How Contractors Insurance Benefits General Contractors

There are many benefits to being a contractor, but it also comes with a lot of responsibilities.

You may be working flexible hours, but you have to finish the job within the timetable you and your client have set for it.

The income may also be way better than if you were an everyday employee, but you also have to set aside a budget for contractors insurance.

Some contractors may see contractors insurance as an unnecessary expense, but the smart ones know that they have to get insurance coverage if they want to protect themselves and their business from anything untoward that may happen to projects they’re undertaking.

Contractors insurance is absolutely necessary, even more so if you are a general contractor.

What is a general contractor?

A general contractor, also known as a main contractor or a prime contractor, is the one in charge of a building project. General contractors oversee the operations of a construction site, manage employees, subcontractors, and suppliers, and communicate the progress of the project to all parties involved.

As the main man on a construction project, a general contractor is responsible for safeguarding more employees, subcontractors, tools, equipment, and construction materials than your average contractor. It goes without saying that for work of such magnitude, a general contractor must have the right kind of contractors insurance coverage to get the job done without any hitches.

The benefits of contractors insurance

Contractors insurance protects your company from claims

Construction work always has risks attached to it. One of your workers could suffer an injury or even lose his life while on the job. Or, an accident caused by a wayward tool could hurt a third party within the construction site. Even property damage can happen in the middle of a building project. When any of these happen under your watch as a general contractor, you can expect lawsuits to come your way.

To protect your company from claims by injured employees, you must have workers’ compensation insurance. When you have this type of coverage, you should be able to provide for medical expenses and lost wages for your employees who suffer an injury or fall ill due to the work that they do for you. This type of insurance should cover any claim they make, and that means you won’t have to pay for them out of pocket.

General liability insurance, on the other hand, provides coverage for claims made by third parties who have sustained injuries or suffered property damage in the course of the construction project. It will cover the claims from the get-go and spare you from a costly and exhausting lawsuit.

Your tools, equipment, and materials are protected too

It is not unheard of for tools, equipment, and materials to go missing from a construction site due to negligence or theft. They could also be damaged in the course of the construction. As a general contractor, you are ultimately responsible for all of the above. Fortunately for you, all these assets can be protected by builders risk insurance, which typically covers materials, fixtures, equipment, and even the structure itself.

It ensures compliance with state and legal requirements

Contractors insurance is a requirement in practically all states. When a general contractor carries general liability insurance, workers’ compensation insurance, and several other types of contractors insurance, he is assured of an operation that is above-board and in keeping with the laws of a given state.

It boosts the reputation of your contracting business

Clients who commission building projects will always want their interests to be protected from anything that might happen during construction. More often than not, they only consider general contractors as candidates for their project if they have appropriate insurance coverage.

So if you have the right insurance policies, you can be sure that your company’s name will always crop up. With the boost your insurance coverage provides for your business’ reputation, your company’s chances of bagging any given construction project will vastly improve.

It gives you some peace of mind

As a general contractor, you are fully aware of how risky and unpredictable things could be in the industry. One day things are going well, then somebody gets hurt, or a portion of the construction project collapses the next day. For all the advantages of being a contractor, it is a pretty stressful job, because there are so many things could go wrong that could end the project—and your business—in the blink of an eye.

Thankfully, contractors insurance is there to allay all your fears. While no one wants anything untoward to happen at construction sites, the idea that you are covered for any eventuality is more than enough to bring your stress levels down. With contractors insurance coverage, you will have the peace of mind needed to go through any project or job with a sure footing.

5 Reasons You Need Contractors Insurance

Discover the reasons why every contractor should have proper contractors insurance coverage.

Being a contractor is a dream job for many people, which isn’t really surprising. After all, who wouldn’t want to be your own boss, with full control over your work hours and substantially better pay than a regular, salaried employee?

However, for all the fantastic things that being a contractor brings about, we should never forget that the job comes with a mountain of obligations. Getting contractors insurance is one of those inescapable responsibilities.

Why does anyone in the contracting business need contractors insurance? Here are five reasons.

1. Protection from claims

If any property damage or injury occurs within the area where you and your employees are working on a job, you can expect the affected party—which could be the client, the client’s family, or anyone else who enters the work area—to sue you in court. It is not uncommon for contractors to close down their business because of such claims, which can reach dollar amounts that can sometimes be prohibitive.

You can avoid all that, however, if you have general liability insurance, which will shoulder the cost of any claim triggered by an accident in the workplace.

2. Coverage for injured employees

Accidents happen all the time in the workplace. Should an employee of yours sustain an injury while performing contracting work for you, workers compensation insurance should take care of your injured employee’s medical bills and lost wages. Employers who fail to provide this type of insurance expose themselves to lawsuits from the injured workers.

3. Payment for legal expenses

More often than not, contractors insurance is also designed to pay for the legal expenses that come with being on the receiving end of claims from affected parties. Attorney’s fees, court expenses, and other legal costs are typically covered by contractors insurance.

4. Enhancement of your business’ commercial reputation

Back in the day, clients didn’t bother that much about performing background checks on contractors. As long as they have a reputation for doing excellent work or if they got referred by a friend or a family member, contractors get hired, no questions asked.

