Article of the Week: Tips To Ease Small Business Tax Season Stress
By: Chris Rush, Entrepreneur.com
Are you stressed about tax season? It certainly breeds its own intense levels of anxiety for many business owners. Whether you outsource your tax preparation to an accounting professional or handle your taxes in-house, it pays to be prepared. Preparing for tax season in the right way can save you valuable time and arm you with useful information that can enhance your business’s efficiency and success.
As you embark on this annual business exercise, here are some steps you can take to streamline tax-related jitters.
Take stock of your financial situation.
Make sure the information you have about your employees and contractors is current and correct. Did anyone move, get married or have children? For employees, double-check items, such as employee name, address, social security number, lived-in and worked-in jurisdictions, paid time-off information (to determine whether appropriate withholdings or deductions were applied), status (active, terminated or on leave of absence), filing status (exempt or non-exempt), number of exemptions, year-to-date wages and taxes, and pre-tax year-to-date amounts, such as contributions to 401(k) and benefits plans.
Confirm independent contractor classifications.
The misclassification of employees as independent contractors is a major area of enforcement for government agencies. If you already work with independent contractors, evaluate current relationships since they may have changed over time (You may want to refer to the Internal Revenue Service common law requirements). Double check contractors’ names, Taxpayer’s Identification Numbers (TIN) (which is either their social security number or Employer Identification Number), addresses, state and local work locations, and earnings totals for each jurisdiction. Double check wages paid to employees and contractors (Form W-2, Form W-3, and Form 1099) and compile rent or property documents, income and expenses. Finally, examine reimbursements to employees and contractors.
Organize your paperwork.
Keep your records organized so the preparation process can be more efficient. Should you be audited, you may not have to scramble to assemble your documentation. For your reference, this list includes forms that must be filed. It’s a good idea to check the websites for your applicable state or local guidelines:
- Employer's Annual Federal Tax Return (Form 944); only file Form 944 annually if you do not file Form 941 quarterly
- Employer's Annual Federal Unemployment (FUTA) Tax Return (Form 940)
- Federal Wage and Tax Statements (Form W-2)
- Transmittal of Income and Tax Statements (Form W-3)
- Federal 1099-MISC form
- Federal 1096 form
- Employer information about health care coverage enrollment for their employees, such as Forms 1095-C and 1094-C if you are an applicable large employer
- One form for each employee to report health care coverage; provide Form 1095-C if you are an applicable large employer, or if you are self-insured, you will need to give your employee(s) Form 1095-B
- Some states require income tax returns
- Some states require unemployment tax returns
- Form 943 if you are in the agriculture industry
- Employer's Quarterly Federal Tax Return (Form 941)
- Some states require income tax returns
- Some states require unemployment tax returns
- Most local income tax returns need to be filed quarterly
Clarify exemptions, deductions, and rebates.
View your employees' 2016 earnings and deductions in your books. Bonuses are generally considered supplemental wages and are subject to federal taxes, as well as certain state taxes. In addition, you must account for certain fringe benefits, retirement plans and any other necessary adjustments to employee wage and tax amounts.
Think long term.
Make it a habit to follow these tips and remain organized. Understand your long-term business goals and make sure tax preparation reflects these goals by consistently updating your paperwork, tracking your employee and contractor base, and looking ahead to the next major milestone in business reporting. You may also want to consider including future leaders in the tax preparation process so they can familiarize themselves with exemptions, deductions and rebates when they take on a leadership role.
Don’t go it alone.
The regulations and paperwork surrounding tax preparation can be daunting. Don’t be afraid to ask for help or use additional resources to inform your decisions. Outside consultation can often be the easiest quickest option, and at the risk of misclassifying workers and incurring a penalty, sometimes more cost effective.
Devoting the time and resources necessary for tax preparation can help you start 2017 on the right foot. Organizing and evaluating the status of your business early will ensure that tax preparation runs smoothly and accurately.
Article of the Week: Health Savings Account Information
Brought to you by the insurance professionals at Bouchey & Clarke Benefits, Inc.
Health savings accounts (HSAs) are a growing trend in health care. An HSA is a tax-exempt
savings account established for the purpose of paying for the qualified medical expenses
of an individual and/or his or her spouse and tax dependents. HSAs are designed to
provide eligible individuals with the following federal tax benefits:
- HSA contributions are tax-free.
- Interest and other earnings on HSA contributions accumulate tax-free.
- Amounts distributed from an HSA for qualified medical expenses are tax-free as well.
