Corporate Tax

Business Travellers Tax Deductions

You might be surprised at some of the business expenses that are tax deductible for business travelers. It is important that you keep proper records and receipts. Handwritten notes are also important to keep track the reason for the expense, name of the person who met with you, the date and location.

There are many people who do not take advantage of all the deductions they are eligible for. Most of the time it is because they are lazy or do not keep proper records. All little extra time and organization can save you a lot of extra money.

If you travel for business and your employer does not reimburse all of your expenses, you are able to deduct any expenses you pay out-of-pocket that exceed 2% of your AGI. If you are the business owner or are self-employed, you do not even have to reach the 2% threshold.

Anything relating to your business is fair game including gasoline, airfare, fees for baggage, lodging, taxis, supplies, meals and phone calls. You are even allowed to deduct your dry cleaning, laundry service or bar tab while you are traveling.  The expenses have to be both necessary and ordinary. That means that they are typical business traveling expenses in your industry and necessary for your business. In other words, you need to prove you are trying to make money on the business trip.

What Happens When You Mix A Business Trip With Pleasure?

Business travelers need to be aware that the IRS is big on watching business travel related expenses because they know there is plenty of room for manipulation. They come across many tax payers that try to group personal expenses with business travel expenses. If you want to make the whole trip tax deductible, you need to make the primary purpose of the trip for business. You are able to take some personal time.

There is not anything wrong with mixing business with pleasure as long as you make the distinction very clear. Do not try to pass any personal expenses off as business expenses.

Also make sure that any conferences or conventions you attend are related directly to your profession or trade. The IRS wants to make sure they are really not disguised vacations. Make sure you keep any materials you receive at the convention.

What Is Deductible As A Business Related Travel Expense?

There are many things that you can deduct as a business related travel expense. If you attend a seminar or conference that lists an optional excursion for meet and greet purposes, you can deduct the expense even if is a balloon ride or trip to a winery. You need to keep the paperwork from the seminar listing the excursion. The trick is to keep meticulous records of all the expenses you incur when you are traveling for business.

If you cannot substantiate your tax deduction you will face serious penalties. In addition to losing the deduction and being required to pay the tax, you will have to pay interest and penalties. When your taxes are recalculated, you could get a 20% penalty for understatement if your taxes were understated by $5,000 or 10%.

It does not stop there. If the IRS finds a discrepancy, they will question what other deductions are personal or bogus. It is hard to get them to stop once they start digging.

What Is A Bitcoin?

Bitcoin

A Bitcoin is a form of digital currency that is not controlled by the government or any other entity. It was invented in 2009 by an entity or person operating under Satoshi Nakamoto. It is a completely anonymous system. It exists on a peer-to-peer digital forum. Consumers purchase the Bitcoins on the forum and they store them online is a Bitcoin wallet totally free from intervention of the government.

Bitcoin promises a totally anonymous currency system that has eliminated any possibility of inflation bred by the government. The Bitcoin system is based on cryptography and complicated mathematics. Over the past year, Bitcoins popularity has soared exponentially in a speculative market that has created a Bitcoin bubble. The supporters consist of a population of select, tech-savvy, anti-government users due to the fact there is no digital trail.

Crypto-Currency

The reason Bitcoin is a crypto-currency is because its existence is only online and is therefore free of systemic manipulation by the banking system.  Bitcoin mining is the process of creating Bitcoins and are entirely regulated by a network of holders of Bitcoins’ computers. All Bitcoin transactions and Bitcoin transfers happen internationally without banking fees, taxes, time delays or constrictions.

The Bitcoin Wallet

The way you store the Bitcoins you acquire is in a virtual Bitcoin wallet. These wallets are usually established through third party sites or using a computer software. Bitcoin wallets do not invest the money you have deposited in your wallet the way a bank does when they are holding your money. Since Bitcoins are free of any federal interference, the currency is not insured federally by the FDIC.