Today, clients have become so much smarter. Referrals and reputations don’t count for much these days if the contractor doesn’t have proper insurance. Customers know it’s for their own protection, as it’s a guarantee that they will be compensated fairly for any damage or injury that may arise from a project-related accident.

In other words, having contractors insurance can boost your business’ reputation and increases your chances of getting hired by the more conscientious clients of today.

5. Peace of mind

Being a contractor is great, but there will always be that nagging feeling that no matter how careful you and your employees are when doing your work, one accident could ruin everything for you and your business.

Get contractors insurance, and you can say goodbye to that nagging feeling. You will have that peace of mind that contractors who don’t have proper coverage never get.

 

Why You Should Use A Bookkeeping Company For Your Business Accounts

Businesses all around the world have one thing in common and that’s their accounts and paperwork. All businesses need to keep a track of their accounts to ensure their company is running accordingly and within budget. In some cases, a company’s bookkeeping can get out of hand which can lead to all sorts of complications financially. This is where considerations of a bookkeeping company is something that businesses can look into and invest in. In any business, a bookkeeper is a beneficial asset which shouldn’t be overlooked. This expert guide will give you the top reasons as to why using a bookkeeping company is beneficial for your business needs.

business and office concept - businessman working in office

Saves You Money – While you may think using a bookkeeping company will cost you more money, in reality it can actually save you money. By hiring a company that specializes in business accounts you have the chance to find areas of your accounts and operations where you may be able to save more money when it comes to tax time. Bookkeeping companies know the ins and outs of taxes and other finance related areas, therefore giving you more chances to save.

Scalability Of Your Business – Bookkeepers also have a way to help you with the scalability of your business. They can tell you if you have the ability to expand certain areas or if you need to cut back. Your bookkeeping team will give you inside advice and plans on how to achieve certain goals through different strategies. This enables for you to grow your business with more scalable options.

Frees Up More Time – Hiring a bookkeeping company allows you to have more time to spend working on other more important areas of the business. In this day and age, office and paperwork can be very time consuming and distracting which can lead to delays in other areas of the business operation. A bookkeeping company can ease up some of the stress of keeping your books up to date, which in turn is beneficial for the overall health and your company.

Expertise On Your Side – Hiring a bookkeeping company allows you to have experienced expertise on your side when it comes to managing finances. This invaluable advice will help your business push ahead of your competition by giving your more details into what your finances are and your marketing budget. Any business with this experience and expertise on their side can become a powerful force in their industry.

02G63459Access To The Best Accounting Systems – Hiring a bookkeeper allows you to have access to some of the best accounting systems available without having to purchase them yourself. Some bookkeeping companies use expensive programs which help to keep everything more organized and up to date, which is beneficial for you and your business needs.

Hiring a bookkeeper is a great partnership for any business. Whether you run a small company or a large corporation, hiring a bookkeeping company can be an essential part of your overall business operations. By taking the time to find an accountant that’s specialises in your industry, you can easily make the most of their services to better enhance your business. So are you hiring a bookkeeping service?


Anita Ferguson is a well versed content manager who specializes in the management and delivery of professional content for numerous websites in many industries, currently writing for Balancing Books. She has many years of experience in content management and holds top degrees in her industry. She’s committed to her work and delivers only the very best when working with her clients. She believes in an honest working relationship and will guide her clients in the right direction for a successful content strategy outcome.

tips for hiring accountant

3 Tips For Hiring The Best Accountant Possible

The internet is now full of accounting software solutions that often urge businessmen to attend their tax and accounting issues by themselves. Still, there are cases when an expert is needed. Just as installing Photoshop in your PC does not make you a graphics designer, having accounting software will never make you an ample accountant. It can only follow your commands —and a skilled accountant can do far more than just fill in some gaps and type some numbers. A skilled accountant is an essential and valued partner that can boost your business’s growth. He masters any aspect of your business’s life and course, from financing your next venture to saving for your son’s academic education.

The majority, upon hearing the word “accountant”, immediately pictures a tax preparer, but an accountant is much more than that. Accountants possess far wider knowledge than just tax laws and regulations, and therefore can serve as priceless assets to any entrepreneur.

But let us be more specific. An accountant’s field includes 4 main areas:

  1. Business Consultants. This service usually determines which accountant will eventually earn your trust. Your accountant knows well, even better than you, your business’s special nature, your tax status, and your financial statements. Therefore, nothing would seem more prudent than asking him to assist you while trying to lay down a business plan that is feasible and promising. A skilled accountant can advise you on numerous business issues, from insurance bits and pieces to expansion ventures. Your accountant can offer you fresh and reliable insight, simply because they have a deeper understanding of the background.
  2. Accounting & Record-Maintaining Services. Accounting and records occupy most of an accountant’s working time. However, more and more businessmen tend to keep their own books and records. This is because if they are checked by lenders or by the IRS, the business owner is considered responsible for their truthfulness; hence, many believe it is wiser to keep them themselves.

In most cases, accountants are asked to help when a business is organized for the first time, by installing and explaining the operation of several accounting systems to the owner. These systems can help you assess revenue and expenses at any given time and adjust prices and charges. They also allow you to cut on unnecessary operating costs, establish a budget and stick to it, and reduce accounting work (and corresponding fees) needed while preparing financial statements and tax returns.

