Wednesday, November 24, 2010
Qualified Small Business Stock Revisited
I have been out for continuing education the last few days and an interesting point came up during one of the classes. I want to use this example to clarify a lot of misconceptions that are out there concerning qualified small business stock (QSBS).
During one of the courses, the instructor, a former IRS agent, was talking about qualified small business stock. During her oration, she suggested that only S Corporations could be organized as a qualified small business (QSB). At that point I took issue. I raised my hand and clarified, that although businesses that organize as a QSB may choose to be taxed as an S Corporation, that does not preclude traditional C Corporations from organizing as qualified small businesses.
Organization whether it be a traditional organization, or organization as QSB, is separate from electing to be taxed as an S Corporation.
As I covered previously in my post dated 10/12/2010 there are specific limitations as to what types of Corporations may be organized as qualified small businesses.
Please note, an eligible QSB must organize with qualified small business stock before December 31, 2010, in order to qualify for 100% capital gain exclusion. Special holding requirements apply. Also, this must be an original issuance, not a subsequent issuance or qualified transfer.
During one of the courses, the instructor, a former IRS agent, was talking about qualified small business stock. During her oration, she suggested that only S Corporations could be organized as a qualified small business (QSB). At that point I took issue. I raised my hand and clarified, that although businesses that organize as a QSB may choose to be taxed as an S Corporation, that does not preclude traditional C Corporations from organizing as qualified small businesses.
Organization whether it be a traditional organization, or organization as QSB, is separate from electing to be taxed as an S Corporation.
As I covered previously in my post dated 10/12/2010 there are specific limitations as to what types of Corporations may be organized as qualified small businesses.
Please note, an eligible QSB must organize with qualified small business stock before December 31, 2010, in order to qualify for 100% capital gain exclusion. Special holding requirements apply. Also, this must be an original issuance, not a subsequent issuance or qualified transfer.
Friday, November 19, 2010
Great business blog
I am not one to go around giving out business references all willy-nilly (accountants do a poor job in general of referring people to other people, maybe it's a trust thing).
But there are a few bloggers out there that I love, and that you might fall in love with as well.
One that is worth checking out, is Zeke Camusio. He is the owner of an internet marketing business out of Seattle Washington. He posts some great stuff, and always seems to have something topical for small businesses/ start-ups. Even though he operates an online marketing business, his posts cover a good variety of business topics, which I enjoy.
So check him out at the link below.
http://www.theoutsourcingcompany.com/blog/entrepreneurship/why-most-businesses-fail/
I am not affiliated with Zeke Camusio, his businesses or affiliates.
But there are a few bloggers out there that I love, and that you might fall in love with as well.
One that is worth checking out, is Zeke Camusio. He is the owner of an internet marketing business out of Seattle Washington. He posts some great stuff, and always seems to have something topical for small businesses/ start-ups. Even though he operates an online marketing business, his posts cover a good variety of business topics, which I enjoy.
So check him out at the link below.
http://www.theoutsourcingcompany.com/blog/entrepreneurship/why-most-businesses-fail/
I am not affiliated with Zeke Camusio, his businesses or affiliates.
Tuesday, November 16, 2010
PTIN Registration: one of the biggest changes in the accounting industry
As industries go, the accounting industry is fairly well regulated. Employees (especially at larger firms) are expected to have a quality education, go through background checks before being hired, have annual performance reviews, etc. Needless to say big businesses have more to lose by hiring the wrong people than companies without an established reputation.
But, what if your business model is based upon offering as many tax returns as you can take from January 1st to April 15th (when your lease expires), or what if you are just establishing your business and need some extra help on the cheap. Businesses in these circumstances may be more inclined to cut some corners.
PTIN registration is the first step, in telling the IRS who is preparing returns within a firm. It is also very likely the first step in determining whom is at fault for faulty tax positions/ faulty tax preparation. It is also (thus far) the first step to try and make sure that anyone who is making significant tax positions on returns, is also receiving at least a minimal amount of continuing education on a yearly basis. In the near future, those whom are currently required to sign up for a PTIN would also have to pass a proficiency exam of some sort (unless these rules change).