After you establish your Bitcoin wallet, you officially belong to a network where you can trade and make transactions of Bitcoins. For transfers, you just have to use the other person’s anonymous ID number. It takes several minutes to process the transfer.

Largest Known Investors In Bitcoins

The Winklevoss twins are outspoken believers in Bitcoins. They have spoken out that they reason they have chosen to use the Bitcoin currency is because they have enormous faith in the mathematical based framework free from human error and politics. These extremely wealthy twin brothers got their notoriety from making the argument that they were instrumental in the meteoric rise of Facebook. They were portrayed in the movie “The Social Network”.

Bitcoin Mining

Bitcoin mining is the first step to create Bitcoins that holders can trade. Power computers create Bitcoins using the solution of complex mathematical equations. By design, the equation are exceptionally complex and labor intensive to limit the existing Bitcoin supply.

Bitcoin mining has a downside. It uses an extraordinary amount of energy with computers that are excessively powerful in order to solve these complex equations. It is estimated that 24 hours of Bitcoin mining equates to $147,000 of electricity use just to operate the hardware for mining.

What Can You Purchase With Bitcoins?

Almost anything you can think of can be purchased with Bitcoins. The Bitcoinstore.com is a retailer that has the most online traffic. There was an online black market retailer that helped to make the Bitcoin popular known as Silk Road. Before it was taken offline, you could buy any imaginable drug totally anonymously because the Bitcoin is untraceable.

Many retailers are beginning to accept Bitcoin as a payment method. You will more and more retailers showing the Bitcoin symbol to let people know they are accepting Bitcoins. People are using the crypto-currency to purchase everything from ordering pizza to clothing to paying bar tabs. Some hotels are also beginning to take Bitcoins for hotel stays, dining, room service and drinks.

The Bitcoin Craze

How Big Is The Bitcoin Craze? Bitcoin surpassed a $1 billion total valuation for all existing Bitcoins on Apr. 3, 2013, an all-time high. The high valuation proved that the Bitcoin craze was in the middle of a bubble that had been growing with the ever increasing media coverage since inception. In 2010, if you owned $100 worth of Bitcoin, the value would have increased to $72,500 only one year later. In a ‘Gawker’ article written one week later helped the value skyrocket to $250,000. On Apr. 3, 2013, that same $100 bought in 2010 was worth approximately $1 million dollars.

Is The Bitcoin Bubble Unstable?

The Bitcoin is a very volatile market as you can imagine based on the extraordinary rise in value after only a few years. On Apr. 9, 2013, it reached a new high value at over $200 for each Bitcoin. On Apr. 10, just one day later, the value dropped to $105 for each Bitcoin. The reason that the Bitcoin market is instable is because the speculators determine the value based on its potential investment value. It is not determined by the amount of Bitcoin use or trade.

Are Bitcoins Secure?

Bitcoins that are stored in your Bitcoin wallet, should be secure because of the currencies anonymous nature. The problem is if your wallet is hacked or if you trust a fraudulent person with a transfer, it is not possible to recover your losses or find the person who mislead you.

Can My Wallet Get Hacked?

Using a third party Bitcoin wallet makes it unlikely to get hacked; however, there is still a risk that it can be hacked causing you to lose all of your Bitcoins. Although Bitcoin’s cryptography is declared secure because it is extremely complex, it is a public source which means hackers all over the world can try to hack it. The problem with Bitcoins is you either have to trust a third party to store your Bitcoins or you can use your own software which increases the chance of being hacked. In 2011, a Bitcoin holder went to bed with his computer on. When he woke up, his 25,000 Bitcoins were gone. There was no chance of them ever being recovered.

Will Bitcoins Fade Away?

It is illegal to create currency that competes with the United States currency so it is not clear if using Bitcoins is level. The Bitcoin supply is intended to be scare which makes it practically impossible to use Bitcoins on an international level. It has been said that the Bitcoin cannot succeed long term because the ever increasing value of the Bitcoin would be disastrous to the economy if millions started regularly using Bitcoins.