  1. Tax Consultation. An accountant can assist you regarding taxes in two different ways: tax compliance (i. e. ensuring you will not find yourself in trouble with the law), and tax planning, namely discovering ways to minimize your general tax burden. Many companies are looking for tax consultation abroad. A great example of premium tax consulting services is Cyprus.
  2. Auditing. Auditing services are needed in several cases, usually though they are required by banks as an essential term when issuing a loan. Auditing may come in several forms and levels, from a simple preparation of a financial statement based on data supplied by the businessman to an actual audit, in which the accountant assures that the business’s financial statements are accurate.

How To Choose Your Accountant

Often, the best way to get a skilled accountant is to ask your lawyer, your banker or a colleague to propose one. In case you need more options, just about any state has a Society of Certified Public Accountants that can readily assist you in your quest.

Please, do not make the mistake of undervaluing the CPA’s opinion. Their members are exclusively professionals who have successfully passed a thorough nationally standardized test that lasts 2 days! The majority of states require CPAs to have no less than a college degree or an adequate equivalent, and many ask them also to present proof of some post-graduate experience. The least you need your accountant to have is adequate education and understanding of your business’s accounting needs. Passing a CPA test is a minimum guarantee of an adequate level of skill and knowledge.

As soon as you have in mind some good options (4 or 5 will do), you must prepare before meeting and discussing with them in person. First of all, draft and take with you a list of what you will need. It is vital, for example, to decide in advance how much of the accounting work of your business you are willing to assign to your accountant.
tips for hiring accountantAs soon as you have everything you need in place, you are ready to meet them in person. Focus on discovering 3 things:

  1. Character & Style. Every individual has their peculiar personality, and the first thing you should do is determine which personality you consider easier to work with. After all, your accountant will be one of the most trusted and close partners. So, is the accountant’s character well-matched with yours? If you visit an accounting firm, please bear in mind that some partners undertake sales and new collaborations and then assign the actual work to a colleague.

Since you want to assess their competency and skills, try to find out how they would handle possible problems and situations relevant to you, i. e. an office audit seeking confirmation of automobile costs. Then listen carefully and see whether the answer satisfies or disappoints you.

  1. Service. All, almost all, accounting firms provide tax and auditing services. But maybe that is not enough for you: for example can they handle your bookkeeping? Can they advise you on management issues? On pension fund accounting? On real estate issues? Is your future accountant skilled enough to assist you while designing and implementing financial information systems?

Some CPAs may even undertake transaction analysis regarding loans and financing, or the preparation, auditing, reviewing and drafting of financial statements. Some accountants are specialized in investment management. Make sure your accountant will be able to represent you before tax authorities.

Ensure the accountant has the whole lot, based on your needs and wants. In case they aren’t able to provide specialized accounting services (investment management for example), they may know other accountants with whom they collaborate with and trust and can refer them to you. Besides that, you should also evaluate the accountant’s experience in your type of business and in your field or industry. That’s quite important in terms of time: an experienced accountant in your line will not be obliged to spend time and effort in familiarizing with relevant regulations and directives, and will surely make far fewer mistakes.

  1. Fees. The first thing you should know is whether he or she demands upfront fees. Accountant fees range from $100 to $275 (€90-€250) per hour, or more, depending on the kind of services provided. Still, numerous accountants prefer to work on a monthly charge. Of course, in this case, you are the one who will have to do the math: consider your needs and figure out what services will be more cost – effective in your case.

Make sure you gather quotes from different accountants and then try to estimate the total yearly charges for the services you require. However, do not make cost – effectiveness your compass: an accountant with a larger per hour fee is probably far more experienced and able to work faster than a beginner with a more economic charge.

Finally, do not hesitate to ask for references, especially from colleagues of yours or clients of the same profession or industry. An accomplished, experienced accountant will be happy to provide such references. Then, contact some of them and determine how satisfied they were with his availability, his or her services and charges, as well as his communication skills.

I’m sure all this information will wisely guide your decisions.


 

Chris Adam is content writer at Global Serve Consultants, a leading organization specializing in international tax advice and planning, company formation and management.

business growth

You Work Hard to Win a Customer – Don’t Lose Them over Fees

When an air conditioner or furnace breaks down, the homeowner is immediately concerned. What will it cost to get it fixed? Will I have to run up a big charge on my credit card or will I have to forget that weekend get-away? You’ve won half the battle; they give your company a call! Now, don’t lose the sale over fees. Here are some that can be deal breakers.

Trip Charges. Just about everyone who works has to get to their place of business and no one pays them for that drive. No wonder they question your charges if they include a trip fee. They’re wondering why they should pay you just to show up. After all, their home is where the work is. This can be a deal breaker.

Gas Surcharges. Homeowners are getting hit just as hard at the pump as you are when gas prices hit new highs. You may need to charge a fee to cover the extra costs you are incurring. Be sure to explain it to your customers and make it fair. Someone who is just miles from your location will probably be unwilling to pay a fee that is the same for someone 20 miles away. Consider a map of your service area with concentric rings flowing out from your location and a set gas surcharge cost for each ring. When you have initiated a surcharge, be upfront and explain it to your potential customer when they call for service. Be sure to drop it when gas prices fall again.

