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    R.W. Ramsay & Associates, Ltd. Blog

    December 14, 2011

    IRS Updates for 2012

    The IRS announced December 12th that the standard mileage rate used for businesses will stay at the current level of 55.5 cents per mile for 2012.

    In addition, personal and dependency exemptions on the personal return will be worth $3,800 each, and each of the standard deductions moved slightly higher as well.  Also, the maximum amount of wages subject to Social Security taxes will move up $3,300, to $110,100 per person.

    Debate continues to rage on extending the payroll tax holiday currently in place.  We’ll stay tuned to the latest coming out of Washington.

    Filed under: Tax Related — Tags: , , , , , , , , , , , , — Rich @ 5:16 pm

    November 15, 2011

    Year-End Tax Planning for Business

    As year end approaches, we’re doing more and more tax planning for our clients. We’re often asked what they can do within their business to reduce the tax burden for this year. Below are a few points to consider as we enter the final months of the year.

    • If you’re an accrual basis taxpayer (we can tell you if you don’t know), most employee bonuses based on 2011, but paid in the first two and a half months of 2012, can be deducted in 2011. They will be picked up by the employee when paid 2012.
    • In addition, if you’re an accrual basis taxpayer, be sure that any customer deposits or down payments for products or services delivered after 12/31/11 are not included in income.
    • Seek to maximize depreciation deductions by puchasing necessary equipment in 2011, as many of the accelerated depreciation allowances are set to expire at the end of this year unless Congress renews them.

    We have many more great ideas for tax savings, which can be a great gift to yourself as we approach the holiday season.

    Filed under: Tax Related — Tags: , , , , , , , , , , , , , — Rich @ 9:19 am

    November 9, 2011

    Keeping a Mileage Log - Really?

    For many business owners, the last thing they want to do is log each and every mile they drive for business. They believe logs are clumsy, time intensive, and easy to forget. The IRS, though, takes a very different stance.

    In case after case fought in US Tax Court, the taxpayer has lost their mileage deductions because they can’t produce evidence of the business use of the vehicle. The IRS has also come out strong with this in audits as well, expecting to see a mileage log when examining a business.

    There are several different ways to approach a mileage log, that will help if you’re ever asked the question.

    • Keep a log of all the business miles you drive, including the business purpose for the trip
    • Keep a log like the above, but just for 3-4 months out of the year, if your mileage tends to be pretty similar from month to month. Then, use these few months to determine the entire year.
    • Look into Apps for Blackberry, iPhone, and Android smartphones that use the phone’s internal GPS to track your mileage, and allow reports to be edited and printed online.

    No matter what method you choose, always record the total mileage on the car at the beginning and end of the year.

    Filed under: Business Advisory, Tax Related — Tags: , , , , , , , — Rich @ 1:56 pm

    November 7, 2011

    2012 Individual Deduction and Exemption Amounts

    To keep pace with inflation, the IRS modified dozens of tax benefits for 2012. For example, the value of each personal and dependency exemption for most taxpayers will be $3,800, an increase of $100 over 2011. In addition, the standard deduction will be $11,900 for married couples filing a joint return, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household.

    Filed under: Tax Related — Tags: , , , , — Rich @ 5:11 pm

    June 9, 2011

    Using Corporate Funds Correctly

    Businesses that chose to organize as a corporation do so for many reasons. Chief among these is to protect the owners and their assets from liability arising from the actions of the business or its employees. This is accomplished because a corporation is an “artificial person” in the eyes of the law – a legally separate entity from its owners.

     

    Some owners, however, have trouble keeping personal expenses out of the corporate checking account. These personal expenses are non-deductible, and in many cases are classified as loans from the corporation to the owners, or as repayments of prior loans made to the corporation by the owners. A recent court case highlights the danger of this practice.

     

    A couple took nearly $740,000 out of corporations they owned, and classified them as discussed above. The IRS determined, and the US Tax Court agreed, that they were, in fact, dividends to the owners, and were fully taxable to the owners on their individual tax returns.

     

    How do you help prevent this type of problem from occurring in your business? Below is a list of the factors the tax court considered in its decision – use these as a guide.

     

    • Document the intention to make a loan, and the intention to pay it back
    • Treat the loan like a loan- record the loan advances, calculate interest at a reasonable rate, have a repayment schedule.
    • Create a promissory note for all loans
    • Note that the loan advances and repayments are just that
    • Be sure the amount of money borrowed and loaned is not excessive given the financial position of the owners and the business.
    Filed under: Business Advisory, Tax Related — Tags: , , , , — Rich @ 9:12 am

    February 1, 2011

    Sales Tax Audits Increase Dramatically

    Most of you look to us for advice and planning on your income taxes. If you are a small business owner that operates or does business in Minnesota, there is a trend of which we feel you need to be aware; an increased number of sales tax audits.

     

    It’s likely we just lost the interest of many of you. You might be thinking “I don’t sell products, so I don’t have to worry about sales tax” or “I charge all my customers sales tax and pay it when I’m supposed to, so I’m covered.” What we’re finding as we help clients navigate the new, more intense sales tax audits, is that this might not be the case.

