Factoring Blog - For Small Businesses

If you are wondering about all the details of the U.S. tax stimulus package, the IRS has a helpful Web page describing the stimulus payments.

Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.

The vast majority of Americans who qualify for an economic stimulus payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year. They will not have to complete applications, file any extra forms or call the Internal Revenue Service to request the payment, which is automatic. The IRS will determine eligibility, figure the amount and issue the payment.

Stimulus payments will be direct deposited for taxpayers selecting that option when filing their 2007 tax returns. Taxpayers who have already filed with direct deposit won’t need to do anything else to receive the stimulus payment. For taxpayers who haven’t filed their 2007 returns yet, the IRS reminds them that direct deposit is the fastest way to get both regular refunds and stimulus payments.

The publication goes on to note that the payments will range between $300 - $600 for individuals, and $600 - $1200 for those who filed joint returns.

While this is not strictly a business tax issue, I thought you might be interested to know about it.

The tax stimulus package is seen by many as a “quick fix” for the economy, but not addressing longer term issues.

But will it really fix the economy even short term?

In an article in U.S. News and World Report, Professor Cornwall suggests that a recession is likely despite the package.  Or in the alternative, we’ll see a period of high inflation.  He notes on his own blog about the stimulus package:

On the other hand, I am more worried that it will work. The pressures for a large burst of inflation are still out there — wage, healthcare and fuel price pressures and falling interest rates. If we over-stimulate the economy right now, we may end up in an even worse condition economically. Either way, be it a recession or a period of inflation, I see a tough period ahead for small business owners in America ….

He’s usually been an upbeat guy, so this is rather serious stuff coming from him.

Tax time is officially upon us.  This week is the deadline (January 31, 2008) for preparing and mailing 1099 forms for miscellaneous payments to independent contractors and W2s to employees.

As you start preparing to file your return, the IRS offers publications designed specifically for small businesses that you might want to check out:

• If you need a refresher on tax filing requirements, deductions, credits and other aspects of tax compliance for your business, check out the IRS’s Tax Guide for Small Business (PDF).

• The IRS also offers a Tax Calendar for Small Business and Self-Employed. This can help you create reminders of when to make estimated tax payments and create tickler reminders for other important tax deadlines.

• Then there’s Retirement Plans for Small Business, a publication that explains the tax implications of SEPs, SIMPLE IRAs and SIMPLE 401ks and other retirement plans.

Michelle at Small Business Buzz has a good, easy-to-skim checklist for how to find a good accountant.  If you don’t have an accountant or just are not satisfied with the one you have, it’s time to take action.  Tax season is upon us. 

I have found that having a good accountant can help you grow your business.  Having a close relationship with an accountant does several things, beyond the obvious of helping you with your books and your taxes:

(1) A good accountant imposes fiscal accountability.  I don’t know about you, but when my accountant sends reminders about estimated tax filing deadlines and 1099 filing deadlines, for instance, it makes me pay attention and not let dates slide.  For some reason I am more inclined to pay attention than if I set reminders for myself in QuickBooks or in my calendar.

(2) Your accountant is a fabulous source of advice on a variety of topics.  Sometimes it helps to discuss an issue with your accountant.  For instance, discussing whether you should draw salary or take distributions.  Or discussing how to structure your business entities.  No matter how much you think you know, a good accountant often provides a new perspective that you haven’t thought of. 

(3)  A good accountant is an excellent source of important contacts in your local area, for important life and business transactions.  Good accountants often know who the “go to” people are in your town.  If you need to sell your business, start with your accountant for recommendations of a good local business broker.  If you need an attorney and don’t have one, your accountant often can recommend a good one.  Need some better health insurance options?  A good accountant can often make suggestions for a good insurance agent.

At this time of year, during their peak season, some accountants may not even be taking on new clients until after this tax season.  If you find that the accountant you want to hire tells you that, then make a reminder to yourself to find one AFTER tax season is over.  Don’t wait until tax season next year, when it will be too late.

Congress passed last minute legislation to help as many as 20 million taxpayers avoid getting hit with the Alternative Minimum Tax (AMT).  

If you’ve been hit with the AMT in the past, chances are you still will be.  The tax change will help primarily those who have not incurred the AMT before, but it could prevent them from incurring it.

If you have been saved from the AMT for 2007, you still have a few days left to max up on your deductions.  You may not have to worry about too many deductions throwing you over the limit into AMT-land.

So how do you know if you’ve been saved from incurring the AMT?  This article from the Chicago Tribune suggests running last year’s tax software (such as TurboTax) to see if you would have avoided the AMT.  You’ll probably be in the same boat for 2007.  Or you could call your accountant, too, and get his or her opinion.

This news article is making the rounds, and I couldn’t resist:  IRS Bills Taxpayer Two Cents.

The taxpayer, an immigration attorney, was late with her $64,000 tax payment, so the IRS billed her $14 in late fees, which she also paid.  But it turns out there was an additional 2 cents late fee owed and she got a bill for that.  So she sent in another check, this time for all of 2 cents — and the IRS cashed it.

It’s crazy to think of how much in taxpayer resources were expended to collect that 2 cents ….  I guess it just goes to show, the IRS always gets its man, er, I mean 2 cents.

No wonder this is standard advice:  if you owe the IRS, find the cash to pay them … some way, any way.

As of this writing, you have six weeks left to do some year-end 2007 tax planning.  After you sit down to your turkey dinner on Thanksgiving, why not set aside a few hours later that weekend to look at your tax situation?

Now is the time to estimate your full-year profits and expense loads — and consider final strategies to reduce your tax burden.   Key strategies to consider include:

• accelerate deductions to take them in the 2007 tax year

• defer income, if possible, until 2008 so that you can delay your tax liability on that income

• upgrade business equipment to take advantage of liberal one-time expensing provisions (up to $125,000 in 2007)

• set up a qualified retirement plan

This CPA firm newsletter offers a quick list of year-end tax planning strategies for businesses and the self-employed.

See also the Business Owners’ Toolkit for year-end tax planning.

And if you are interested in planning for your personal tax situation, see this Impact Magazine article.

It is that time of year when we need to start working toward meeting our annual tax form completion and implementing new tax changes in our 2007 business operations.

With changes in Social Security/Medicare, 401K’s, Annual Qualified Plans, Business Deductions and more you need to get check out this handy chart provided by Licata & Toerek.

Get this Important Tax Information for 2007

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