subject to both FICA and payroll withholding.

Ordinary and Necessary Business Expenses

An employer is able to deduct ordinary and necessary business expenses. These expenses include employee travel and lodging expenses that are job-related. The expenses cannot be defined as lavish or extravagant by the IRS. Otherwise they are known as Working Condition Benefits or fringe benefit. Any such item that is deductible by the employer is not included in the employee’s salary. In addition, an advance or reimbursement made to an employee, under an Accountable Plan, which requires the employee to adequately account for the expenses and return any excess advances, is deductible by the employer. This type of plan is not subject to FICA or income tax withholding.

Reimbursements not made under an Accountable Plan are fully taxable to the employee. The only way for the employee to deduct the expenses is as a miscellaneous itemized deduction on his or her Form 1040. To do that, the employee must itemize the deductions on the Schedule A, instead of taking the standard deduction. The employee business expense category on Schedule A is subject to a 2% of AGI nondeductible threshold (Adjusted Gross Income). Often, this results in the employee deducting only a portion of the expenses or none of the expense at all.

With the exception noted below, to deduct the cost of lodging and meals, the taxpayer must be away from home overnight. Overnight is defined by the IRS as any trip that requires sleep or rest to enable the taxpayer to continue working.

Away-From-Home Rule Exception

Under an exception to the Away-From-Home Rule, the cost of local lodging is deductible. This deduction is restricted to the following:

  1. The lodging is necessary for the individual to participate fully in
  2. For the purpose for a bona fide business meeting, conference, training activity, or other business function.
  3. For the duration cannot exceed five calendar days, and
  4. Does not happen more frequently than once per calendar quarter.

For an employee, the employer must require:

  1. The employee to remain at the activity or function overnight
  2. The lodging must not be lavish or extravagant, and
  3. There can be no significant element of personal pleasure, recreation, or benefit.

Employee Travel for a Temporary Living Arrangement

A taxpayer’s home, for purposes of determining if he or she is away from home and can deduct lodging and meals, is generally where the taxpayer normally lives and works. However, that fact is sometimes difficult to determine, in which case the IRS has numerous special rules that apply.
An away-from-home assignment, at a single location, lasting for one year or less, is considered temporary, and the travel expenses are deductible. If the assignment is longer, there is a good chance the expenses will not be deductible based upon some complex rules.

Do You Need More Information?

The rules for the tax treatment of travel expenses and temporary away-from-home assignments can be complex. Please give Alex Franch, BS EA  at this office a call at 781-849-7200 for further details or assistance.

 

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Health Reimbursement Plans: Beware of Penalties

2015_08_20 Health Reimbursement Plans2m Health Reimbursement Plans, Healthcare, Health, Reimbursement PlansHealth reimbursement plans and rules have been very interesting these days. They can save you a lot of money, if used appropriately.

Beginning in 2015, large employers defined as those with 100 or more full-time employees must begin offering health insurance coverage to their employees. Then, in 2016, employers with 50 or more full-time employees must do the same or face penalties. These are called the “large employer health coverage excise tax.”

Employers with fewer than 50 full-time employees are never required to offer their employees an insurance plan. However, qualified small employers who do provide coverage may qualify for the small business health insurance credit.

In the past, many smaller employers have simply reimbursed their employees for the cost of insurance. They found it less expensive. And, they had fewer administrative costs than having a group insurance plan. However, under the Affordable Care Act (ACA, or Obamacare for short), a group health plan that reimburses employees for the employees’ substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. Most commentators believe an employer payment plan will fail to comply with the ACA annual dollar limit prohibition. This is because an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement. Also, an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement. Thus, reimbursement plans may be subject to a very draconian penalty.

Small Business Employers, Did You Get the Notice?

Back in February, the IRS issued Notice 2015-17. This provides small employers limited relief from the stiff $100 per day, per participant, penalties under IRC §4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, that notice provided:

    • Transitional relief for employers that do not meet the definition of large employers (i.e., employers with 50 or more employees). This relief is granted for all of 2014 and for January 1 through June 30, 2015; and
  • Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders, as previously addressed in Notice 2008-1. The relief period is indefinite, and the IRS states that taxpayers may continue to rely on Notice 2008-1 “unless and until additional guidance” is provided.