Diagnostic Fees. It’s acceptable to charge a diagnostic fee if you don’t get the job. Customers need to understand that calling for service is NOT calling for a free estimate. However, if you get the job, a diagnostic fee just doesn’t make sense. The first step in fixing a problem is finding the problem. No one wants to pay extra for it. If you have a minimum charge, be upfront about it and let the customer know at the time you answer the phone.

Overtime, Weekends And Holidays. This is a tough one. Markets are starting to see HVAC companies who do not charge extra for working outside of normal hours. This is a great selling point for the customer who has had their furnace quit working on a cold Thanksgiving holiday or a family who comes home in the middle of summer on a Friday evening and find the A/C has conked out. When it comes to personal comfort (and even personal safety), when heating or cooling quits functioning and it’s very cold or very hot, that’s an emergency. It’s also a cost you’re going to have to figure out how to handle. If you’re available 24/7 every day of the year, you need to know how you will charge your customers for evening, weekend or holiday work. Make your customers aware if your rates change during these times and what you will charge.

Costs for HVAC Services can be problematic. The customer is concerned about price the minute they know they have a problem. They want to know what it’s going to cost. But, it’s hard to estimate a cost before you know what the job will entail. Be honest about your charges. If you avoid surprising your customer, they are more likely to feel satisfied. Look at your business model and decide what fees you need to charge and what is a fair price for your services, whether you work by the hour or on a flat fee basis. Remember, customers aren’t just looking for the lowest price; they’re also looking for expert service. Be willing to explain your charges in advance and be sure to also mention the benefits of using your company. You can make the sale!

 

Kansas & Missouri Offer Tax Amnesty Periods

August 3 — Taxpayers in Kansas and Missouri who owe back taxes from prior years will be able to take advantage of tax amnesty periods beginning in September.

Kansas

In Kansas, taxpayers who owe business or personal taxes accrued before Jan. 1, 2014, will be able to avoid penalties and interest if they pay the past-due taxes between Sept. 1 and Oct. 15.

The amnesty doesn’t apply to matters that are in appeal, under criminal investigation or at issue in any criminal or civil litigation related to taxes imposed by the state, the Kansas Department of Revenue said.

According to the DOR, the amnesty applies to:

  •  income tax,
  •  privilege tax,
  •  estate tax,
  •  withholding and estimated tax,
  •  sales tax,
  •  compensating use tax,
  •  liquor enforcement tax,
  •  liquor drink tax,
  •  cigarette and tobacco products tax, and
  •  mineral severance tax.

Missouri

In Missouri, taxpayers owing personal or business taxes accrued before Jan. 1, 2015, will be allowed to avoid penalties, additions to tax and interest if they pay the taxes due between Sept. 1 and Nov. 30.

According to the Missouri Department of Revenue, the following tax types are eligible for the amnesty program:

  •  use tax,
  •  corporate franchise tax,
  •  corporate income tax,
  •  employer withholding tax,
  •  fiduciary tax,
  •  individual income tax,
  •  sales tax, and
  •  vendor’s use tax.

The amnesty doesn’t extend to taxpayers who are subject to civil or criminal investigation regarding unpaid Missouri taxes, and taxpayers who participate will become ineligible for future amnesty periods for the same type of tax, the DOR said.

Participants also are required to comply with state tax laws for eight years after the amnesty, the DOR said. Failure to comply will void the amnesty agreement, triggering an immediate requirement to pay any penalties, additions to tax or interest that were waived under the amnesty.

For More Information

Details on the Kansas amnesty period are at http://www.ksrevenue.org/taxamnesty.html.

Details on the Missouri amnesty period are at http://dor.mo.gov/faq/amnesty.php.

Kansas & Missouri State Compliance Alert

Kansas

Equal Employment Opportunity—Effective July 1, 2015, employers can adopt an employment policy that gives hiring preference to veterans who meet job requirements.

Military Leave—Effective July 1, 2015, employees in Kansas are covered by the military leave provisions if they are members of any state’s military force and are called or ordered to active duty by any state.

Missouri

Unemployment Insurance—Effective Jan. 1, 2016, the taxable wage base is $13,000, tax rates for experienced employers that have not implemented a shared-work plan range from zero to 9.75 percent and new employer tax rates range from 1.3 percent to 4.362 percent.

Section 179 Depreciation Rule Change for 2014

I also own a prominent accounting firm called RA Tax and Accounting. We specialize in serving the contracting industry. Anyway, we have been advising our clients about Section 179 depreciation and we thought your business might be interesting in knowing this too.

A significant enhancement to Section 179 has passed the Senate and was signed by President Obama on December 19th.

Here’s what you need to know about this enhancement:

  1. The total amount a business can write off this year for equipment and software just increased from $25,000 to $500,000.
  2. This is retroactive to January 1, 2014. That’s great news too.
  3. This exception will expire on December 31, 2014. It is only for this year!
  4. These tax savings apply whether they pay cash, use a credit card, or finance the sale.

