Unfavorable Tax Change Looming for S Corporations
June 24, 2010 | 
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A recent legislative proposal may put an end to a favorable tax situation for personal services businesses taxed as S-corporations.
Personal services businesses like dental practices, accountants, lawyers and engineers being taxed as S-corporation entities beware; a huge tax hike looms on the horizon. Included in the bill known as the American Jobs and Closing Tax Loopholes Act of 2010 (now that is getting right to the point) is a provision that would tax S-Corporation net income after all expenses as self employment income. This proposal would affect these businesses with three or fewer shareholders where the shareholders are providing the services.
This would eliminate the situation where an owner takes an unreasonably low salary to avoid paying Social Security and Medicare taxes on wages and then takes “compensation” in the form of distribution payments. It was just this type of strategy that helped taxwriters decide it was time to take action against these S-corporation shareholders from gaming the system.
While the law has yet to be passed it bears careful watching due to the large tax bite this will take out of those dentists, accountants, lawyers and other service businesses being taxed as S-corporations. Ouch!
Dentists, for more information, visit Larry the Accountodondontist.
Questions?
larry.goldberg@glassjacobson.com
Pay for Performance- Valuing Quality
June 22, 2010 | Subscribe to our RSS Feed
Update: 7/28
The success of the P4P session raised a lot of questions regarding the staff stability area of the P4P program. Revisit that portion of the presentation here, and we will be hosting a condensed follow up session on this topic soon. Details to follow.
Nursing Facilities seeking funding- Pay for Performance is here. Effective July 1, 2010, nursing facilities in Maryland are being scored and the top rated facilities will receive additional funding.
Glass Jacobson’s Patrick Trotta, CPA and Wendy Warner Utz, Owner of Achieve Health Services will tell you what you need to know about this system to score your best and secure funding you need on Wednesday July 14th at 9:00am.
Learn more about the event here: P4P Information
This program will offer the information providers need to understand the pay for performance (P4P) system in Maryland and how improving quality outcomes in specific P4P measures can affect payment. in addition, providers will hear operational strategies to improve quality and better position the facility to receive P4P funds.
For more information or to register, visit www.hfam.org/category/events
Health Care Act- Some Credits Available Immediately
June 17, 2010 | Subscribe to our RSS Feed
Small businesses considering paying at least 50% of your employees health insurance costs- you may entitled to a nice tax break.
For tax years beginning in 2010 through 2013, eligible small employers that purchase health insurance coverage for their employees may be eligible for a tax credit to help offset the cost of the insurance coverage. This is one of the few provisions in the Health Care Act that is effective in 2010.
First, do you Qualify for the Credit?
Only eligible small employers qualify for the credit. Your business must meet all of these criteria:
- It employs no more than 25 Full-time Equivalent (FTE) employees during its tax year. FTE employees are determined by dividing the total hours worked by all employees during the year by 2,080 (rounded down to the nearest whole number). However, the maximum hours counted for any one employee is 2,080. Also, the hours worked by seasonal workers aren’t counted unless they work for the employer on more than 120 days during the tax year.
- It pays annual FTE wages that average no more than $50,000. This is determined by dividing the total wages the employer pays by the number of its FTE employees and then rounding that number down to the nearest $1,000. For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation). Wages paid to seasonal workers are excluded if the worker’s hours are excluded in determining the number of FTE employees for item 1.
- The employer has a qualified health insurance plan (or arrangement) that requires it to pay at least 50% of the premiums (on a uniform basis) on behalf of all of its employees who enroll in the plan.
Calculating the Amount of the Credit
Step One—Calculate the Maximum Credit Amount. For tax years beginning in 2010 through 2013, an eligible small employer’s maximum credit equals 35% (25% for tax-exempt employers) of the lesser of the following amounts [ IRC Sec. 45R(g)(2) ]:
- The amount of contributions the employer made during the tax year to its qualified health arrangement to purchase qualifying health insurance coverage for its employees. Qualifying health insurance coverage is basically health insurance purchased from an insurance company licensed under state law. Only nonelective employer contributions qualify. Basically, this means that employee elective contributions to the plan that are used by the employer to pay for the employee’s coverage don’t qualify for the credit. Premiums paid in 2010 before the Health Care Act was enacted can qualify for the credit. (See IRS FAQ-8.)
