How to claim the Small Business Tax Savings Credit

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How to claim the Small Business Tax Savings Credit

Aug 17, 2013 Posted by Sanjiv No Comments

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.

President Obama has been a boon for entrepreneurs and small businesses.

Aug 5, 2013 Posted by Sanjiv No Comments

The health care plan issued by President Obama has been a boon for entrepreneurs and small businesses. This Affordable Care Act gives these small businesses lot of support and help for buying health insurance. Venture capitalists see this as a massive opportunity and they have been giving away lots of cash benefits for starting up health care centers across the US.

The investments made in health care setups grew at a whopping 64% in the first quarter of 2013 which is way higher than investments last year.  Brad Weinberg, a partner at Blueprint Health  and a venture capitalists for new health care setups suggests that this is the best time for entrepreneurs for setting up health centers as all infrastructure is available like the interest, support and capital.  Blueprint has been helping around 30 companies with $20,000 each for setting up health care centers for a stake of 6% in equity.

Health care was never the most sought after industry in the US as technology was the booming sector. Even the IT companies were more focused on social networking or game centers. However the Affordable Care Act turned everybody’s focus on the health care industry, due to the huge financial incentives that it provided. There are more opportunities to set up newer units and speedily resolve many health problems.

Attractive financial incentives accompany the Affordable Care act. These are offered to health care providers to upgrade their medical equipments to newer models and the patients are encouraged to stay healthy always. People who work with the new start ups have stated out of their experience, that the hospitals and insurance companies always look up to entrepreneurs for their innovative technologies. New start ups are given huge aids to come up with new and cheap techniques to make healthcare a booming industry.

David Whitlinger, executive director of the New York eHealth Collaborative announced recently that the list of venture capitalists and health care providers that have registered with them, are more than what they can deal with.  Whitlinger runs a digital health accelerator program that had graduated its initial set of startups recently.  This initiative selects a list of startups that have the potential to help New York’s medical program that find dozens and dozens of venture capitals who are interested in investing in these set ups.

Insurance leaders, medical centers and medical shops have gone on record to offer huge discounts and financial assistances for health start ups that solve their problems. This has encouraged these small businesses and entrepreneurs to come out with new models and help the people in reducing their hospital visits. These entrepreneurs have found the able support of venture capitalists, who offer them the much needed capital and support to set up their establishment. This is a mutually beneficial plan of the Affordable Care Act where the venture capitalists get a stake of equity of the fresh start ups and these new businesses get the backing of established venture capitalists and enough capital to start working.

 

New York Times gets so- called “Cadillac Tax” wrong

Jul 21, 2013 Posted by Sanjiv No Comments

Healthcare-Now! is an online portal that specializes on the health schemes of US and helps the people to understand the schemes better and ways to access the same. Recently it clarified a mistake that was done by New York Times about the coverage and purpose of the Cadillac Tax. Healthcare-Now! explained the right concepts and insisted that the article by New York Times was clearly misleading to the general public.

They insisted that thought the publication was right about the perils of this tax, it had gone wrong about who can use this tax and how the employers are looking out for ways to evade the same.  The tax was incorrectly said to punish the employers who provided high end health welfare plans to their workers. However, in reality, the tax actually punishes plans that have huge premium charges. ($10,200 for individuals and $27,500 for families).

It was also found out that the coverage of the insurance plans had no relation to their premium amounts, which means that plan with high premiums do not necessarily offer a wide coverage and plans with low premium do not necessarily offer a small coverage. Recent studies reveal that only 3.7% of the entire premium differences could be related to the difference in coverage. This tax would not give any impact for people, who already have a good coverage, but this could affect older patients who might be required to pay up to three times the premium amounts of what the younger patients pay and it could also mean more premiums to pay for people who live in states that have expensive health care.

The Times had explained that this tax would encourage the employers to lower their employees’ premium cost through various health and wellness centers to monitor the employees’ health. However lots of research was done on this subject lately and it was found out these health centers only act as a tool through which the employers transfer costs onto workers with lifelong illnesses. These employees are either exorbitant rates of premium or their benefits are withheld.

Healthcare-Now insists that a single payer tax system  is a better way to reduce healthcare costs  as it would take off the burden of huge costs from the employer’s shoulders and ensures that all employees get reasonable coverage for their premiums. A publication as reputed as the New York Times should act more socially responsible and stop publishing wrong information about the Cadillac Tax as millions of people get misled due to this.

Hence, this portal requests and encourages the readers to submit a short 150 page letter to the editor of the New York Times explaining about any recent article and requesting them to change their stand on the Cadillac Tax. People who are interested and write to the editor must mention their names, addresses and phone numbers so that it is easy for tracing. A huge collective effort like this would surely stop people from misinterpreting the properties of the Cadillac tax.

Small Business Tax Savings Credit Explained

Jul 21, 2013 Posted by Sanjiv No Comments

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 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 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 employers in a big way as they don’t feel the burden of huge healthcare expenses.