This sounds all well and good, but many in the industry are crying foul. They want to know why individual people within a firm must register, pass an exam, and have continuing education if their work is reviewed by a signing partner, before the return is sent to the client. This is why oversight may change in the near future.
However, I look at it as a good first step. If your boss thinks you are qualified enough to put together substantial portions of a return, then you should be proficient enough to also pass an exam and have some limited amount of continuing education. Or in the more extreme cases, if you want to hang a sign in the window that says you are qualified to prepare tax returns, then you should have to prove that you are qualified before you can accept your first client.
Oh I forgot to mention, that the industry knows there are poor standards out there. That is why when you accept a new client,one of the first things you ask them for is the last three years of income tax returns. You are not only asking to get a intimate knowledge of the client, you also want to see how many mistakes, and what kind of mistakes their previous accountant made so that you might be able to get them a nice little refund as a bonus to signing on with your firm.
But, what if your business model is based upon offering as many tax returns as you can take from January 1st to April 15th (when your lease expires), or what if you are just establishing your business and need some extra help on the cheap. Businesses in these circumstances may be more inclined to cut some corners.
PTIN registration is the first step, in telling the IRS who is preparing returns within a firm. It is also very likely the first step in determining whom is at fault for faulty tax positions/ faulty tax preparation. It is also (thus far) the first step to try and make sure that anyone who is making significant tax positions on returns, is also receiving at least a minimal amount of continuing education on a yearly basis. In the near future, those whom are currently required to sign up for a PTIN would also have to pass a proficiency exam of some sort (unless these rules change).
This sounds all well and good, but many in the industry are crying foul. They want to know why individual people within a firm must register, pass an exam, and have continuing education if their work is reviewed by a signing partner, before the return is sent to the client. This is why oversight may change in the near future.
However, I look at it as a good first step. If your boss thinks you are qualified enough to put together substantial portions of a return, then you should be proficient enough to also pass an exam and have some limited amount of continuing education. Or in the more extreme cases, if you want to hang a sign in the window that says you are qualified to prepare tax returns, then you should have to prove that you are qualified before you can accept your first client.
Oh I forgot to mention, that the industry knows there are poor standards out there. That is why when you accept a new client,one of the first things you ask them for is the last three years of income tax returns. You are not only asking to get a intimate knowledge of the client, you also want to see how many mistakes, and what kind of mistakes their previous accountant made so that you might be able to get them a nice little refund as a bonus to signing on with your firm.
Monday, November 15, 2010
Interesting article
Every once in a while, you trip over something that is interesting and worth sharing.
The Wall Street Journal does a great job of helping businesses. Whether getting ideas on technology changes to help businesses grow, or getting a handle on the economy in your industry, using the Wall Street Journal as a resource is helpful.
With that in mind, check out this article about family businesses and their special concerns.
Also check out the small business section of the Wall Street Journal, which may provide even more helpful hints for small business owners.
http://online.wsj.com/article/SB10001424052748703794104575546553171806306.html?mod=WSJ_myyahoo_module
Please note- I am not affiliated with the Wall Street Journal, its companies or affiliates.
The Wall Street Journal does a great job of helping businesses. Whether getting ideas on technology changes to help businesses grow, or getting a handle on the economy in your industry, using the Wall Street Journal as a resource is helpful.
With that in mind, check out this article about family businesses and their special concerns.
Also check out the small business section of the Wall Street Journal, which may provide even more helpful hints for small business owners.
http://online.wsj.com/article/SB10001424052748703794104575546553171806306.html?mod=WSJ_myyahoo_module
Please note- I am not affiliated with the Wall Street Journal, its companies or affiliates.
Friday, November 5, 2010
8109-B coupons/ Federal Tax payments/ EFTPS
If you are a small business owner you may have recently received a notice from the federal government regarding signing up for EFTPS. The information probably included a PIN and a phone number to contact the IRS directly.
Do not be alarmed by this notice. Also be sure to take note that the IRS is contacting you pursuant to proposed regulation. The fact of the matter is, that many banks are no longer going to accept payment coupons because they see no benefit in offering the service to their customers.
