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The “ABCs” for New Businesses | Tax Tip of the Week | No. 51 July 28, 2010

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Starting a new business can be an unbelievably exciting time!  Unfortunately, due to various governmental agency compliance issues, it can be an overwhelming undertaking.

The statistics don’t lie. Most new businesses will not make it past their first year. The big question is why?

In most cases, it is due to a lack of accounting systems. A new business can be losing money and not even know it.

We’ve also seen situations where the new entity was not compliant with a tax or government agency.  Getting behind with payroll taxes, sales tax, or income taxes can be a hole that is seemingly impossible to climb out of.  The penalties and interest associated with back taxes or failure to file can be a huge hit to any business, but especially a new business.

Practicing your ABCs
The above is a lot of doom and gloom. But if you practice the ABCs of business you can build the foundation needed to succeed in the market place.  What are the ABCs you ask? The ABCs are having an active relationship with an Attorney, a Banker, and a CPA who can give you the extra leg up your business needs to get past the first year hump—and on its way to future success.  Below are just a few of the foundational building blocks a great financial team can help with:

It is a big step when you start your own business—it is best not taken alone. Don’t forget your ABCs!

What’s your story?
Do you have a story about when you started your business? What did you learn?

As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.

Rick Prewitt – the guy behind TTW

…until next week.

Often Misunderstood – The Gift Tax | Tax Tip of the Week | No. 50 July 21, 2010

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Background: One of the biggest reasons that the federal gift tax law exists is to keep taxpayers from avoiding federal estate tax by giving away their money or assets during their lifetime.

The gift tax is often misunderstood since it is not the recipient that owes the tax but the giver.

Generally speaking, one may be responsible for paying federal gift tax if you give away a lot of money or other assets.  Under current federal tax law, up to $13,000 annually may be gifted to any number of individuals without incurring a federal gift tax liability.  There is also a one million dollar lifetime limit on gifts.  Any gifts exceeding these amounts will most likely require the filing of an IRS Form 709.

Planning opportunities exists to minimize the potential gift tax
If properly executed, gifting may be a very effective estate planning tool.  Any large gifts need pre- planning so that neither the giver nor recipient owes a gift tax.

Some other considerations when making large gifts of money or assets follow:

  1. You and your spouse can gift annually up to $26,000 to any number of persons.
  2. The gift is money or assets given away without any expected return.
  3. Giving away money or assets while you are still alive may provide large tax savings to your beneficiaries.
  4. Paying someone else’s medical expenses is exempt from these rules.  However, you must pay them directly to the medical institution to qualify.
  5. Gifts of educational expenses are also exempt.  These include payments directly made for education, books, supplies, and other related living expenses.
  6. Charitable gifts and gifts to your spouse are also not subject to the gift tax.

Note:  As it currently stands for 2010, the federal estate tax was repealed for one year only (don’t confuse that with the Ohio Estate Tax – it is still very much alive and well).  However, beginning next year, all estate and gift rates will revert back to their 2001 levels.  So in 2011, each estate can exclude only $1 million of their estate tax-free to their beneficiaries.  Any estate value above that is subject to federal estate tax.  Please be watchful for any new legislation as Congress continues to debate these issues.

Anything you’d like to add?

We know many of the topics covered in TTW can get complicated quickly. The gift tax is a great example. Let us know what has worked for you or if you need clarification.

As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.

Mark Bradstreet – author of this week’s TTW
Rick Prewitt – the guy behind TTW

…until next week.

What’s in Store… Maybe | Dissecting the Healthcare Bill – Part 4 of 4 | Tax Tip of the Week | No. 49 July 14, 2010

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This week we will look at provisions of the Healthcare Bill that take effect in 2013 – 2018.

Looking this far ahead is unpredictable.  Who knows how many changes may take place within Congress and the Federal Administration during this time period–or how the winds of politics may shift.  However, these highlights give us a roadmap of what to expect:

2013

2014

2017 – 2018

What Do You Think?
Looks like we’re in for a long ride with the Healthcare Bill! We’ll continue to cover changes in the Tax Tip of the Week, but let’s talk about it. Post your comments here. What do you think about the Healthcare Bill? What are your concerns and comments? Join in the conversation!

As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.

Rick Prewitt – the guy behind TTW

…until next week.

A Compliance Nightmare for Small Businesses | Tax Tip of the Week | Dissecting the Healthcare Bill – Part 3 of 4 | No. 48 July 7, 2010

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1099 Nightmare

On page 737 of the Healthcare Bill is a three-paragraph section that has nothing to do with hospitals, doctors, drugs or health insurance.  Starting January 1, 2012 all business entities will be required to issue 1099s to all individuals and business with which they spend $600 or more annually for goods and services.

Currently, businesses must file 1099-MISC forms only to individuals and unincorporated business for goods and services provided.  For example, a small business contracts with an individual to design a web site for the company.  The cost is $1,200 to perform the work.  A 1090-MISC is issued to that contractor to insure the income is reported on that contractor’s personal tax return.

The intent of the new reporting requirements is to capture an estimated $2 billion in taxes on income that currently goes unreported each year.

So starting in 2012, if a small business purchases a computer from Staples, they will need to get Staples’ federal identification number and address in order to issue them a 1099.  Same goes for the provider of their internet services, office supply company, software vendor, utility company, etc.

These reporting requirements will add a HUGE compliance problem for American businesses. Small companies, especially, just don’t have the manpower to track down the information and submit 100 or more 1099s each year.  And what about all the companies on the receiving end?  There is going to be a flood of 1099s pouring into Office Max, Apple, Proctor & Gamble, etc. each year.

Fortunately, Representative Dan Lungren (R- Calif.) has introduced a bill to roll back this provision.  We offer him our support!

We’ll keep you posted.

Questions or comments? In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit our web site.

Rick Prewitt – the guy behind TTW

…until next week.