Three annuity mistakes to avoid

Jun 30, 2013 Posted by Sanjiv No Comments

The recently concluded Market Watch Retirement Adviser Event held in New York, gave some basic insight into dealing with annuities and what are the mistakes to avoid while doing so. The immediate annuities and the deferred annuities contribute excellently to the whole retirement income strategy; however, the benefits of these are usually not utilized fully, because both consumers and financial experts make some gross errors while dealing with these.

John Olsen, president of Olsen Financial Group and an expert on annuities (he is also author of lots of annuities books including, Index Annuities: A suitable approach), addressed the gathering and explained about the various mistakes that one should avoid while dealing with annuities. The three mistakes are explained below:

Unfair Comparisons

The common mistake that people make with annuities is about the costs. Most of them view of these costs as overheads and hence there is a perception among the general public that these annuities are quite expensive. However, Olsen gave a different view to the whole concept. He advised that one should start looking at these costs as the charges for the risk that is being borne by the insurance company on behalf of the buyer. One of the major reasons for misunderstanding these annuities is that the consumers are not trained to manage risk properly and to transform their assets into income.It was also emphasized, annuities, being a product of insurance, would definitely come with the additional baggage of insurance costs. This cannot and should not be ignored by customers, at any cost. The insurance products never pay profits on average, and it imperative for the consumers to realize the fact that the insurance companies can never survive if it starts to pay off profits on an average. This being a product of insurance can never be compared with other mutual funds, because that would be equivalent to comparing apples with oranges.

Focusing on Returns

Olsen advised the focusing on the rate of return when buying annuities is not the right way to deal with annuities. Though low interest rates directly collaborate with lower pay payouts, annuities must be viewed for the absolute insurance of having a particular amount, in one’s account every month. One should consider the benefits of mortality credits while evaluating annuities. These are nothing but the process where the premiums paid by persons who die earlier than expected, yield more benefits for persons who live longer.

Failing to Annuitize

Annuitizing a particular portfolio strengthens it and reduces the risk of failure to a great extent. In addition to that, an annuitized portfolio also guarantees a steady flow of retirement income. However, most people fail to realize the benefits of annuitizing. Olsen advised that this process must be focused on more, to evaluate the benefits of annuities in a proper methodical way. The experts at the Market Watch Retirement meet, suggested the consumers that past data should not be taken as the base, as it can create negative impact in their minds.

Tips to Maximize Tax Savings

May 19, 2013 Posted by Sanjiv No Comments

You may be working hard and earning big money but what is the use when you have not planned your taxes properly? Not planning for tax payments is as good as being unemployed because a lot of hard earned dollars are wasted in paying taxes due to the lack of planning. So it is imperative to plan for tax payments, well in advance.

Here are a few tips, from well-accomplished financial consultants, that may help you to maximize your tax savings and have more money in hand to spend for yourself.

  1. Working for a company

Sometimes it is good to work for someone than have your own business. Wondering why? Let me explain. By working for a company or by being on someone else’s payrolls, you may have to take a cut in your pay package. Nevertheless, you may still be left with more take home money than what you had when you owned a business because you end up paying less in tax. For example, if you were working for a University as a professor, fringe benefits such as health insurance and worker’s compensation would take a big chunk of your salary thereby leading to lower tax payments.

  1. Combining vacations with Business Trips

Going on expensive vacations may burn a big hole in your pocket in terms of tax payments. But if these vacations are combined with business, there could be a lot of savings in terms of tax payments because hotel bills, meals and car rentals are partly deductible from tax payments. But this is not a good practice to follow always as there could be a lot of questions from IRS when this becomes a regular pattern. So, sometimes it is better to pay taxes fully for expensive vacations than claiming for deductions.

  1. Keeping a tab on Business related expenses

Normally when on business trips we are lax and do not keep a tab on the expenses incurred during the trip. It is critical to keep track of all these expenses because in the case of an IRS audit, it is this information that will come in handy to substantiate expenses incurred during a business trip. Also, it is a good practice to tag all business transactions to a single credit card. By using the same credit card for all business related expenses, the expense statement from the credit card company can be used to back up claims made towards expenses incurred during a business trip.

  1. Employing your Spouse

Though a little tricky, this option provides a lot of tax savings. Being your spouse’s employer you can claim for health reimbursements that cover out-of-pocket medical expenses such as spectacles, co-payments and dental costs with pretax dollars. But under these circumstances payroll tax payments are unavoidable. In order to claim for tax payments under this option it is imperative to have an employment contract, signed by your wife and a perfect time sheet recording your wife’s working hours. It is very important to keep track of payroll tax payments because payroll mistakes can completely wipe away the tax savings.

While these are just some of the many tax saving options available, it is always advisable to seek the guidance of a qualified CPA in order to maximize tax savings.

Over 150 People Attended FBAR Webinar on Saturday

May 13, 2013 Posted by Sanjiv No Comments

Learn about FBAR and other foreign and asset reporting requirement ?

Join us on May 11th for an online seminar. We will discuss the basics of FBAR and foreign and assets reporting requirements.  Register today to secure your seat.

Sanjiv Gupta CPA will review the state of the FBAR filing in 2012-13 – who needs to file, which accounts must be reported and what to do about signature authority.