Why this is important to you:

Example 1

Business X will report a profit of $100,000 on their 2014 corporate tax return.

If in a 35% tax bracket, they will owe $35,000 in taxes.

However if they buy equipment for $100,000 and write off the full $100,000 under Section 179, they pay nothing in taxes.

Result: They invest $100,000 and reduce their taxes by $35,000.

Example 2

Business X will report a profit of $100,000 on their 2014 corporate tax return.

If in a 35% tax bracket, they will owe $35,000 in taxes.

However if they finance their investment of $100,000 (and only make a small down payment), they can still write off the full $100,000 under Section 179. They will pay nothing in taxes!

For more information, go to www.section179.org. Be sure to speak to your accountant about deductibility. It’s important to have quarterly planning meetings with your accountant, especially before the end of each year.

 

James R. Leichter
Mr. HVAC

Last Minute Tax Planning and What’s Ahead in 2015

As 2014 draws to a close, there is still time to reduce your 2014 tax bill and plan ahead for 2015. This letter highlights several potential tax-saving opportunities for owners of businesses operating as S corporations or limited liability companies to consider. I will arrange to meet with you to discuss specific strategies and issues that you have in mind.

Deferring Income into 2014

Deferring income to the next taxable year is a time-honored year-end planning tool. If you expect your taxable income to be higher in 2014 than in 2015, or if you anticipate being in the same or a higher tax bracket in 2014 than in 2015, you may benefit by deferring income into 2015. Of course, exposure to the alternative minimum tax could reverse the standard planning. Some ways to defer income include:

Use of Cash Method of Accounting: By using the cash method of accounting instead of the accrual method of accounting, you can generally put yourself in the best position for accelerating deductions and deferring income. There is still time to accomplish this strategy, because an automatic change to the cash method can be made by the due date of the return including extensions. The following three types of businesses can make an automatic change to the cash method: (1) small businesses with average annual gross receipts of $1 million or less (even those with inventories that are a material income producing factor); (2) certain C corporations with average annual gross receipts of $5 million or less in which inventories are not a material income producing factor; and (3) certain taxpayers with average annual gross receipts of $10 million or less. Provided inventories are not a material income producing factor, sole proprietors, limited liability companies (LLCs), partnerships, and S corporations can change to the cash method of accounting without regard to their average annual gross receipts.

Installment Sales: Generally, a sale occurs when you transfer property. If a gain will be realized on the sale, income recognition will normally be deferred under the installment method until payments are received. So if you are expecting to sell property at year-end, and it makes economic sense, consider selling the property using the installment method to defer payments (and tax) until next year or later.

Delay Billing: Delay year-end billing to clients so that payments are not received until 2015. When it makes business sense, you may want to consider using an installment sale.

Interest and Dividends: Interest income earned on Treasury securities and bank certificates of deposit with maturities of one year or less is not includible in income until received. To defer interest income, consider buying short-term bonds or certificates that will not mature until next year. If you have control as to when dividends are paid, arrange to have them paid to you after the end of the year.

Accelerating Income into 2014

You may benefit from accelerating income into 2014. For example, you may anticipate being in a higher tax bracket in 2015, or perhaps you need additional income in 2014 to take advantage of an offsetting deduction or credit that will not be available to you in future tax years. Note, however, that accelerating income into 2014 will be disadvantageous if you expect to be in the same or lower tax bracket for 2015.

If you report income and expenses on a cash basis, issue bills and attempt collection before the end of 2014. Also, see if some of your clients or customers are willing to pay for January 2015 goods or services in advance. Any income received using these steps will shift income from 2015 to 2014.

Business Deductions

Self-Employed Health Insurance Premiums: Self-employed individuals are allowed to claim 100% of the amount paid during the taxable year for insurance that constitutes medical care for themselves, their spouses, and their dependents as an above-the-line deduction, without regard to the general 10%-of-AGI floor.

Equipment Purchases: If you purchase equipment, you may make a “Section 179 election,” which allows you to expense (i.e., currently deduct) otherwise depreciable business property. For 2014, you may elect to expense up to $25,000 of equipment costs (with a phase-out for purchases in excess of $200,000) if the asset was placed in service during 2014.

In 2015, the dollar amounts for §179 expensing are scheduled to be $25,000, with a phase-out amount of $200,000. Although the amount eligible to be expensed and the phase-out amount were significantly greater in prior years and there is a chance the 2014 and 2015 figures will go up if Congress acts soon, However, it is uncertain whether any such legislation will be passed and if so whether that legislation would have retroactive application.

In addition, careful timing of equipment purchases can result in favorable depreciation deductions in 2014. In general, under the “half-year convention,” you may deduct six months’ worth of depreciation for equipment that is placed in service on or before the last day of the tax year. (If more than 40% of the cost of all personal property placed in service occurs during the last quarter of the year, however, a “mid-quarter convention” applies, which lowers your depreciation deduction.)

A popular strategy in recent years has been to purchase a vehicle for business purposes that exceeds 6,000 pounds. It is possible that the vehicle can qualify for the full equipment expensing dollar amount, which for SUVs (rated between 6,000 and 14,000 pounds gross vehicle weight) would be limited to $25,000 (assuming 100% business use).

