Business Tax Tips

Eligible small employers who provide health care coverage to their employees can receive a Small Business Health Care Tax Credit from the Federal government. Here’s what you need to know about who qualifies and how to take advantage of the credit.

What is the Small Business Health Care Tax Credit?

Small business owners make numerous decisions about employee benefits. For example, the type of benefits offered can entice the most desirable candidates to apply for their company’s positions. The right type of benefits can also boost employee retention. An excellent employee benefit to consider is health insurance. If that’s a perk being offered, the small business health care tax credit is a feature of the Affordable Care Act (ACA) that may be of interest. The tax credit is limited to employers with less than 25 employees, and it operates as a sliding-scale credit based on the size of the employer. The larger the employer, the smaller the tax credit. The maximum credit is 50 percent of premiums paid (35 percent for tax-exempt employers).

Qualifying small employers can take advantage of the small business health care tax credit for two consecutive tax years providing the business owes no taxes during those years. The credit can also be carried forward or back to other tax years. Any excess amount paid for health insurance premiums over the allowable credit can be claimed as a business expense.

Who qualifies for the Small Business Health Care Tax Credit?

As mentioned above, the small business health care tax credit is for small employers with fewer than 25 full-time equivalent employees (FTE). Note that the FTE concept is based on hours worked rather than the actual number of employees.

Other qualifications include that:

The employer pays less than $50,000 a year per FTE in average wages. Determining FTEs and average annual wages should be done by your qualified tax preparer, CPA, or via guidance from the Internal Revenue Service (IRS).

The employer offers a qualified health plan to employees through a Small Business Health Options Program Marketplace (SHOP).

The employer pays at least 50 percent of the employee’s premium cost. (Not family or dependent premium cost.)

What about Tax-exempt Organizations?

Tax-exempt organizations are also eligible for the small business health care tax credit. In this case, the credit is refundable to the extent that it does not exceed income tax withholdings or Medicare tax liability. Refunds to tax-exempt organizations are reduced by the current fiscal year sequestration rate. For an explanation of sequestration and how it impacts the small business health care tax credit, consult your tax advisor or accountant.

How do small businesses take advantage of the Small Business Health Care Tax Credit?

To claim the small business health care tax credit, the IRS requires Form 8941 (Credit for Small Employer Health Insurance Premiums) to be filled out and submitted. For small businesses, the amount should be included as part of the general business credit on the company’s federal tax return. The amount should be included on Form 990-T (Exempt Organization Business Income Tax Return) for tax-exempt organizations. Note: this form must be filed for a tax-exempt organization to claim the small business health care tax credit, even if the business does not typically file that form.

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Small business owners may find that offering perks like health insurance aren’t beyond their economic reach with incentives like this. As always, a trusted tax professional is the place to turn regarding this and other tax credits for small businesses.

We offer a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 817-741-2383 and request a free initial consultation to learn more.

Launching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

• No deduction is available until the business becomes active.
• Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
• Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example: Gina spent $20,000 on start-up costs before her new business began on July 1, 2020. In the 2020 tax year, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2020 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

We invite you to take advantage of our free initial consultation to discuss the accounting and bookkeeping demands of your business. Call 817-741-2383 now to schedule an appointment.

All taxpayers are no doubt hoping for a refund this year. Unfortunately, there are a lot of myths about when and how you’ll get your refund.

In a recent statement, the IRS noted that most taxpayers are issued refunds by the IRS in fewer than 21 days. If yours takes a bit longer, here are six things that may be affecting the timing of your refund:

• Security reviews – The IRS and its partners continue to strengthen security reviews to help protect against identity theft and refund fraud. Your tax return may be receiving additional review, which makes processing your refund take a bit longer.
• Errors – It can take longer for the IRS to process a tax return that has errors. Fortunately, electronic filing has reduced the number of errors, which are more common in paper returns.
• Incomplete returns – Here again, electronic returns make the most sense. It takes longer to process an incomplete return. The IRS contacts a taxpayer by mail when more info is needed to process the return.
• Earned income tax credit or additional child tax credit – If you claim the earned income tax credit (EITC) or additional child tax credit (ACTC) before mid-February, the IRS cannot issue refunds as quickly as others. The law requires the IRS to hold the entire refund. This includes the portion of the refund not associated with EITC or ACTC.
• Your bank or other financial institutions may not post your refund immediately – can take time for banks or other financial institutions to post a refund to a taxpayer’s account.
• Refund checks by mail – It can take even longer for a taxpayer to receive a refund check by mail. Direct deposit is a better bet.

In an unusually poetic statement, the IRS explains that “tax returns, like snowflakes and thumbprints, are unique and individual. So too, is each taxpayer’s refund.” So keep this in mind. Fortunately, you can track your refund status online by entering your Social Security number and other key information.

Do you have a client or customer who won’t pay? Even when all attempts to collect a bad debt have failed, the IRS may give you a break at filing time. Click through to see how to take that bad debt off your taxes.