Bitcoin is nothing less than a roller coaster ride

Now here’s a chart of Bitcoin over the past year, using data from Coinbase, a leading Bitcoin exchange:

BITCOIN PRICE

5 Important Tips For 2014 Tax Planning

Your new goal for 2014 should be to gain a higher level of understanding about your income taxes, plan for your tax liability and get organized. This will make tax season much easier and could save you some of your hard earned money.

Below are some simple tips to help you achieve your new goal.

Create a 2014 tax file. You can use a folder, bin or electronic file on your computer.  Include all transactions and documents that might affect your 2014 tax return.

If you use the electronic file, all you have to do is scan all your tax documents and move them into the folder on your computer.  The great thing about using an electronic file is you can easily e-mail the folder to your tax preparer when it is time to file. An electronic file also takes up much less room and will not clutter your desk. It is important that you back up your electronic file so you will not lose your tax file if anything happens to your computer.

Add important notes on your documents to help your tax preparer understand each transaction. You should include documents such as W2’s, K-1s, 1099s, property sale documents, escrow papers, property tax receipts, vehicle registration receipts, receipts for any tax deductible purchases, and donation receipts.

If your financial position will change this year, schedule a tax planning appointment halfway through the year. Financially altering events that occur in 2014 include marriage, divorce, having a baby, buying a home, selling a home or any other event that will affect your taxes. Do not try to set up an appointment in the middle of tax season. Waiting until the middle of the 2014 will assure your tax professional will have enough time to spend with you help you adequately plan for your taxes.

Fund your retirement plan. Check with your employer to see if you can contribute more to your retirement plan and confirm you are fully taking advantage of the employer match, if you have a retirement plan with your employer.

If you do not have a retirement plan, you need to open a ROTH IRA , IRA or other type of retirement plan. An investment house or bank can help you decide the best plan for your specific financial situation. This will help you plan for your future and will reduce your tax liability this year.

Prepay your income tax liabilities. If you do not prepay your income tax liabilities timely, the IRS will penalize you. You should write down your estimated tax payments and the due dates on your calendar. For 2014, the installment due dates for individuals are April 15th, June 16th, September 15th and January 15th, 2015.

Keep up with current news relating to tax legislation. The tax laws are constantly changing. You might think you know the valuable credits and deductions but Congress might have obliterated them.  Keeping up with the new tax law changes will help you take advantage of all the tax credits and deductions that are available to you.

Top 10 Mistakes You Can Get Sued For

Employers with good intentions might be breaking employment laws without realizing it. The California Chamber of Commerce cataloged the top mistakes that a company can get sued for. Some of the mistakes are federal and other mistakes apply to some states. The report finds that many employers don’t realize the mistakes they are making when they are trying to be nice, save a little money or trying to be flexible for employees.

 Top Ten Mistakes

 #1  – Allowing employees to work during lunch in order for them to leave early.

 Non-exempt employees are required a thirty minute break for a meal in addition to a ten minute break for each 4 hours worked. Denying either requires an extra hour of pay. If you deny both breaks during the same day, you will be required to pay two hours pay. An employee does not have the right to waive breaks. The extra pay hours are required to be paid during the same period that the breaks were denied.

 #2  – Classifying all of the employees as exempt regardless of whether they are exempt or not

Employers could be subject to a lawsuits or huge penalties if they pay everyone salary instead of calculating meal breaks and overtime.

 #3 – Categorizing all employees as independent contractors because it is easier.

Employers need to determine who is an employee and who is an independent contractor to avoid many legal spider webs.

 #4 – Not training supervisors and managers about discrimination and harassment.

 Do not assume that your employees know all of the information or that they will not need it. Providing the basic training will help you avoid lawsuits.

 #5 – Allowing employees to decide when they are going to work and the amount of hours.