NOL Carryback Period: If your business suffers net operating losses for 2014, you generally apply those losses against taxable income going back two tax years. Thus, for example, the loss could be used to reduce taxable income—and thus generate tax refunds—for tax years as far back as 2012. Certain “eligible losses” can be carried back three years; farming losses can be carried back five years.

Bad Debts: You can accelerate deductions into 2014 by analyzing your business accounts receivable and writing off those receivables that are totally or partially worthless. By identifying specific bad debts, you should be entitled to a deduction. You may be able to complete this process after year-end if the write-off is reflected in the 2014 year-end financial statements.

Home Office Deduction: Expenses attributable to using the home office as a business office are deductible under §280A if the home office is used regularly and exclusively: (1) as a taxpayer’s principal place of business for any trade or business; (2) as a place where patients, clients, or customers regularly meet or deal with the taxpayer in the normal course of business; or (3) in the case of a separate structure not attached to the residence, in connection with a trade or business. If you have been using part of your home as a business office, we should talk about the amount of any deduction you would like to take because recent guidance provides a safe harbor which could be used to minimize audit risk.

Capitalization of Tangibles: Final regulations providing guidance on the application of §162(a) and §263(a) to amounts paid to acquire, produce, or improve tangible property, expand the definition of materials and supplies to include property with an acquisition or production cost of $200 or less, clarify the application of the optional method of accounting for rotable and temporary spare parts, and simplify the application of the de minimis safe harbor to materials and supplies. The regulations generally apply to taxable years beginning on or after January 1, 2014.

Business Credits

Small Employer Pension Plan Startup Cost Credit: For 2014, certain small business employers that did not have a pension plan for the preceding three years may claim a nonrefundable income tax credit for expenses of establishing and administering a new retirement plan for employees. The credit applies to 50% of qualified administrative and retirement-education expenses for each of the first three plan years. However, the maximum credit is $500 per year.

Credit for Employee Health Insurance Expenses of Small Employers: Eligible small employers are allowed a credit for certain expenditures to provide health insurance coverage for their employees. Generally, employers with 10 or fewer full-time equivalent employees (FTEs) and an average annual per-employee wage of $25,400 or less are eligible for the full credit. The credit amount begins to phase out for employers with either 11 FTEs or an average annual per-employee wage of more than $25,400. The credit is phased out completely for employers with 25 or more FTEs or an average annual per-employee wage of $50,800 or more. Beginning in 2014, the credit is available on a sliding scale for up to 50% of the employer’s contribution toward employee health insurance premiums (35% for tax-exempt organizations), is only allowable if the health insurance is purchased through a SHOP Exchange, and is only available for two consecutive taxable years.

Inventories

Subnormal Goods: You should check for subnormal goods in your inventory. Subnormal goods are goods that are unsalable at normal prices or unusable in the normal way due to damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes, including second-hand goods taken in exchange. If your business has subnormal inventory as of the end of 2014, you can take a deduction for any write-downs associated with that inventory provided you offer it for sale within 30 days of your inventory date. The inventory does not have to be sold within the 30-day timeframe.

Planning for 2014 Tax Increases and Potential Expiration of Tax Relief Provisions

S Corporation Built-In Gains Tax: An S corporation generally is not subject to tax; instead, it passes through its income or loss items to its shareholders, who are taxed on their pro-rata shares of the S corporation’s income. However, if a business that was formed as a C corporation elects to become an S corporation, the S corporation is taxed at the highest corporate rate on all unrealized gains that were built in at the time of the election if the gains are recognized during a special holding period which is generally 10 years. Although the special holding period was significantly shorter in recent years, it is uncertain whether legislation will be passed to shorten the special holding period for 2014 or subsequent years and, if passed, whether that legislation would have retroactive application.

Exclusion of Gain Attributable to Certain Small Business Stock: Qualified small business stock sales taking place in 2014 could be subject to a few different gain exclusion incentives. An individual ordinarily may exclude a certain percentage of the gain from qualified small business stock that is held for more than five years (subject to a cap). “Qualified small business stock” is stock of a corporation the assets of which do not exceed $50 million when the stock is issued. The key to this provision is when the stock was acquired, not when it is sold. A 50% exclusion of applies for stock acquired after August 10, 1993, and before February 18, 2009, and after December 31, 2013; a 75% exclusion applies for stock acquired after February 17, 2009, and before September 28, 2010; a 100% exclusion applies for stock acquired after September 27, 2010, and before January 1, 2014. Therefore, if you plan to sell in 2014 and have owned the qualified small business stock for more than five years, your benefit can vary greatly. For example, if you acquired the stock on January 1, 2009, and sold on or after January 2, 2014, you receive a 50% gain exclusion. If you bought the stock after February 17, 2009, but before December 31, 2009, your 5-year holding period may or may not have been satisfied if sold in 2014. If it has, then a 75% exclusion will apply. No sales in 2014 can qualify for a 100% exclusion as the acquisition date must have been after September 27, 2010, and the 5-year holding period will not be satisfied until September 27, 2015.