In addition to tax benefits, HSA plans have grown in popularity because they offer potential health care cost savings to both employers and employees. For example, individuals covered under an HSA are more likely to seek preventive care, choose generic drugs, not misuse the emergency room, and use online tools to research health care providers.
HSAs are offered in combination with high deductible health plans (HDHPs). To be HSA eligible, an individual must be covered under a qualified HDHP and not also covered by another health plan that is not an HDHP (with a few exceptions, including disability, dental care, vision care and long-term care insurance). HDHPs generally have lower monthly premiums and higher deductibles than traditional health plans.
HSAs can cover medical expenses until the HDHP deductible is reached. The idea of this design is that the HSA pays for routine, smaller health expenses, while the HDHP offers protection in the event of a catastrophic medical expense, such as an unexpected illness, injury or hospitalization.
Because HSA amounts are non-forfeitable, amounts contributed to an HSA can increase savings for future health care needs, even into retirement. In general, money placed into an HSA can be withdrawn at any time. Any HSA withdrawal used for a purpose other than to pay for qualified medical expenses is taxable as income and subject to an additional 20 percent penalty. After an individual reaches age 65, the additional penalty tax does not apply to HSA withdrawals.
Additional HSA Basics
- HSAs are controlled and owned by the individual or employee. HSA owners are responsible for annually reporting HSA contributions and distributions to the Internal Revenue Service (IRS) as an attachment to their IRS Form 1040 (U.S. Individual Income Tax Return).
- HSA contributions are non-taxable, and can be made by the HSA owner, an employer, a family member or any other person for months during which the owner is HSA-eligible.
- Annual limits apply to HSA contributions. The amount of the annual limit is federally mandated, and depends on whether the HSA owner has individual or family HDHP coverage.
- HSA funds, including interest and earnings, accumulate tax-free from year to year. HSAs are not subject to the “use it or lose it” rule applicable to health flexible spending accounts (FSAs). HSAs are portable, meaning individuals keep their HSAs even if they change jobs, change medical coverage or make other life changes.
- Even if an HSA owner is no longer HSA-eligible (for example, because the owner is no longer covered under an HDHP), he or she can still use accumulated HSA funds to pay for qualified medical expenses on a tax-free basis.
- HSAs are an inheritable asset. If a surviving spouse is the beneficiary, the spouse becomes the owner of the account and can use it as if it were his or her own HSA. For other beneficiaries, the account will no longer be treated as an HSA, and will pass to a beneficiary or become part of the deceased individual’s estate.
- HSAs can help individuals become better health care consumers by giving them more of a stake in controlling their health care costs. Since they are responsible for more out-of-pocket costs due to the higher deductible, many employees become more conscious of the health care dollars they are spending.
HSAs are not for everyone. The decision of whether to choose HSA/HDHP coverage is different for each individual, and may depend on the predictability of health care costs. If an individual is generally healthy and/or has a reasonable idea of health care costs, then HSA/HDHP coverage may make more financial sense than traditional health plan coverage.
HSA Annual Limits for 2016 and 2017 Single Coverage
- HDHP minimum deductible: $1,300
- HDHP maximum out-of-pocket maximum: $6,550
- HSA maximum contribution: $3,350 for 2016 ($3,400 for 2017)
- HDHP minimum deductible: $2,600*
- HDHP maximum out-of-pocket maximum: $13,100
- HSA maximum contribution: $6,750
*For family plans that have deductibles both for the family as a whole and for individual
members: If either the family deductible or the deductible for an individual member is less
than the minimum required deductible, then the plan is not an HDHP.
Example: A family plan has a family annual deductible of $3,500 and an individual
deductible of $1,500 per family member. This plan is not a qualified HDHP.
Individuals who are 55 years old and older are allowed to contribute an extra $1,000 per
year to their HSA, to help them save for retirement.
For more information about HSAs, contact Bouchey & Clarke Benefits, Inc. today.
Article of the Week: Four Ways to Practice Work-Life Balance in Your Small Business
Many small business owners will tell you the rise of the internet has changed how they work. Newer entrepreneurs may not even be able to imagine moving about their day without email, social media or mobile banking.
But while these tools make it easier to do business in many ways, the pressure of always being “on” can amplify stress for small business owners. Time management can be particularly challenging for entrepreneurs who may be building a business while keeping another job, raising a family or pursuing education, just to name a few examples.
If you’re feeling the pressure, try one or more of these time-management techniques to help you balance work alongside everything else.
1. Batch like tasks
Set aside time each day, week or month, and protect it! Use that time for tasks that take concentration, calculation, analysis or just tend to fall by the wayside when you get busy.