 The majority of employees are restricted under the law about the amount of hours each day that can be worked before overtime needs to be paid. Letting employees work less days per week for more hours each day, might require you to pay overtime for the week. Specific rules must be followed. Make sure to check your state laws.

 # 6 – Withholding final paycheck because the employee never returned property of the company.

Some state laws require you give a fired employee their check the moment you say “you are fired”. You can not withhold the final paycheck because they have not returned property belonging to the company like a cell phone or computer. There are penalties that start accruing for the time the check should have been paid. Often times, the penalty is 1 day’s pay for each day the paycheck is delayed.

 # 7Terminating an employee that took a leave of absence.

There is a legal protection that is provided to employees that have to take a leave of absences for a variety of reasons including disability, worker’s compensation, family leave, medical leave, pregnancy, jury duty, military leave as well as many other reasons.

# 8 – Making employees sign non-compete agreements in order to protect the company’s confidential information

You can not force an employee to stay under your employment or prevent a previous employee from making a living with another company.

 #9 – Giving employee loans and deducting money each pay period from their paycheck

 Most states have labor codes that only allow paycheck deductions that are authorized by the law or for benefits. If you give an employee a loan, you need to have the employee sign a promissory note that was reviewed by a lawyer.

 #10 – Vacation policies that forces employees to “use it or lose it” so money does not have to be paid out at termination.

 Vacation that has accrued is a form of wages and is not allowed to be denied. The only thing you can do is stop the amount of vacation that can be accrued over a reasonable amount. Generally, the reasonable amount is 1.5 to 2 times the annual vacation that is accrued.

 

Tax Provisions That Expire In 2013

There are many tax provisions that are scheduled to expire at the end of 2013. You should consider taking advantage of these provisions while they exist.

Tax Breaks For Individuals

Exclusion for Mortgage Debt Cancellation on Primary Residences

In general, debts that have been cancelled or forgiven are considered to be taxable income. There has been an exception for mortgage debt cancelled between 2007 and 2013 if the debt was canceled because of a short sale, mortgage restructuring or foreclosure.

Distributions From Retirement Plans Are Tax Free If It Is For Charitable Purposes

Individuals that are at least 70.5 years old can distribute funds from a retirement account directly to the charity of their choosing up to $100,000 per year as a qualified charitable distribution. These qualified charitable distributions are tax free and may satisfy the minimum plan distribution rules.

Qualified Small Business Stock Exclusion

Investors are able to sell qualified small business stock. 100% of the gains from the sale of the stock will be excluded from income. After 2013, only 50% of the small business stock gains will be able to be excluded.

 Tax Breaks For Employee Benefits

 Mass Transit Benefit

 During 2013, the tax free exclusion for the mass transit fringe benefits was $245 each month. The amount is reduced to $130 per month beginning in 2014.

 Above The Line Deductions

Deduction For Classroom Expenses

K through 12 educators, principals and teachers are able to deduct job related expenses up to $250 as an above the line deduction. In 2014, they will only be able to deduct these expenses as part of the itemized deduction for employee business expense.

Deduction for Tuition and Fees

This above the line deduction expires in 2013. In 2014, the American Opportunity Credit and Lifetime Learning Credit will be available.

Itemized Deductions

Mortgage Insurance Premium Deduction

Homeowners are able to deduct mortgage insurance premiums, only through 2013, as part of the mortgage interest deduction.

Local and State Sales Tax Deduction

State sales tax can be deducted in place of state income taxes. This is very valuable for taxpayers that live in any state that does not have state income tax.

 Real Property Charitable Contributions Made For The Purpose of Conservation

Taxpayers that donate conversation easements to a charity can deduct the value of the easement limited to 50% of AGI minus deductions for all additional charitable contributions. The 50% special limitation expires in 2013.

 Tax Credits

Non Business Energy Property Credit

The tax credit is for 10% of the cost of the qualified energy efficient products that are installed at the main residence of the taxpayer.