Qualifying Dividends: Qualified dividends are subject to rates similar to the capital gains rates. Qualified dividend income is subject to a 15% rate for taxpayers below the recently reinstated 39.6% tax bracket. For taxpayers in the 39.6% bracket, the capital gain rate is 20%. Note that qualified dividends may be subject to an additional 3.8% net investment income tax. Qualified dividends are typically dividends from domestic and certain foreign corporations. So if you have any control over the receipt of dividends, and you are not in the highest bracket for 2014, the dividends should be accelerated into 2014 to get the 15% rate.

Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property: The rule that the basis of an S corporation shareholder’s stock is decreased by charitable contributions of property by the S corporation in an amount equal to the shareholder’s pro rata share of the adjusted basis of the contributed property expired for contributions made in taxable years beginning after December 31, 2013. As a result, absent congressional action retroactively extending the prior rule for charitable contributions made in 2014, your stock basis will be reduced by your pro rata share of the S corporation’s charitable contributions. For example, if you contributed property with a $200 adjusted basis and $500 fair market value to a charity, your stock basis will be reduced by $500 instead of $200 unless Congress enacts legislation extending the prior rule.

Employer-Provided Child Care Credit: For 2014, employers may claim a credit of up to $150,000 for supporting employee child care or child care resource and referral services. The credit is allowed for a percentage of “qualified child care expenditures,” including for property to be used as part of a qualified child care facility, for operating costs of a qualified child care facility, and for resource and referral expenditures.

Employer Wage Credit for Employees in the Military: Some employers continue to pay all or a portion of the wages of employees who are called to active military service. If the employer has fewer than 50 employees and has a written plan for providing such differential wage payments, the employer is eligible for a credit. The amount of the credit is equal to 20% of the first $20,000 of differential wage payments to each employee for the taxable year. The credit expired after 2013 and it is uncertain whether legislation providing for this credit will be passed and if so whether such legislation will provide for the credit retroactively.

Work Opportunity Credit: The work opportunity credit is an incentive provided to employers who hire individuals in groups whose members historically have had difficulty obtaining employment. The credit gives a business an expanded opportunity to employ new workers and to be eligible for a tax credit against the wages paid. The credit is determined based on first-year wages paid for employees hired on or before December 31, 2013. The credit expired after 2013 and it is uncertain whether legislation providing for this credit will be passed and if so whether such legislation will provide for the credit retroactively.

Health Care Planning

SHOP Exchanges: Beginning in 2014, the Small Business Health Options Program begins to allow certain small businesses to obtain health insurance for their employees through an exchange with health insurance coverage beginning in 2015. Currently, the program is designed for employers with 50 or fewer full-time equivalent employees. Coverage must be offered to all full-time employees working 30 or more hours per week. Each state will offer its own SHOP marketplace. Self-employed persons with no employees cannot use the SHOP Exchange.

Health Care Credits: Small businesses with less than 25 employees may qualify for health care tax credits using the health insurance marketplace. These premium tax credits can cover up to 50% of the cost of employee health insurance. The uncovered amount can be deducted from your taxes as usual. Beginning in 2015, the tax credits are available through plans offered on the SHOP marketplace exclusively.

Pay to Play Excise Tax: In 2015, if you have 100 or more employees, you could be subject to an excise tax, which could be as much as $2,000 per employee, for failure to provide an adequate health care plan to your employees. The first 80 workers are excluded from the penalty excise tax. As a larger employer, you should be considering your health care needs in light of this potential excise tax liability.

Reporting

FATCA: The Foreign Account Tax Compliance Act (FATCA) requires reporting and possible withholding on payments made to foreign entities, whether the foreign payees are financial institutions or not. In 2014, you needed to be fully compliant with FATCA beginning July 1st for withholding purposes. Information reporting requirements apply to foreign payments made in 2014, but the reports are not due until March 15, 2015. Implementing a compliance process for FATCA can be costly. Your compliance processes need to be in place.

Uncertain Tax Positions: The final instructions for Schedule UTP state that a corporation must file Schedule UTP with its income tax return if it: (1) files Form 1120, Form 1120-F, From 1120-L, or Form 1120-PC; (2) has assets of $10,000,000 or more beginning with the 2014 tax year; (3) issued (or a related party issued) audited financial statements reporting all or a portion of the corporation’s operations for all or a portion of the corporation’s tax year; and (4) has one or more tax positions that must be reported on Schedule UTP. A taxpayer that files a protective Form 1120, 1120-F, 1120-L, or 1120-PC and satisfies the conditions set forth above also must file Schedule UTP.

Electronic Deposits

Electronic Funds Transfer: As of January 1, 2011, a corporation must make its deposits of income tax withholding, FICA, FUTA, and corporate income tax by electronic funds transfer (EFT), including through the IRS’s Electronic Federal Tax Deposit System (EFTPS).

If you have any questions, please do not hesitate to call. I will be calling to schedule a meeting with you at your convenience to discuss the strategies and requirements outlined above. There is still time to implement these strategies to minimize your 2014 tax liability and plan for 2015.

 

About The Author

This article was written Larry Jurgensmeyer, Bloomberg BNA, and republished with permission.

 

 

Income Tax Breaks that Expired in 2013

Major Tax Breaks that Expired in 2013

• Research credit: The tax credit for research and experimentation expenses.