     

    The sales tax in Minnesota is extremely complex, in some cases more so than the income taxes we routinely handle for you.  We still want you to be aware of the increased number and scope of audits.

     

    Below is a link to a recent Twin Cities Business article entitled “The $100,000 Shakedown”. It is a great summary of the sales tax audit process endured by one business, and how she came to resolve the audit. We encourage you to read it, and consider how you would defend your own business in such a situation.

     

    If you have any questions, we’d be glad to answer them for you. With the proper awareness, planning, and representation, the ever growing possibility of a sales tax audit will likely seem less daunting.

     

    http://www.tcbmag.com/ideasopinions/context/133694p2.aspx

    Filed under: Business Advisory, Tax Related — Rich @ 1:30 am

    January 17, 2011

    S-Corporation Salary Fought In Court

               

               A district court has concluded that an S corporation shareholder-employee’s $24,000 salary in 2002 and 2003 was unreasonably low, and allowed IRS to reclassify as salary over $67,000 in dividend payments to the officer during each of those years. The corporation will also owe nearly $49,000 in employment taxes on the reclassified dividend payments.

              The case hinged on a few key facts. First, the taxpayer was an accountant, and was providing only personal services. Generally, much of the income from personal services should be declared as salary for an S-Corporation officer.

              Second, the taxpayer took profit distributions of between $175,000 and $205,000 in each of the two years at issue, in comparison to his $24,000 salary. This ratio is closely considered by the IRS and the courts.

              Finally, and likely most importantly, the taxpayer stated that he would not do the same level and intensity of work for anyone else for only a salary of $24,000 per year.

              If you’re an S-Corporation officer, and you work in your business, the time is now to assure you have been declaring a reasonable amount of salary each year.

    Filed under: General, Tax Related — Rich @ 4:13 pm

    December 30, 2010

    Year End Is Coming!

    As 2010 draws to a close and we look forward to the New Year, our minds turn to year-end and the up coming tax season. In just a few short weeks, we’ll be busy working with our clients to complete year end accounting and begin preparation of the tax returns. If you are one of those clients, or someone we hope will become one, there are a few things you can do now to make the tax season easier on yourself.

     

    ·        As your tax documents come in, they are almost always marked as containing tax information. Get a basket or a folder, and put all of those documents directly into it as you sort out your mail.

    ·        Once the organizer arrives, go through it an answer the questions. Doing this up front will save you having to look up information later on.

    ·        If you sold stocks during the year, be sure you have information on your cost basis for each of them. Many brokerages track this for you, but there may be some stocks they don’t have the information on, and getting that can take some digging.

    ·        If you are a business owner, use some time in January to complete your bookkeeping, or to get the last of your documents to your accountant for them to finish up.

     

    The earlier you’re ready, and more organized you are, the easier the process of completing your taxes will be. And remember, we’re always here to help!

    Filed under: General, Tax Related — Rich @ 12:00 pm

    December 17, 2010

    2010 Tax Extenders Act Passes House - President to Sign

    On December 17, 2010, the US House of Representatives passed the 2010 Tax Relief Act on a bi-partisan vote. The law is expected to be signed into law by President Obama in its current form. Not a moment too soon, the Act provides for the following extensions through the end of 2012:

     

    • Income tax rates will be held at their current level
    • The Child Tax Credit, Earned Income Tax Credit, and American Opportunity tax credit (for higher education) have all been extended

     Other elements of the bill lasting less than two years, among others, are

     

    • The AMT has been “patched” to prevent it from assessing additional tax on middle income earners. This is effective for the 2010 and 2011 tax years.
    • The $250.00 deduction for classroom expenses of elementary and secondary school teachers is extended for the 2010 and 2011 years.

    • A 2% reduction in payroll taxes for employee and self-employed individuals for 2011 only.
      • This means the amount of taxes withheld from an employees paycheck will decrease 2%, effectively resulting in a 2% raise in pay.
      • Self-employed tax payers will pay 2% less in self-employment taxes.
    • Expanded section 179 expensing for businesses was extended through the end of 2011, allowing businesses to deduct up to $500,000 of new asset costs in the first year.
    • Beginning with 2012, the act provides for 50% bonus depreciation in the first year of an asset’s use, in lieu of the expanded 179 expensing.

     

    Additional changes were made surrounding the estate tax, and a number of other areas. Conspicuously absent was the provision to repeal the new 1099 reporting requirements.

    Want more detail on how the changes will affect you or your business? Feel free to contact us!

    Filed under: General, Tax Related — Tags: , , , , , , — Rich @ 3:46 pm

    December 6, 2010

    IRS Releases 2011 Mileage Rates

                The IRS recently released the standard mileage rates for business mileage, as well as mileage driven to obtain medical treatment during 2011. The business rate will be $.51, while the medical mileage rate will be $.19. Both of these are increased over 2010.

                This release is a great reminder to be sure to track your mileage during the year for business, medical, and charitable purposes. The recommended way to do this is through a mileage log, as the IRS has been placing more importance on the documentation of mileage during audits.

    Filed under: Tax Related — Tags: , , — Rich @ 9:29 am
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