Confident you multitask like a pro? Try tracking your time for an entire day to see how you really spend your time – and how often you get distracted. A hard look at your minute-by-minute workday might surprise you!
2. Set communication guidelines
You’ve heard about people who turn off their WiFi after a certain time of day; or about people who don’t even let their cell phones into their bedrooms.
It may take some time for you to determine the right way to “switch off” after your workday. Whatever works for you, consider communicating it clearly to your small-business team.
Television producer Shonda Rhimes keeps it simple with this autoresponder on emails sent to her after normal business hours:
“I don’t read work e-mails after 7 p.m. or on the weekends, and if you work for me, may I suggest you put down your phone?”
Similarly, you could encourage employees to use an email scheduling tool to compose messages if they have a burst of inspiration or feel more productive late in the day. Such tools hold outgoing emails until a specified time so that others don’t see incoming mail alerts at all hours.
3. Start delegating
Training staff members on various tasks takes time, but the return on investment can be huge for a business owner. Delegating tasks can empower employees to take ownership of their roles. Just be sure to have an accountability system in place to make sure tasks are completed properly in the period following training.
4. Host regular office hours
Bombarded with questions from every direction? Choose a certain time of the week or month to host office hours. Invite employees to chat, customers to drop in for coffee, or vendors to show you their new product. By having a set time for these encounters that may often seem like interruptions, you can do your best to eliminate them from batching sessions or periods when you’re trying to unplug.
Figuring out how to balance work with family and personal life is always easier said than done. How do you make time for what’s important to you? If you’re not sure how to get started and feel overwhelmed by your small-business tasks, consider sitting down with a SCORE mentor. They’ve probably been in your same position before!
Article of the Week: Mark Your Tax Calendars for 2017
by Barbara Weltman, SmallBizTrends.com
As a business owner, you don’t want to miss any tax deadline. Doing so can result in tax penalties, which can be hefty and are not deductible. Here are some key dates (some of which are new this year), as well as strategies you can use to be on time.
Income Tax Returns
If you are a calendar-year partnership or limited liability company (LLC) filing Form 1065 for 2016, the due date is March 15, 2017. Previously, this form was due on the same date as the owner’s Form 1040, but the date was moved up. However, if you get a filing extension, you’ll now have six months — to September 15, 2017 — to file the 2016 return. These are the same deadlines that apply for calendar-year S corporations.
If you are a calendar-year C corporation, your Form 1120 for 2016 is not due until April 18, 2017. Previously, this form had a March 15 deadline. The filing extension remains September 15, so there’s only a five-month extension for this return.
The filing deadline for your personal income tax return, Form 1040, is due on April 18, 2017 (April 15 is a Saturday and April 17 is Emancipation Day in Washington D.C.).
Employment Tax Returns
The due dates for the employer’s quarterly tax return, Form 941, for 2017 are the end of the month following the close of the quarter to which the form relates: April 30, 2017, July 31, 2017, October 31, 2017, and January 31, 2018. If taxes have been timely deposited in full, the due date is extended to the 10th day of the second month following the end of the quarter (e.g., May 10 for the first quarter if taxes have been deposited in full).
If you have been filing the annual Form 944 instead of the quarterly Form 941 and need to switch because you expect payments for the year to exceed $2,500, you can’t simply do this on your own. You have to get the IRS’s approval. You have until April to contact the IRS and request a change by calling 800-829-4933.
For federal unemployment tax, there’s an annual filing. The due date for filing Form 940 for 2016 is January 31, 2017. However, if you deposited all your FUTA tax when it was due, you can file Form 940 by February 10, 2017.
If you are self-employed (sole proprietor, independent contractor, partner, or LLC member) and pay estimated taxes, be sure to note the payment due dates for 2017: April 18, 2018, June 15, 2018, September 15, 2018, and January 16, 2018.
Don’t send the first installment for 2017 with your 2016 income tax return.
You can avoid late payments because you’re traveling or simply forget by scheduling estimated taxes for Form 1040 in advance. You can do this up to 365 days in advance if you opt to pay through EFTPS.gov. If you use EFTPS.gov for business taxes, advances can only be scheduled up to 120 days in advance. There’s no cost for using this service. Find out more about EFTPS.gov in IRS Publication 966.
You were supposed to provide employees with W-2s and independent contractors with 1099-MISCs for 2016 services by January 31, 2017. This was also the date that transmittal of these forms were due to the Social Security Administration (for W-2s) and the IRS (for 1099-MISCs showing nonemployee compensation). This is a new transmittal date, which applies whether you’re transmitting forms on paper or electronically. If you are already late, file as soon as you can to minimize penalties.
