Monday, May 30, 2011

Michigan Business Tax (MBT) Repeal Continued

Businesses will still be required to file (at least) one last return under the Michigan Business Tax for the tax year ended December 31, 2011.

2012 brings big changes for businesses when the Corporate Income Tax (CIT) replaces the Michigan Business Tax.

The changes associated with the Corporate Income Tax are evident from the start.

The only businesses that would be required to file a Corporate Income Tax return, would be businesses that are organized as Traditional C-corporations under Federal tax rules.

This means that the following business types would not be required to file a Corporate Income Tax return:

Sole Proprietorships
LLC's taxed as Partnerships
and/or nearly any type of pass-through entity.

Another big change, corporations (other than insurance companies) would be taxed at a flat rate of 6% of corporate net taxable income. With two additional exemptions. First, if your corporation had gross receipts under $350,000 you are not required to file a Corporate Income Tax return. Also, if your Corporate Income Tax liability is less than $100 in a given year, you are not required to file the Corporate Income Tax return for that year.

In my next posting I will cover an interesting twist the State of Michigan has included in the legislation, that may keep the Michigan Business Tax around for a long time...

Friday, May 27, 2011

Michigan Business Tax (MBT) Repeal Continued

Now that we have established what the Michigan Business Tax was, businesses should understand when the MBT will be effectively eliminated and what (if any) effect the new replacement business tax has on their business.

First, businesses should note that although the Michigan Business Tax has been effectively repealed, the effective termination of the MBT will be January 1, 2011. For this reason, most businesses that had to file a Michigan Business Tax return in the past would have at least one more MBT tax return to prepare.

The first question most businesses will likely have will be, what happens if I am a non-calendar year-end taxpayer? For businesses that have year ends other than December 31, it is very likely that you would have to prepare a partial year return to bring your business filings in compliance with MBT filing deadlines.

However, as of this time, the State of Michigan has not issued additional guidance on this issue, please check back for updates as they become available.

Wednesday, May 25, 2011

Other Mileage Rates- 2011

In addition to the standard business mileage rate, there is also a standard rate for both medical, and charitable mileage.

Charitable mileage is unchanged from 2010 at 14 cents per mile.

Medical and moving mileage increased by 2.5 cents from 2010 for a mileage rate of 19 cents per mile in 2011.

Business Standard Mileage update for 2011

During 2011 the standard mileage rate for business reimbursement has been increased to 51 cents per mile.

This is an increase of one cent per mile from 2010, when the mileage rate was 50 cents per mile.

It is important to note that gas prices have increased significantly since the beginning of the year, so this may be a year where the IRS splits the mileage rate to reflect the increase cost of gas at the pump.

The last time this happened was 2008. Stay tuned, if gas prices stay at this rate or increase, it would not surprise anyone, if there is a rate adjustment at mid-year.

Monday, May 23, 2011

Michigan Business Tax (MBT) Repeal Continued

As previously mentioned, the repeal of the Michigan Business Tax is a near guarantee, but with change comes confusion.

So as details become clear I will do my best to clarify how this change will affect your business.

First, I feel I should cover what the MBT tax was, and what types of businesses were required to file a Michigan Business Tax return.

The MBT was enacted on January 1, 2008.

The MBT was a required filing for businesses, doing business in Michigan, whom had Michigan Gross Receipts in excess of $350,000. All businesses that had gross receipts below this level were not required to file an MBT return.

The MBT was a two part tax, well actually a three part tax, because there was a surcharge if you had tax from either of the first two tests. The first part was a pure Gross Receipts Tax which (after adjustments) taxed Gross Receipts at a flat .8%. The second part was a pure income tax, which taxed net taxable income at a flat 4.95% (after adjustments). The "third tax" was a surcharge which added an additional 21.99% onto your tax, but only if you had tax from the previously mentioned taxes. As an example, I will show you how a business would have been taxed if they only had the following issues/ assumptions under the MBT:

Assume you have a C-Corporation, that only does business in Michigan, had $1,000,000 in gross receipts, had net taxable income of 10,000. Under these assumptions, their federal taxable income would be only $1,500. With the MBT, here is breakdown of their tax bill:

Gross Receipts Tax = $8,000
Net Income Tax = $495
Annual Surcharge= $1,868
Total MBT Tax= $10,363

This company usually would have qualified for additional tax credits that would reduce the total tax bill. How fair is it to ask a business to potentially have a tax bill that is larger than their net taxable income for a given year? These inequities and the complexity of the MBT are ultimately what led to its demise.
There were many additional adjustments, and tax credits that I will not get into on this posting, if you would like additional information relating to any of those credits or have a specific question related to this topic, send me an e-mail, or reply to this posting and I will do my best to address that specific issue. For purposes of this posting I am trying to show the nature of the tax, not an individual company's tax issues as it relates to the MBT, the tax is actually much more complex than I could possibly cover in one blog posting...

Friday, May 20, 2011

MBT Repeal: House Bills 4361 & 4362, now what?

Many business people have been waiting years to finally hear that the MBT (Michigan Business Tax) has been repealed.

Unfortunately, due to the circumstances surrounding the repeal of the MBT, many business owners find themselves in an awkward position.

Should we celebrate?

What happens now?

One thing is almost certainly true. Newly elected Governor Rick Snyder came through on his promise to help business people in Michigan. One of his major campaign promises was the repeal of the MBT. With the legislation previously mentioned already passed through the Michigan State House and Senate, it is a near guarantee that this legislation will be finalized and signed into law. With that said, what should businesses expect as a result of these changes?

This is part one of a multi-part posting relating to these bills which significantly change Michigan business and personal taxation.

Monday, May 16, 2011

Payroll: FICA Withholding Reduced

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, which passed in late 2010, brought many changes for businesses. One of the key changes included in this legislation, affects how payroll withholding should be calculated on W-2 wages in 2011.

During 2011, Social Security Tax will be withheld from an employee’s wages at the rate of 4.2% (down from 6.2%) up to the social security wage limit of $106,800. Remember that this legislation does not affect employer’s matching contributions, so their rate remains 6.2%.

In a similar fashion, self-employed individuals (subject to SE Tax) also have a reduced rate to match the reduction in 2011. The total tax rate on net self-employment income for 2011 is 13.3% on the first $106,800 of net self-employed earnings (down from 15.3%). Remember that self-employed individuals pay Medicare Tax at a flat rate beyond this income level at a flat 2.9%.

In addition, the credit for one-half of self-employment tax has been modified to reflect the related change.

To view the adjusted credit please visit the IRS website, or click here.