Like it or not, tax season is right around the corner. As a small business owner, that means if you haven’t gotten your books in order, now is the time. There are just a few short months to consult with a tax attorney and put together a tax return for April. Unfortunately, the tax code is incredibly complicated for sole proprietors, even more so for small businesses. With that in mind, here are a number of tax changes, tips and key considerations for small businesses to investigate that go beyond the tried and true (and even generic) examples. Some are sourced by local experts that have direct knowledge of the nuances of the Massachusetts tax requirements.
Writing Off Capital Expenses via Recovery And Reinvestment Act – Arturo D. Cueva, Owner of Bookkeeping Express in Beverly
The Recovery and Reinvestment Act of 2009 provided tax benefits to small businesses that created jobs. If a business met the act’s requirements, it was able to write off capital expenses through a 50 percent deduction in the first year for investments made in tax year 2009. This accelerated the tax benefits associated with depreciating capital expense. The Small Business Jobs Act extended this benefit through 2010, and the Tax Relief and Job Creation Act went one step further – allowing up to a 100 percent deduction in the first year for investments made between September 8, 2010, and December 31, 2011. It also extended the 50 percent first year bonus depreciation through tax year 2012. If a business creates jobs in tax year 2011 then it will be able to deduct 100% of the capital investments it makes. Examples of capital expenses include real estate and equipment used to conduct business. The property must be owned, necessary to conduct business, and the usefulness must extend beyond the tax year in which it was purchased. In 2012, this benefit will decrease to 50% first year depreciation.
AMT (alternative minimum tax) Planning and Gifting - Brad Carlson, Director of Tax at Gray, Gray & Gray CPA’s in Westwood
As Massachusetts is a relatively high income tax and property tax state, many taxpayers who are not already in AMT may find themselves paying AMT in 2012 when the exemption amount drops significantly (projections are that 31 million more taxpayers will be in AMT in 2012 than were in 2011). Taxpayers should project 2011 income and if not in AMT should prepay any taxes they can as the deduction for tax payments is eliminated for AMT.
The $5M exemption for gifts is in effect for 2011 and 2012. In addition to the high gift limit, certain discounts on closely held business are still available currently, although proposals to eliminate it in the future are being discussed. Couple these factors with the fact that the economy has already reduced the current value of some closely held businesses, and now is the time for gifting and succession planning. This is especially true in Massachusetts which has a high estate tax. The $5M gifting and exclusion limits are scheduled to revert back to $1M in 2012.
Massachusetts Small Business Energy Exemption – Waldron Rand & Company, P.C., Needham
Qualifying small businesses in Massachusetts are exempt from the five (5%) percent sales tax on energy purchases including energy bills. To qualify, businesses need to generate a gross income of less than $1 million in the previous calendar year, and also reasonably expect to have a gross income of less than $1 million this calendar year. Businesses also need to have five or fewer employees to be exempt from paying tax on their electricity bill.
If Using PayPal to Receive Payment, Keep Track – Steven Aldrich, CEO of Outright.com
It's critical this year that small business pull together records of all of its expenses. This is important every year, but it's really critical this year given the tax law changes affecting product-based businesses. For the first time ever, PayPal is required to send out 1099k forms reporting income to the IRS for businesses with over $20k in sales and 200 items sold using PayPal. This means that the IRS is going to have a lot more insight than ever before into the revenue that small business are making online. The onus is now on the small business to show the expenses associated with that incoming revenue so that they don't overpay on taxes.
Filers Affected By “Natural Disasters” Receive Extensions - Maureen Donahue, H&R Block Northeast
One thing many are not aware of is that even if the business is not in the disaster area, if their preparer is located in the disaster area, often an extension of time to file or pay is granted. For example, due to Tropical Storm Irene, taxpayers in the Berkshire and Franklin counties were given an extension to file without any penalty. (TIR 11-10) Identifying a tax payer eligible for disaster relief is usually done automatically when the taxpayer files electronically. But if a return is not filed electronically, certain steps must be followed. For the severe storms and tornados in June, taxpayers in Hampden and Worcester counties would need to write on the top of their returns "2011 TORNADOS" in RED ink. Each disaster will have its own identifying steps to follow.
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Jason Keith has been working for and with small businesses in the New England area for more than 10 years, specifically small, micro businesses. Born and raised in Massachusetts and a former journalist, he provides a unique perspective on the issues facing small businesses locally and nationally.To reach him directly email firstname.lastname@example.org.
This is a personal blog. The opinions expressed here are the author's alone.