You could have asked for a filing extension by submitting Form 8809 by January 31. It’s too late now, but remember this option for next year.
If you are a small employer with a self-insured health care plan (e.g., a health reimbursement arrangement), the deadline for furnishing employees with Form 1095-B for 2016 coverage is March 2, 2017. They were originally due by January 31, 2017, but the IRS gave everyone an extension this year. However, transmittal of the forms are due to the IRS by February 28, 2017, if you do this on paper, or March 31, 2017, if you transmit copies electronically.
It seems axiomatic that the sooner you submit a late return, the smaller the penalties will be. That’s because penalties apply per month (or part thereof). Interest on tax underpayments applies month-by-month as well.
But when it comes to information returns, correcting a delinquency as soon as possible can really limit penalties. For example, if you send a delinquent 1099 within 30 days of the required filing date, the penalty is only $50. If you miss this date but file by August 1, the penalty doubles to $100. But if you don’t file by August 1, the penalty jumps to $260.
You can create your own tax calendar so you’ll never miss another deadline by using a free desktop calendar tool from the IRS. Also, be sure to include the dates for state tax obligations (e.g., state unemployment insurance).
Article of the Week: Creating Jobs By Investing In Small Business
By: Michele Schimpp, SBA.gov
A study released conducted by the Library of Congress’ Federal Research Division provides insight into a topic that interests every Administration – private sector job creation.
Everyone seems to know that our economy benefits when big businesses keep jobs in the U.S. But what many do not appreciate is that U.S. small businesses are even more important for job growth. Two out of three net new jobs in the U.S. are created by small businesses.
And even less understood is that a significant portion of those jobs in small businesses were created with the help of three groups that are not always popular in the public eye – private investors, banks, and government employees.
Imagine a future scenario in which the U.S. government partners with private investors and banks to help small businesses create and sustain more than 1,300 jobs a day, more than 40,000 jobs a month, and nearly 480,000 jobs a year --all without the need for a government subsidy in a program that pays for itself.
In fact, it’s the successful past track record of the Small Business Investment Company (SBIC) program over the last 20 years. The study that was issued today shows that the U.S. government, working with investors from the private sector, helped small businesses to create and sustain 9.5 million jobs.
Using data from the Small Business Administration’s (SBA’s) SBIC program, the report finds that from 1995-2014 nearly 3 million new jobs were created by small businesses, with an average investment by SBICs of $14,500 per job. In addition, 6.5 million jobs were sustained by small businesses with an average investment by SBICs of $4,500 per job – jobs that might otherwise have been lost by those companies for lack of access to capital. Equity investments were especially effective in creating jobs in the small businesses financed by SBICs.
Created in 1958 by President Eisenhower, every president since can take credit for the achievements of the SBIC program over the subsequent 58 years. SBICs have deployed $80.5 billion in capital (two-thirds from the private sector) into approximately 120,000 small businesses. The program uses private capital combined with credit backed by the U.S. government and operates at zero-subsidy to the taxpayer.
Previously, the job creation impact of the program was an estimate based on a report from 1999. SBA’s Office of Investment and Innovation saw the value in sponsoring an external assessment of the SBIC program’s job creation data and commissioned respected academics under the auspices of the Library of Congress’ Federal Research Division to conduct the study. With the release of Measuring the Role of the SBIC Program in Small Business Job Creation by Dr. John Paglia of Pepperdine Graziadio School of Business and Management and Dr. David Robinson of Duke University Fuqua School of Business, working with the Federal Research Division of the Library of Congress, an externally-validated methodology is provided alongside an analysis of job creation from 1995-2014.
Given the significant contribution of SBIC-financed small businesses to job creation nationwide and as the new Administration looks for ways to create private sector jobs, SBICs not only offer a proven model but room to grow. Congress has generously authorized the program at a $4 billion credit ceiling. But existing SBICs have only tapped about $2.6 billion for the last two years, leaving $1.4 billion per year in credit that could have been used to finance small businesses. If future and existing SBICs take full advantage of the additional funding available, more than 85,000 additional jobs could be created each year.
What’s holding us back? Primarily it’s the need to attract additional qualified private investors to the program. With the impressive findings delivered by the Library of Congress’s study, the Office of Investment and Innovation and SBA have the opportunity to draw greater attention to the valuable SBIC program and to celebrate the significant contribution of small businesses and private investors in creating and sustaining much-needed private sector jobs.