- The amount of contributions that the employer would have made during the tax year to its qualified health arrangement if each employee had enrolled in coverage with a small business benchmark premium. The small business benchmark premium will be determined by the Secretary of Health and Human Services (HHS) each year on a state-by-state basis. The 2010 table can be found in Rev. Rul. 2010-13 and has been reproduced in Appendix 2 of this release.
Step Two—Calculate the Available Credit. The maximum credit is available only to an employer with 10 or fewer FTE employees and whose employees have an average annual FTE wages of less than $25,000. If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the credit available to the employer equals the maximum credit amount calculated in step one reduced by the sum of the following two amounts, as applicable (but not below zero):
Here’s an example: A business has 15 FTEs and $30,000 average annual wages. Assume that for 2010 F&E pays $96,000 in nonelective health care premiums for its employees, which does not exceed 80% (the percentage of premiums paid by F&E) of the small business benchmark premium for F&E’s state and otherwise meets the requirements for the credit.
F&E’s credit is $15,680, calculated as follows:
Maximum credit: (35% x $96,000) $33,600
Reduction for FTEs in excess of 10: ($33,600, 5/15) ($11,200)
Reduction for average annual wages in excess of $25,000
($33,600 x $5,000/$25,000) ($6,720)
Available credit: $15,680
To help make your life a little easier, this health care credit table estimates the applicable reduced credit percentage available to employers with varying levels of FTEs and average annual wages. This table can be used to quickly estimate the credit available to a small employer.
Questions?
sam.cohen@glassjacobson.com
Finally- Some Optimism on the Investment Front!
June 14, 2010 | Subscribe to our RSS Feed
Jon Dinkins just recently returned from two important annual conferences – The Investment Management Consultants Association and fi360 Center for Fiduciary Studies. Both conferences addressed our obligations as fiduciary consultants and “best practices” as prudent advisor, current economic trends for the domestic and foreign markets, and threats to global economic recovery. Key note speakers included some of the most prominent minds in finance – Joseph Stiglitz, Columbia University; Marvin Zonis, University of Chicago – Booth School; Richard Marston, University of Pennsylvania – Wharton; David Kelly, JPMorgan Funds; and author Michael Lewis (Liar’s Poker and The Blind Side).
The takeaways were extremely optimistic! 40 hours of lectures provided a wealth of knowledge, insight and information. Here is his Executive Summary of the information presented.
Questions?
jon.dinkins@glassjacobsonia.com
Maryland Sales Tax Holiday!
June 11, 2010 | Subscribe to our RSS Feed
Maryland will sponsor a tax-free period for qualifying apparel and footwear on August 8-14, 2010.
From August 8th through 14th, qualifying clothing and footwear priced $100 or less will be exempt from Maryland’s six percent sales tax.
“Clothing or footwear” means an article of apparel designed to be worn on or about the human body.
What is exempt?
The sales and use tax is not due on the sale of a qualifying article of clothing or footwear if:
- The sales price of the article is $100 or less; and
- The sale takes place during a period beginning at 12:01 a.m. on Sunday, August 8, 2010 and ending at 12 midnight on Saturday, August 14, 2010.
The exemption applies to each qualifying item selling for $100 or less, regardless of how many items are sold at the same time. For example, if a customer purchases two shirts for $80 each, both items qualify for the exemption, even though the customer’s total purchase price ($160) exceeds $100.
What will not qualify (and be taxed)?
The exemption does not apply to:
- Accessory items, even if they are priced at $100 or less. “Accessory items” include but are not limited to jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, and belt buckles;
- The first $100 of a more expensive single article or set (as in a suit) of clothing or footwear. For example, if a customer buys a pair of pants costing $110, sales tax is due on the entire $110;
- Any special clothing or footwear primarily designed for protective use or not intended for everyday use.
A list of exempt and taxable items is available on the Comptroller’s Web site at www.marylandtaxes.com, or by calling the Taxpayer Service Section at 410-260-7980 in Central Maryland or toll-free 1-800-MD TAXES from elsewhere.
Questions?