2 Or 3 Wheeled Plug In Electric Vehicles

This tax credit is for $2,500 for a vehicle that draws energy from a battery that has a minimum of five kilowatt capacity hours. There is an additional $417 credit for each additional kilowatt capacity hours in excess of the minimum five. The total of this credit has a limit of $7,500.

 Credit For Health Coverage

 The health coverage credit is equal to 72.5% qualified health insurance premiums and the taxpayer’s family.

Credit For Work Opportunity Tax Credit

This tax credit is an incentive for businesses to hire specific employees including public assistance recipients or veterans. For example, employers can receive a tax credit of $4,800 for each disabled veteran that is hired.

 Depreciation

Bonus

 Businesses are able to deduct up to 50% of new equipment costs through a bonus depreciation deduction in 2013. All of the rest of the cost of the equipment will be depreciated over the equipment’s useful life. This bonus will not be available in 2014. The only exception in 2014 will be in the case of noncommercial aircrafts and long production period property.

Section 179

Under section 179, businesses are able to expense the total cost of equipment in the year it is purchased instead of using depreciation and spreading the cost over many years. In 2013, businesses are able to expense up to $500,000. In 2014, they will only be able to expense up to $25,000.

 

 

 

2014 Tax Brackets

Are you ready to plan your 2014 Tax ? In that case, you might want to start with the 2014 tax brackets.

 

2014 Tax Brackets

(for taxes due April 15, 2015)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950
15% $9,076 to $36,900 $18,151 to $73,800 $9,076 to $36,900 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200
39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more

You may also like to compare these numbers with 2013 tax brackets:

2013 Tax Brackets (For taxes due April 15, 2014)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,925 Up to $17,850 Up to $8,925 Up to $12,750
15% $8,926 – $36,250 $17,851 – $72,500 $8,926- $36,250 $12,751 – $48,600
25% $36,251 – $87,850 $72,501 – $146,400 $36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250 $146,401 – $223,050 $73,201 – $111,525 $125,451 – $203,150
33% $183,251 – $398,350 $223,051 – $398,350 $111,526 – $199,175 $203,151 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000 $199,176 – $225,000 $398,351 – $425,000
39.6% $400,001 or more $450,001 or more $225,001 or more $425,001 or more

 

And lastly – you may also like to compare these numbers with 2012 tax brackets.

2012 Tax Brackets (For taxes due this year)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,700 Up to $17,400 Up to $8,700 Up to $12,400
15% $8,701 – $35,350 $17,401 – $70,700 $8,701- $35,350 $12,401 – $47,350
25% $35,351 – $85,650 $70,701 – $142,700 $35,351 – $71,350 $47,351 – $122,300
28% $85,651 – $178,650 $142,701 – $217,450 $71,351 – $108,725 $122,301 – $198,050
33% $178,651 – $388,350 $217,451 – $388,350 $108,726 – $194,175 $198,051 – $388,350
35% $388,351 or more $388,351 or more $194,176 or more $388,351 or more

 

 

Interest is taxable but often overlooked

Any interest that the tax payer receives directly, or through a credit in his account and is of the nature that it can be withdrawn at a future date without attracting any penalty or interest, is termed as taxable income. Bank interest rates, money market accounts, certificates of deposit, deposited insurance dividends etc, are few examples of taxable interest income.

The interest on Series EEE and the series IUS bonds saving bonds are usually classified as tax deferred bonds as tax need not be paid on these, unless it matures and starts generating income. Interest from such bonds, which have been issued after the year 1989, are not taxable if it is generated to fund higher education expenses for that particular year. Form 815 explains about the interest that needs to be excluded from redeemed US Savings bond whereas form 1040A, 1040 or Schedule B talks about excludable interest from the Series EEE bonds issued after 1989.

