Income Tax Preparation & Small Business Accounting

What's New this Year

NEW PAYROLL UPDATES

NEW FUTA REPORTING: The .2% FUTA surcharge was not extended past 6/30/11. Starting 7/1/11, employers will pay a flat .6% rate (not .8%) on the first $7,000 of employee wages for FUTA. It was a 35-year-old “temporary” levy.

NEW EFTPS FILING REQUIREMENTS: Most employers that formerly were allowed to use paper Federal Tax Deposit Coupons and checks to make payroll tax deposits have to make deposits electronically though Electronic Federal Tax Payment System (EFTPS). Employers that have $2,500 or less in quarterly payroll tax liability and pay their liability when filing their tax returns (i.e., Forms 941 or 944) will be the primary exemption.

FORMS W-2 AND W-3

1. The 2011 Form W-2 changed from 2010.
   
   
2. Box 9 is now blank since the advanced.
   EIC is no longer permitted.

The IRS will be verifying the information on the W2 since the Form W-2 (Wage and Tax Statement) has become increasingly complex there is increased importance in entering every item on the tax return. 

3. W-2 Due Dates are as follows:
   
   1. Employees must receive the W-2 by January 31, 2012.
   2. Employers must send Copy A of the W-2 with Form W-3 to the Social Security Administration by February 29, 2012.
      
      
4. See www.irs.gov for the W-2 instructions that explain what should be in each box of the W-2
   
   
5. The cost of employer sponsored health coverage is optional to report for 2011. But will be mandatory in 2012.
   The reporting would be in W-2 Box 12 with new Code DD. The cost of the coverage is not taxable and is for informational purposes only.
   
   
6. Participants in 457(b) plans can now treat elective deferrals as Roth contributions. This is entered in W-2 Box 12 with new Code EE.
   
   
7. The 2011 Form W-3 has changed from 2010. There is a new section for the kind of employer with 5 designation boxes.

CREDIT FOR SMALL EMPLOYER HEALTH INSURANCE PREMIUMS
The Small Employer Tax Credit is intended to help more businesses provide health coverage to workers. Businesses with less than 25 full-time equivalent (FTE) workers that pay average annual wages of $50,000 or less would be eligible for up to 35% (2010 thru 2013) of their non-elective contribution toward health insurance premium cost.
Eligibility requirements overview:

• The employer must have no more than 25 full-time equivalent employees (FTEs) for the taxable year;

• The average annual wages of employees for the year must be less than $50,000 per FTE and

• The employer must maintain a “qualifying arrangement” where the employer must pay at least 50% of the premiums for each employee.

• The full credit is available to an employer with 10 or fewer full-time employees and whose average annual full-time equivalent wages is less than $25,000.

• The credit is allowable for the AMT calculation.
• E. The aggregation rules for controlled groups apply.
• F. The amount of the recognized credit reduces the deduction for health insuranceexpense.

DEPRECIATION:

1. Fifty percent bonus depreciation was renewed for 2010 by the Small Business Jobs Act of 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended bonus depreciation through 2012 along with increasing the rate from 50% to 100% for assets placed in service from Sept. 9, 2010 through December 31, 2011.
   
2. The Small Business Jobs Act of 2010 increased the Section 179 limits for the years 2010 and 2011 and added qualified real property to the definition of Section 179 property.
   
3. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 increased Section 179 limits for the year 2012 and beyond. SCHEDULE C: IRS continues to focus on Schedule C as a source of the “tax gap.” The IRS attributes $148 billion (43%) of the tax gap to unreported income earned by unincorporated businesses and the associated unpaid self-employment tax.

The following audit statistics are from the 2010 IRS Data Book for business returns without the Earned Income Tax Credit:

Gross Receipts Returns Filed Returns Examined
Under $25,000 10,736,434 1.2%
$25,000 under $100,000 3,136,694 2.5%
$100,000 under $200,000 893,707 4.7%
$200,000 or more 705,877 3.3%

These audits netted the government additional tax of over $2.6 billion
SELF-EMPLOYMENT TAX

1. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. It may be extended to 2012.
   
2. Self employed taxpayers may no longer deduct health insurance in calculating their self-employment tax. This was ONLY true for 2010 tax year.
3. NOL: The extended carryback provisions are no longer available.
4. IRS has returned to a Form 1040X more like the older versions.

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