A Basic Checklist for Starting a Business

July 19, 2010 | Subscribe to our RSS Feed

If you are starting a business, here is a 6 item checklist to follow to ensure you get yourself set up properly.  IRS Publication 583 provides even more information.

1. Decide your business entity type. This will determine which tax forms you have to file.  The most common types are sole proprietorship, partnership, corporation and S Corporation.  Your circumstances will determine which is the best set-up for you, and will have a big impact on your financial and tax planning, so be sure to talk to your CPA and attorney before making this choice.
2. Be aware of the different types of taxes- your entity choice determines which type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.  There are pluses and minues to each scenerio.  Again, this choice will depend on your individual circumstances and goals.
3. Get an Employer Identification Number. EIN are used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Start off on the right foot by keeping good records.  This will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. The business you are in affects the type of records you need to keep for federal tax purposes, and if you are interested in doing business with the government, you will need a special kind of record system.  Glass Jacobson has in-house certified QuickBooks Pro Advisors (here and here).  If you are using that system, they can help you set it up effectively.  By keeping good records, you also protect yourself from fraud.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.  As when you chose your entity type, your unique circumstances will determine which method is best for your business in terms of financial and tax planning.

Questions?

sam.cohen@glassjacobson.com

Unfavorable Tax Change Looming for S Corporations

June 24, 2010 | Subscribe to our RSS Feed

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:

1. 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.
2. 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.
3. 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) ]:

1. 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.)
2. 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

Update on the HIRE Act

June 9, 2010 | Subscribe to our RSS Feed

With summer upon us, employers are wondering about the HIRE Act and credit eligibility for both seasonal workers and recent college graduates.

SEASONAL WORKERS and RECENT COLLEGE GRADUATES do qualify employers for the HIRE tax credits assuming all other criteria are met.  See our March article for information.

Questions?

sam.cohen@glassjacobson.com

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