Sanjiv will also discuss the implications of the new IRS Offshore Voluntary Disclosure program,  and how taxpayers can benefit from it.

He will explain the eligibility requirements, penalty structure and compare it to previous year voluntary disclosure program.

What Assets needs to be disclosed?

What should not be reported is as important as what should be reported. Sanjiv will cover some of the common mistakes people make while filing FBAR.

  • What Indian Properties should be reported?
  • What Indian Bank Accounts should be reported?
  • What rental income should be reported?
  • What about gifts made to parents?
  • What about life insurance policies?
  • Should you report the mutual funds and stocks held in India?
  • Should you report the retirement income?

 

Here is small interview clip about FBAR from Sanjiv’s interview last year.

Damage and Theft Related Tax Claims

Feb 24, 2013 Posted by Sanjiv No Comments

When you go through a loss of property, whether through theft or natural disaster, the first thing you think of may not be the ability to use the lost property as a tax credit. Fortunately, it is possible to use property that has been lost as a tax write off.

Unexpected loss of your property can be used as a deduction on your taxes for the year as long as you meet certain criteria. The property that you write off cannot have been covered by an insurance claim. If insurance has paid the monetary value for your property or replaced the lost items, then these cannot be used on your taxes. Items that have not yet been covered can be claimed and must be claimed at their depreciated value. The fair market value is used in the assessment of property related claims.

Any property related damages that you are eligible to claim must have happened in the tax year that you are placing the claim. Prior damaged are not typically eligible for deduction though later damages. In some instances, if damage relief is being relied upon and does not happen, then the damage may be claimed. Property that is stolen may be claimed in the tax year it is discovered.

Property loss or damage tax claims require the use of itemized deductions. If you are used to using the standard the deductions, this system will be a bit different. To itemize, you must use the 1040A IRS form to file taxes for the year. A 1040A form will allow you to place any deductions, including property damage and others, to subtract from your overall owed federal tax amount.

Understand Your Retirement Plan

Nov 10, 2012 Posted by Sanjiv No Comments

Retirement is one of the most feared times of life especially when there are no plans laid down. Today, the government pension cannot be totally counted on for the best and prompt services. There are so many reasons why retirement plans are considered important. This is why if you are able to plan the best retirement plans, you have to do it well. Retirement plans come in different forms. All aimed at ensuring that you get exactly what you deserve. Although there are some that are not totally drafted with you in mind.,  For instance; you can get a retirement plan that will allow you take annuity payments on a regular basis for some time.

No matter how small is your retirement plan, you need to make sure you are getting exactly what you will need to keep you safe when you retire. The number of payments that will come with every plan will differ. This is why it is best to make sure you research more about the plans you are signing up for. Due to the fact that these plans can be affected by inflation and other economic turn downs, it is best to make sure you are on the right path when going ahead with it.

Before you sign up on a retirement policy with a retirement company, there are so many factors to consider. First of all, it will be best to know exactly what you are looking out for. There are retirement plans that will allow you to make monthly installments for a number of years with special packages whiles there are others that will take a lump sum and make sure payments are made till you retire.  You should use the internet for your search. This will help you to have a larger base to search from.

Many people prefer to use online annuity calculators which are great. Using online annuity calculators will give you so much to look up to. It will also give you many annuity companies and their rates. They will also help you to understand their special terms and policies. This will give you so much knowledge and also help you know which rates are best. There are so many insurance companies that can provide you with all you need. However, it will be best to read the policy document before you sign.

If the company you want to sign up to have a record of failure, it will be best to make sure you do not go ahead with the contract. Take your time to look through every annuity comparison detail you get. This will help you to ensure you make no mistake. Also, if you have a health condition, it will be best to make sure you select a plan that will benefit you more or transfer to your next of kin when you are not around. Having a retirement plan is always needed and considered very important if you want to have a great retirement life.

Who should pick C Corporation?

Oct 22, 2012 Posted by Sanjiv No Comments
This is a very common question asked by our readers.
Who should use a C Corporation as a business entity?

You should pick a C Corporation if you:

  • Have noncitizen or greencard share holders.
  • Might look for additional funding from venture capital firms.
  • Want a flexible way of splitting profit among business owners.
  • Want to reduce medicare and social security taxes by setting up salaries for employees and/or owners.
  • Want to provide fringe benefits to owners. E.g. life insurance, education, and transportation costs.
  • Want to provide health benefits (through your corporation) to your employees and owners.
  • Want to reduce your taxes by splitting your earnings between your shareholders and the corporation.
  • Want your business earning to stay with in your business so that it can grow.
  • Want to transfer your share among other business partners/share holders.
  • Want to provide stock options to employees as benefit.
  • Want to make it easier for someone else to purchase your business.
  • Want to provide a travel and entertainment benefit to your employees.
These are some of key reasons why you should pick a C Corporation as your business entity. However, you should consult with a professional before setting up your business structure.
Good consultant can advise you to ensure your business structures provides good asset protection and reduce your tax liabilities.
Make sure to understand the requirements of business structure.  For example, C Corporation requires business owner to hold annual meeting and keep the meeting minutes.  You can lose your protected corporation status if you fail to follow the requirements.