Dividends are actually interests on deposits or accounts with banks, credit union, stocks held in the capital market, domestic building and loan associations, mutual savings banks etc. The interest payer sends the Copy B of Form 1099- NT to the receiver, who in turns all the necessary paperwork to claim deductions for interest received. The Publication 550 or Publication 1212 gives more details about bonds or debt instruments that were originally offered at a discount. This explains that a part of the original discount must be included every year as interest charges.

Some interest incomes qualify for the federal income tax but are exempted from the state and local income taxes. These incomes include interest from Treasury Bills, notes and bonds. Interest income on some bonds that are used for financing government operations, or that are issued by the state government or by the District of Columbia or a US possession does not qualify even for the federal income tax. It is the duty of the tax payer to duly submit all the interest details that are exempted from tax while filing tax returns. This is because details submitted to the IRS should be complete and accurate. This is only for the records of the IRS and they would not charge any tax on this amount.

A nominee who receives the interest on behalf of the actual recipient should inform the IRS of the same and also furnish all these details to the actual recipient or recipients. Interest amount received by the nominee should be shown as a subtotal of the all interest revenues listed under Schedule B of form 1040 or Form 1040A. The nominee must fill up the Form 1099-INT for the interest portion and hand over the copy B to the actual recipient.

If one receives interest income that qualifies for tax payment, then the same should be done by the receiver on time so that no interest charges or penalties are charged on them. The receiver of the interest should furnish accurate details about his social security number to the interest payer.

Obama Care Explained in Plain English

The US President, Barack Obama and the Congresss, signed an agreement in the year 2010 to bring Obamacare into practice. This is a health insurance scheme initiated by the President, so that all the US citizens are covered. The medical costs are on an uptrend in the recent years and average medical expenses run into thousands of dollars. In a bid to reduce these costs and make the citizens feel covered in case of medical emergencies, the Obamacare plan was launched.

Once a family is covered with the general health insurance, then it need not worry about the shooting medical expenses in case of hospital visits, as a majority of the expenses are covered under this scheme. The patient only needs to pay a very nominal amount during the first visit to the hospital. This is called co-payment. Most of the employees provide this scheme to their employees in return for a reasonable monthly premium payment.

However Obamacare gives additional benefits to families who already have this scheme and it also provides coverage for people who are so poor that they cannot afford even the minimum premium payments. There are lots of daily wage workers in the US, whose employers do not offer any health insurance schemes to cover them. Obamacare is a panacea for all.

Changes that are reflected already

People who have health insurance get additional benefits from Obamacare in various ways. Parents can get additional coverage for their kids, till the kids turn 26 years of age. This plan does not drop patients midway or remove the coverage if somebody in the family falls ill suddenly. Insurance companies, under Obamacare policy, can never refuse to cover for families that have a chronically sick member. The co-payment option is taken off from this system and most of the general check and pregnancy tests can be done free of cost.

Insurance companies cannot act fraudulently and can raise premiums during the term of the policy, only if the increase rates are allowed by the state government. According to this policy, the insurance companies should use 80% of the premiums they receive, for settling claims of the insured people. However, if they fail to do it and instead spend on advertising expenses, they have to send a check to the insured for the excess amount used up. Families that do not have any insurance can use Obamacare to get temporary insurance cover till the year 2014.

Important changes in future

Obamacare will make health insurance compulsory in the year 2013. Failure to take insurance  will attract a fine of 2.5% of the annual income to be paid to the government. Insurance schemes can be easily purchased online. Small business employers will have to mandatorily buy health insurance, failing which, they have to cough up a fine of $2000 per employee, except for the first set of 30 employees who joined the company.

Why you won’t be audited?

Last year, the US saw a huge fall in the tax audit rates by 5.3%. This reduces the probability of individuals being audited.  This research was conducted by the Transactional Records Access Clearing system.  This trend is due to the cuts in the federal spending.  This process is called sequestration and this is a process which cuts down the employees who are eligible for tax audits so that the fraudulent individuals can be tracked down easily. Kevin Brown, leader of Pricewaterhouse Coopers ‘tax controversy and dispute resolution practice, rightly said that if the number of individuals decrease then it correspondingly decreases the number of audits.