• Charitable contributions from IRA accounts: The ability to distribute up to $100,000 tax free to charity from an IRA maintained for an individual whose has reached age 701/2.

• Discharge of indebtedness on principal residence excluded from gross income of individuals: The exclusion from taxable income of debt forgiven in a foreclosure proceeding or write-down of principal on a mortgage.

• Premiums for mortgage insurance deductible as interest that is qualified residence interest: Itemized deduction for the cost of mortgage insurance on a qualified personal residence.

• Deduction for state sales taxes: The election to deduct as an itemized deduction state and local sales taxes instead of state and local income taxes.

• Educator expense deduction: The $250 above the line deduction for qualifying educators for expenses paid for books and supplies used in the classroom.

• Increased first-year asset expensing: For 2013, the amount eligible for asset expensing is $500,000. Beginning in 2014, the amount is reduced to $25,000.

• Tuition expenses: The above-the-line deduction for qualified tuition and related expenses.

• 50% bonus depreciation: The additional first-year depreciation for 50% of basis of qualified property.

• Nonbusiness energy property credit: A 10% credit (up to $500, less if any credit was taken in a previous year) is available if you make certain energy efficient improvements to your home. Such improvements include high-efficiency heating and air conditioning systems, water heaters, windows (limited to $200), skylights, doors, insulation and roofs. The improvements must be made to an existing principal residence. A manufacturer’s certificate must accompany the qualifying property.

• Alternative fuel vehicle refueling property (non-hydrogen refueling property): The 30% credit for the cost of any qualified alternative fuel vehicle refueling property.

• Credit for two- or three-wheeled plug-in electric vehicles: A credit, the lesser of $2,500 or 10% of the cost of the qualified 2- or 3- wheeled plug-in electric vehicle.

• Credit for health insurance costs of eligible individuals: A credit of 72.5% of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members under qualified health insurance for eligible coverage months beginning before January 1, 2014.

• Credit for production of Indian coal: Credit for the 8-year period that began on January 1, 2006.

• Indian employment tax credit: A 20% credit of the excess of wages plus health insurance costs over a base year amount; expired for taxable years beginning after December 31, 2013.

• New markets tax credit: No national limitation set for any year after 2013.

• Credit for construction of new energy efficient homes: A $1,000 or $2,000 credit to the builder for the construction of a qualified home purchased by a homeowner for the use as a principal residence.

• Credit for energy efficient appliances: Credit for manufacturing certain appliances at determined energy efficiencies.

• Employer wage credit for activated military reservists: A credit of 20% of the differential wage payment (such differential not to exceed $20,000).

• Work opportunity tax credit: Employment credit for hiring workers from certain targeted groups.

• Parity for exclusion from income for employer-provided mass transit and parking benefits: Keeping dollar amounts applicable to commuter highway vehicles or transit passes and qualified parking benefits the same.

• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements: Property must be placed in service before January 1, 2014, to qualify for 15-year recovery period; otherwise 39-year recovery period applies.

• Seven-year recovery period for motorsports entertainment complexes: Property must be placed in service before January 1, 2014, to qualify for 7-year recovery period; otherwise 39-year recovery period applies.

• Election to accelerate AMT credits in lieu of additional first-year depreciation: Only adjusted basis attributable to manufacture, construction, or production before January 1, 2014, is taken into account.

• Special rules for contributions of capital gain real property made for conservation purposes: 50%, rather than 30%, contribution base limitation applied.

• Enhanced charitable deduction for contributions of food inventory: Enhanced deduction for food inventory not limited to C corporations.

• Special expensing rules for certain film and television productions: Election to expense, rather than capitalize, certain expenses relating to film and television production.

• Exceptions under subpart F for active financing income: The exceptions from current inclusion under the subpart F rules for certain income derived in the active conduct of a banking, financing or similar business, in the conduct of an insurance business, or as a securities dealer.

• Special rules for qualified small business stock: 100% exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2014, and held for more than five years. For stock acquired after December 31, 2013, and held for more than five years, a 50% exclusion rule applies.

• Basis adjustment to stock of S corporations making charitable contributions of property: An S corporation shareholder’s $1367(a)(2)(B) basis reduction resulting from the corporation’s charitable contribution of property equaled the shareholder’s pro rata share of the adjusted basis of the contributed property.

• Reduction in S corporation recognition period for built-in gains: For purposes of computing the built-in gains tax, 5-year “recognition period” applied; after 2013, 10-year period applies

• Empowerment zone tax incentives: The designation of certain economically depressed census tracts as Empowerment Zones, within which businesses and individual residents are eligible for special tax incentives.

• American Samoa economic development credit: The possessions tax credit for companies with activity in American Samoa, if they earn $199 “qualified activities income” in American Samoa during years they will claim the credit

• New York Liberty Zone: tax-exempt bond financing: The time for issuing qualified New York Liberty Zone bonds expired after December 31, 2013.

While there are other minor changes that have taken place from 2013 to 2014, the above list represents tax changes that most likely will impact your 2014 taxes.

Source: Bloomberg BNA

Please also see: New Federal Taxes for 2014