When can you use bad debt to reduce business income? Even when you take the customer to court and you still don’t get your money, there’s a way to make lemonade from this lemon of a customer.

If your business has already shown this amount as income for tax purposes, you may be able to reduce your business income by the amount of the bad debt. Look at bad debt as an uncollectible account—a receivable owed by a customer, client or patient that you are not able to collect.

Bad debt may be written off at the end of the year if it is determined that the debt is in fact uncollectible.

According to the IRS, bad debt includes:

• Loans to clients and suppliers.
• Credit sales to customers.
• Business loan guarantees.

How do you write off bad debt?

Your business uses the accrual accounting method, showing income when you have billed it, not when you collect it.

If your business operates on a cash accounting basis, you can’t deduct bad debt because you don’t record income until you’ve received the payment. If you don’t get the money, there’s no tax benefit to recording bad debt. You only record the sale when you receive the money from the customer.

Under accrual accounting, manually take the bad debt out of your sales records before you prepare your business tax return.

You must wait until the end of the year, just in case someone pays.

• Prepare an accounts receivable aging report, which shows all the money owed to you by all your customers, how much is owed and how long the amount has been outstanding.
• Total all bad debt for the year, listing all customers who have not paid during the year. Only make this determination at the end of the year and only if you’ve made every effort to collect the money owed to your business.
• Include the bad debt total on your business tax return. If you file business taxes on Schedule C, you can deduct the amount of all bad debt. Each type of business tax return has a place to enter bad debt expenses.

It makes sense in any kind of business—no income recorded, no bad debt.

A business bad debt often originates as a result of credit sales to customers for goods sold or services provided. The best documentation is likely to be a detailed record of collection efforts, indicating you made every effort a reasonable person would in order to collect a debt.

Take some solace by claiming a bad business debt deduction on your tax return. Not exactly a guarantee because you need to show that the debt is worthless, but it’s good to know there may be some relief.

Call us today at 817-741-2383to learn more or request a free consultation online now. We work with small businesses in a wide variety of industries throughout the Fort Worth, TX area.

Businesses and self-employed taxpayers have many options for filing their taxes. Click through for an introduction to the requirements and the pros and cons of different methods.

Filing taxes doesn’t have to be time-consuming. The IRS wants it to be as easy as possible for taxpayers so that they can pay their taxes on time. For business owners and self-employed individuals, e-filing (otherwise known as electronic filing) makes the task simple and efficient.

e-File Options

The various e-file options are on the IRS site. First, you must know under what business entity you will file. Are you filing as a partnership, LLC, S-corporation or another business entity? Each type calls for its own forms.

The IRS e-file forms can all be filled out online. To make the process easier:

• Gather all the necessary materials to e-file before you sit down at the computer. This includes your corporate EIN or taxpayer EIN, income statements and other financial information.
• Make sure you have a secure Internet connection.
• Create your accounts and security questions, if necessary.
• Complete the forms.
• Check them for accuracy.
• Print a copy for your records.
• If you feel the forms are complete, submit them online.

You will need to create an e-file account. These accounts are free and secure. The first time you use the IRS site, it will take an additional 10-15 minutes to set up your account. It’s a good idea to create a folder on your computer and for your paper-based records to store all of your e-file document copies and other pertinent information. Many companies only use this information quarterly, and it’s easy to forget it after a while, but having a file makes it simpler to remember account numbers and other identifying information.

It’s Free

There is no cost to file your tax information or Social Security or Medicare payments electronically. If you encounter a website that wants to charge you to complete this information, leave immediately. It’s either a phishing scam or an unnecessary expense!

Call our CPA firm today at 817-741-2383 or request a free consultation online to learn more about our tax preparation services.

Giving your taxes your full attention just once a year isn’t the best business strategy. Experts suggest that a year-round approach is better for your finances. Click through to learn the best ways to evaluate the impact of taxes throughout the year.

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.

A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:

• Cars operated for business purposes
• Business-related travel and entertainment expenses
• Purchases of office supplies, furniture, equipment, and software programs
• Telephone expenses
• Contributions toward insurance policies, retirement plans, and pension funds

It’s surprising how many small businesses never take advantage of these deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.

Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:

1. Invest in the most effective tax record tools for your business. Whether it’s spending roughly $30 on journals and tax books with a set of refill sheets costing less than $10 to do manual bookkeeping or investing up to $2,000 on the latest online software tax-filing applications, you will benefit from more rigorous and accurate recordkeeping. Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run.

2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor. To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.

3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:

• Reduce the amount of taxable income
• Claim any available tax credits
• Lower your tax rate
• Control the time when taxes must be paid
• Avoid the most common tax-planning mistakes

Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.

Of course, this is just a general list. Not all deductions are available in all situations, and rules change frequently. Give us a call to discuss which deductions apply to your company.

We offer a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 817-741-2383 and request a free initial consultation to learn more.