The Small Employer Health Reimbursement Relief is Expired

2015_08_20 Health Reimbursement Plans QuoteWell, June 30, 2015 has come and gone. So has the small employer relief. Therefore, employers who still reimburse employees for their medical expenses are in danger of being subject to the $100 per day ($36,500 a year) per employee penalty. Compared to the annual $2,000 penalty that large employers face for not providing insurance to their full-time employees, the penalties on small employers are substantial enough to bankrupt them. What does this mean? The large employer who fails to provide any insurance pays a penalty of only $2,000 per year per employee while the employer who helps employees by reimbursing them for the cost of insurance gets hit with an up to $36,500-per-employee penalty.

This is true even if the employer is a small employer (50 or fewer full-time employees) who is under no legal obligation to provide health insurance plans for its employees. They just want to offer reimbursements simply to help the employees. Does this seem fair? We will let you form your own opinion. You are welcome to leave a comment below to go over to our Facebook or Google+ pages to express your thoughts.

Will Congress step in to alleviate the problem? Maybe yes and maybe no. Employers must decide if it is worth the risk to depend on Congress to act.

There is one firm, Zane Benefits, which claims to have solved the problem with a reimbursement plan that complies with the code. Of course, there are others who argue that it does not.

Bottom Line: Understand your risks if your business has a medical reimbursement plans and consider other options.

If you have questions related to your business and employees or about the tax consequences or benefits regarding health reimbursement plans, please give Alex a call at 781-848-7200. He can help you sort through the tax treatments for you or your business large or small.

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Start-Up Costs for a New Business

By: Cindy Toran, MBA, BA

Start-up costs for a small business are often not “small” at all. These are costs for:

  1. Start Up Costs for Small BusinessInvestigating the creation of or acquisition of an active trade or business, OR,
  2. Creating the business, OR,
  3. Is a cost you pay before the day the business begins operation.

Examples include:

  • Travel to obtain customers and suppliers
  • Costs to conduct market surveys
  • Advertisements for the opening of the business
  • Costs to analyze available facilities, labor, supplies, etc.
  • Salaries to train employees (Last week’s blog was about Hiring Your Spouse and Providing Health Benefits).
  • Fees for consultants and other professional services

These costs must be amortized over 15 years unless you make an irrevocable election to expense up to $5,000 in the first year, reduced by any amount of costs that exceed $50,000. For example, if you spent $52,000 on start-up costs you could write-off $3,000 in the first year of the business [$5K less ($52K minus $50K)] plus amortize $49,000 over 15 years beginning with the month the business commenced.

The business begins on the date it starts to function as a going concern and performs the activities for which it was organized.

If the attempt to go into business is not successful, the start-up costs may or may not be deductible:

  • Costs incurred before making a decision to acquire or begin a specific business are personal and non-deductible. (e.g., A taxpayer in public relations work was denied a deduction for expenses in investigating a candy dispenser business and sandwich vending machine business in which he didn’t actually engage.)
  • Costs incurred in the attempt to acquire or begin a specific business are capital expenses and can be deducted as a capital loss. (e.g., a lawyer’s fee for negotiating a lease or the cost of a land survey to purchase business assets). Note that these costs would be capitalized as part of the basis of the business if successfully started, so they would not qualify as amortizable start-up costs per se.

Whether or not to elect to expense or amortize start-up costs depends on the situation. If you expect a loss or only small gain in the first year of business and significant gains thereafter, it may make sense to amortize 100% of the costs to offset future profits. Your accountant or tax professional can provide advice on your specific situation.

Do you have a trusted tax professional?

Are you are at a place in your business you need tax advice. Do you have thoughts, questions or concerns regarding how to claim the start-up costs for your small business? Please feel free to contact us, leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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