EFTPS is a program that directly transfers amounts from your banking institution to the federal government. You can use either the automated phone system or the online system. At this point in time, we are recommending that all of our clients sign up with EFTPS, as their bank will not be accepting coupon payments in the near future. If you need help making this change please contact your accountant, or check out this link to the IRS website.
http://www.irs.gov/efile/article/0,,id=98005,00.html
Do not be alarmed by this notice. Also be sure to take note that the IRS is contacting you pursuant to proposed regulation. The fact of the matter is, that many banks are no longer going to accept payment coupons because they see no benefit in offering the service to their customers.
EFTPS is a program that directly transfers amounts from your banking institution to the federal government. You can use either the automated phone system or the online system. At this point in time, we are recommending that all of our clients sign up with EFTPS, as their bank will not be accepting coupon payments in the near future. If you need help making this change please contact your accountant, or check out this link to the IRS website.
http://www.irs.gov/efile/article/0,,id=98005,00.html
Medical reimbursement plans for self employed individuals (sect. 105 plans)
We all know that health insurance premiums for self employed individuals (individuals filing Schedule(s) C, E, or F on their personal income tax return) are deductible on the front page of a personal income tax return. The issue becomes much muddier when you have a self employed individual that has a wife and children, whom are not covered under their own plan. One tax smart move, may be to start a section 105 medical plan.
This plan also known as a self-insured medical reimbursement plan offers many benefits (and a few pitfalls, if it is not implemented properly).
Usually, the first step in this exercise is to hire the spouse of the self employed individual as an employee. A helpful hint in this exercise is to draft an employment contract with the spouse employee, highlighting job duties, pay, hours of work required, etc. This employee will receive compensation for his/her work, but much of that compensation may end up being paid through tax-free reimbursements of medical expenses.
The second step is to create the plan. The employer must have a plan document and provide both the plan document and an agreement with all employees.This document offers them coverage under the plan. Keep signed copies of both the plan document and employee offers in a safe place. The plan document should highlight specific definitions, as well as how medical expenses will be reimbursed. In addition, most plans of this type have a maximum dollar amount that the business will reimburse for employees (this as well as other things can be amended in the future).
Benefit(s):
1. For the spouse- They receive medical reimbursements tax free.
2. For the family- They would have previously filed these expenses on Schedule A and had to apply a 7.5% (of AGI) floor against these medical expenses before a deduction would have been available. With this change they do not have to worry about this ‘penalty’.
3. For the business- These items are deductible against self-employment income avoiding the additional tax (SE) on their personal income tax return.
Warning- Follow these steps very carefully and do your homework. There is nothing illegal or improper about these plans, but the IRS is on the lookout for self employed individuals who are not following the rules and attempting to avoid paying their fare share of taxes. For more information consult IRC section 105, your accountant, or tax attorney.
This plan also known as a self-insured medical reimbursement plan offers many benefits (and a few pitfalls, if it is not implemented properly).
Usually, the first step in this exercise is to hire the spouse of the self employed individual as an employee. A helpful hint in this exercise is to draft an employment contract with the spouse employee, highlighting job duties, pay, hours of work required, etc. This employee will receive compensation for his/her work, but much of that compensation may end up being paid through tax-free reimbursements of medical expenses.
The second step is to create the plan. The employer must have a plan document and provide both the plan document and an agreement with all employees.This document offers them coverage under the plan. Keep signed copies of both the plan document and employee offers in a safe place. The plan document should highlight specific definitions, as well as how medical expenses will be reimbursed. In addition, most plans of this type have a maximum dollar amount that the business will reimburse for employees (this as well as other things can be amended in the future).
Benefit(s):
1. For the spouse- They receive medical reimbursements tax free.
2. For the family- They would have previously filed these expenses on Schedule A and had to apply a 7.5% (of AGI) floor against these medical expenses before a deduction would have been available. With this change they do not have to worry about this ‘penalty’.
3. For the business- These items are deductible against self-employment income avoiding the additional tax (SE) on their personal income tax return.
Warning- Follow these steps very carefully and do your homework. There is nothing illegal or improper about these plans, but the IRS is on the lookout for self employed individuals who are not following the rules and attempting to avoid paying their fare share of taxes. For more information consult IRC section 105, your accountant, or tax attorney.
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