As the tax deadline in the United States creeps ever-closer, hopefully small business owners benefitted from the holiday shopping season with more money in the register. But as April 15 approaches, Uncle Sam wants to ensure that all have paid their appropriate share.
Sandy Abalos, CPA, principal-in-charge of the Phoenix Office of REDW, a business and financial advisor firm, offers several tips and best practices to keep small business owners not only well-prepared for tax time, but also ready for success all throughout the year.
First, be sure to file a 1099 form for each contractor with whom you did work in 2015, as the IRS is increasing penalties for non-compliance. The IRS requires small business owners to attest on their tax form that they have, in fact, filed all required 1099 forms for the year.
There is a sliding scale of penalties for late filing of 1099s, depending on how late they are filed. For IRS purposes, small businesses are defined as having average annual gross receipts of $5 million or less.
The penalties are:
- $50 per information return if you correctly file within 30 days – by March 30 if the due date is Feb. 28; max penalty $175,000 for small businesses.
- $100 per information return if you correctly file more than 30 days after the due date but by Aug. 1; max penalty $500,000 for small businesses.
- $250 per information return if you file after August 1 or you do not file required information returns; max penalty $1 million for small businesses.
Furthermore, the fine for intentionally disregarding the requirement to furnish a correct payee statement has been increased to at least $500 per payee statement with no maximum penalty.
Small Business Health Care Tax Credit increase
Abalos also advises small business owners to take advantage of the change in the Small Business Health Care Tax Credit, which, starting in tax year 2014, has been increased to a maximum of 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
To qualify, small businesses must have fewer than 25 full-time employees; pay an average wage of less than $50,000 per year; pay at least half of employee health insurance premiums and have purchased insurance through the Small Business Health Options Program (SHOP).
There is substantial savings to be had here, and business owners can carry the credit back or forward. For example, if you pay $50,000 a year toward employees’ health care premiums and if you qualify for a 15 percent credit, you save $7,500. If you saved $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a 20 percent credit, your savings increases to $10,000 a year.
Safe harbor for restaurant upgrade expenses
A new safe harbor method of accounting was announced at the end of 2015 for those operating in the retail and restaurant industries. The IRS announced this new method because these types of businesses require ongoing remodel and refresh projects of varying cost and scope to stay competitive. The IRS says this results in frequent confusion and questions.
This new method allows qualifying business owners to treat 75 percent of qualified repair and refresh costs as deductible. They must capitalize the remaining 25 percent of costs as improvements.
401(k) cost review
Business owners should review the fees of their current 401(k) plans to ensure they are reasonable in regard to the level and quality of services provided. Federal laws require service providers to disclose fees more transparently. By taking a close look at the new disclosures, business owners may find that their costs are higher than they originally thought.
Beware – New ID theft scheme
The IRS issued a March 1 alert to payroll and human resources professionals to beware of an emerging email phishing scheme that purports to come from company executives and requests personal information on employees.
“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to trick people into sharing personal data,” said IRS Commissioner John Koskinen in a statement. “Now the criminals are focusing their schemes on company payroll departments. If your CEO appears to be emailing you for a list of company employees, check it out before you respond. Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.”
– Written by Josh Coddington, marketing and communications manager, Greater Phoenix Chamber of Commerce. This article is part of the Chamber’s Business Driver newsletter.