Here are two words small business owners seldom like to see together: “taxes” and “surprise!” Trying to cope with overwhelming complex tax laws is hard enough without the occasional grenade the IRS tosses across the moat. But BizBest figures you’d rather know now, before getting a notice in the mail. Here, then, are tips on four recent or impending tax changes that you’ll want to know about (and one of them is actually good news!):
1) If your employees earn tips, the IRS has you in its sights (again). The tax agency has launched a new effort to bill employers for Social Security (FICA) and Medicare taxes on tip income reported by employees to the IRS, but not to you. The genesis of this is an IRS form you probably never heard of: Form 4137: Social Security and Medicare Tax on Unreported Tip Income. This is how tip-earning employees tell the IRS about tips they earned but did not report to an employer – including any “unallocated” tips shown on their W-2. And the threshold is low: Any employee who received cash and charge tips of $20 or more in calendar month and didn’t report that income to you (the employer) must file a 4137. In past years, the IRS didn’t have an easy way to match that income to an employer. But the form was changed and now requires the employee to include your tax ID number. This, of course, creates a new tax event for you (never mind you didn’t know about it), since you are responsible for paying the employer portion of FICA and Medicare taxes on this income. IRS is collecting the information from the new 4137 forms it receives, and is sending tax bills or letters to employers telling them how much they owe. Employers who pay up quickly – usually with the next scheduled payroll tax deposit – are not charged any penalty or interest.
2) S-Corp business owners who pay themselves extremely low salaries in order to take more profits as lower-taxed dividends are also in the IRS crosshairs these days. Be aware the IRS might argue that your pay is unreasonably low if it doesn’t come close to standards in your business or profession, and will seek back taxes on the income that it says should have been classified as salary.
3) And here’s a reason to question the health insurance tax credit for small business that’s received such great fanfare since passage of health insurance form: If you receive such a credit, it will also count against you by reducing the amount your small business can deduct for health insurance premiums. Be sure to factor this in when calculating the value of the credit toward purchasing health insurance for your employees.
4) And finally the good news: Thanks to 2011 100% bonus depreciation, if your business buys a new heavy (gross vehicle weight over 6,000 pounds) SUV this year, you’ll qualify for a much larger tax break than before. As long as the SUV is used 100 percent for business purposes, your company can write off the entire cost immediately under the bonus depreciation rule now in place. Forget the old $25,000 maximum you may have seen as a lid on the amount of an SUV purchase that can be expensed. That doesn’t apply under 2011 bonus depreciation rules. Both new and used heavy pickup trucks also qualify for full write-off.
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About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.