The National Treasury Employees Union conducted a survey and it was found out that these cutbacks could impact enforcement actions. The audits usually conduct its audits on days when the works have five to seven unpaid furlough days in the summer. The cuts are also timed in that part of the season, where there is a recruitment freeze which prevents the agency to fill up jobs.  In 2011, the IRS had 7000 full time employees lesser than what it had during the year 2010. The staffing and other enforcement actions were lesser by 6% last year.

The lesser number of individuals to be covered for auditing does not mean that the defaulters can make merry. On the contrary, it is tougher to escape this way because being one among 10,000 people definitely has more visibility than being one among 100,000 people.  The way the audits are being conducted has also changed. Earlier, face to face audits were the fashion. However, this has now been reduced and audits through email correspondence are the order of the day recently.  Audits through emails have increased to almost triple the amount of quantity around 20 years ago.

The IRS has effective software systems to track if the income is not reported rightly. Most of the cases of under reporting of income is tracked through this software by matching the income filed in the form 1099 and other related paperwork, while tax filing. Fewer audits are not necessarily a reason for the defaulters to enjoy. The fewer audits take a longer time to get completed than the frequent speedier audits that was the process some time back.

If a defaulter is found to have misreported income or done fraudulent tax filing in the new long audit process, then the interest and the penalty charges that he needs to pay is exorbitant than what the frequent audits charged. This puts the cheaters in a great fix, as in the current scenario, they not only have to pay taxes due for years together but also have pay very high penalty charges of each year’s missed payments.

Though the audits on individuals have been reduced drastically in the year 2012, the frequency of the audits on the corporate organizations has not changed according to the recent IRS survey. More than 17% of the organizations were qualified for audit in 2012.

How to claim the Small Business Tax Savings Credit

The small business employers are given excellent benefits in the Affordable Care Act. These small business employers provide good health care plans to their employees and hence they are given tax credits to reduce the burden they suffer by providing the health insurance plans.

What is the small business tax savings credit?

According to the Affordable Care Act, small business employers and small tax –exempt employers like non- profit organizations get a tax credit of 35% and 2% respectively for the years 2010 to 2013.  These credits are due to increase correspondingly to 50% 35% in the year 2014. The scheme of offering such attractive tax credits is called Small Business Health Options Programs (SHOP).

These tax credits can be carried back or forward to other years also thus helping the small business employers in a big way. The health insurance premiums that they pay to the employees are usually higher than the tax credits that they receive through the SHOP. In these cases, these employers can claim a business expense deduction for the premiums that they pay over and above the tax credit that they get. This is a double whammy for them, as they get both the credits and the deductions that they are due to get.

What exactly is a small business?

The explanation of the tax credits mentions small business employers in every page. However, there are certain rules to explain as to who these small business employer. To qualify for the double whammy, one needs to fulfill the following conditions:  a) the employer needs to cover at least 50% of the health care coverage (single coverage and not family) for each of his employees. b) There must be lesser than 25 full time employees in the business for it to be classified as a small business. Two half time workers can be considered as a 1 full time employee and c) These employees must be paid less than $50,000 a year as wages.

Claiming the credit

The small business employers can arrive at the tax credit that they are due, by using the IRS form 8941. This has to be then included along with the general business credit while filing the income tax return. The small business employers have a great advantage to carry their tax credits either backward or forward and use it as and when they require it the most. Using the help of a professional tax advisor can help in calculating the exact tax credits and maximizing the benefits of this option.

All sufficient evidence supporting the facts should be submitted to the IRS to make it clear that the employer, who is qualifying for a tax credit, is indeed a small business employer. Once the IRS is fully convinced about the authenticity of the paper work, then the tax credit gets approved and it reaches the employer at the time that they have opted. The additional deductions also help the employers in a big way as they don’t feel the burden of huge healthcare expenses.