Operating your business as a small business corporation allows for many tax saving opportunities. However, it does present some complications, especially concerning the way the shareholder/owner takes money out of the business. Not in a bad way. Just a little more complicated.
I strongly, no very strongly if that is possible, encourage business owners to meet the IRS requirement that you pay yourself a salary. By paying yourself a salary you are paying social security taxes (a good thing since they are fully refundable come age 65) and unemployment taxes. Do you own a seasonal business? By paying unemployment taxes you can lay yourself off during the slow periods and collect unemployment benefits until business picks up. Unemployment benefits are not available to sole proprietors or partnerships. Only shareholder/owner can take advantage of unemployment benefits.
However taking a salary is not the only way you can take money out of your business. Please make sure you are reimbursing yourself for out of pocket expenses. Whether it is a newspaper subscription, auto insurance or the cell phone bill for example you should be either paying these bills directly from your corporate checking account or reimbursing yourself with a check made payable to you clearly listing the reimbursement.
Do you operate your business out of your home office? If so, make sure your corporation is paying you rent for the space your business operates out of. The amount of rent you pay yourself should be market driven. Something that our office can help you with. By paying yourself rent you can then deduct a portion of your home expenses that relate to your home office. Although the home office deduction has a stigma attached to it....I wish I had a dollar for everytime a client asked me that they didn’t want to take the deduction because it was a “red flag”...nothing could be farther from the truth. Recently the IRS has issued a simplified method for small business owners, such as you, how to take the home office deduction using a standard rate. So much for the “red flag”. Home office deductions are extremely valuable deductions and should not be overlooked.
And finally don’t forget to take profit distribution. Simply put since you are going to pay taxes on the net income of your business, you are entitled to that profit. We run into problems if the distributions exceed your profit, or if distributions are not based on profit, but rather appear to be salary, taking money out of the business should not be an issue.
With that in mind remember your business is unique. My office is here to help. If you have questions about the best way to take money out or your business, I strongly encourage you call us.
The experts call us micro business owners or solopreneurs. By definition we are very small-scale business, especially owner-operated with few employees. I stumbled across this very interesting definition of what is a micro business from the US Legal website:
The majority of micro business companies are one-person enterprises. Moreover, these companies operate out of owner’s homes or a small executive suite office; and many of these companies have part-time help from a family member or friends. Micro business are conducted by tradespeople, professionals, doctors, designers, artists, writers, consultants, inventors, technicians, craftsmen, manufacturers, or workers from a variety of other disciplines. Majority of these companies are not operating in this model to become rich, but rather to enjoy a superior level of autonomy and freedom that is typically unavailable to an employee.
If you are like me I don’t think I can ever go out and work for someone else despite the cut in pay. It is true business ownership has as much to do about freedom, and maybe a dose of ego, as it does about money. Maybe that explains why we face the numerous uphill battles we face every day when we put the key in the door of business every day.
Continuing our monthly review of the status of Obamacare as we get closer to the law’s implementation (October 1, 2013) you may have missed a significant change in the law’s regulations announced July 2, 2013. It is my belief that this change relates directly to the inability of the IRS to implement the law. Obamacare has proven to be quite a challenge to the IRS. In fact, the IRS’ inability to finish writing regulations and program their computers in order to process the employer mandated health insurance coverage for their employees, has been cited by several sources as to why the decision was made to put a hold on the employer mandate. The agency has been saddled with an expanding workload and relatively flat funding levels for years that have left the IRS unable to adequately perform its primary duties. Hopefully you haven’t had to call the IRS lately, but I do, sometimes daily, and it is not unusual to be put on hold for more than 45 minutes before you can talk to a representative. In fact recently the IRS has simply hung up on me and directing me to call on another business day when the call load was not as large. But I digress.
According to Reuters:
Days after delaying health insurance requirements for employers, the Obama administration has decided to roll back requirements for new state online insurance marketplaces to verify the income and health coverage status of people who apply for subsidized coverage.
President Barack Obama’s healthcare reform law is slated to begin offering health coverage through state marketplaces, or exchanges, beginning October 1, 2013. . But to receive tax subsidies to help buy insurance, enrollees must have incomes ranging from 100 percent to 400 percent of the federal poverty line and not have access to affordable insurance through an employer.
Days after delaying health insurance requirements for employers, the Obama administration has decided to roll back requirements for new state online insurance marketplaces to verify the income and health coverage status of people who apply for subsidized coverage.
President Barack Obama’s healthcare reform law is slated to begin offering health coverage through state marketplaces, or exchanges, beginning Oct. 1. But to receive tax subsidies to help buy insurance, enrollees must have incomes ranging from 100 percent to 400 percent of the federal poverty line and not have access to affordable insurance through an employer.
Until now, the administration had proposed that exchanges verify whether new applicants receive employer-sponsored insurance benefits through random checks. It also sought to require marketplaces to verify each enrollee’s income status. But final regulations released quietly on July 2, 2013 by the Department of Health and Human Services (HHS) give 16 states and the District of Columbia, which are setting up their own exchanges, until 2015 to begin random sampling of enrollees’ employer-insurance status. The rules also allow only random – rather than comprehensive – checks on income eligibility in 2014.
The changes, which point to new technical and bureaucratic challenges at the state and federal levels, raise new questions about the how successfully Obama’s Patient Protection and Affordable Care Act will be implemented. The law is scheduled to go into effect on Jan. 1. But the administration’s latest move acknowledges that exchanges need extra time to get their verification systems in place.
Earlier, the administration also announced that it would not require employers with 50 workers or more to provide insurance benefits until 2015, a one-year delay that stirred speculation about the possibility of further delays.
The regulations, contained in a 606-page HHS rule, allowed state-run exchanges to accept an enrollee’s “attestation regarding enrollment in an eligible employer-sponsored plan.” Marketplaces to be operated by the federal government in 34 states will still make random checks to verify applicant insurance status in 2014, it said.
“For income verification, for the first year of operations, we are providing (state and federal) exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification,” the rule said.
In response to the regulation changes the House Committee on Energy and Commerce sent a letter to HHS Secretary Secretary Kathleen Sebelius on the administration’s recent decision to abandon a verification process for exchanges requesting additional information.
Writing to Sebelius the committee wrote, “both the HHS final rule and the Treasury announcement raise troubling questions about the status of the administration’s efforts to implement the PPACA and to what extent the exchanges will be operational by the time enrollment begins on October 1, 2013. The administration has had three years to implement the PPACA, yet in the span of just three days, two agencies have used administrative actions to significantly change fundamental requirements of the law.”
It is going to be interesting. My guess is that it is not going to be a good start but that really is stating the obvious.
The Illinois Department of Employment Security (IDES) has fired its collection agency. As long as I can remember, if you were an employer and didn’t file a quarterly tax return, IDES files one for you. It didn’t matter if you had employees or not. It didn’t matter if you were still in business or not. It didn’t matter if you owed any tax or not. IDES assesses what they believe is owed, and up to last month, turned the collection of the “phantom liability” over to the Texas based collection agency GC Services potentially dinging your credit score. Apparently the lack of results, since the majority of their accounts turned over to collection were for non existent business and/or liabilities, and the cost of their “collection fee” resulted in the change in policy. At least that is what one of the newly hired “in house” IDES collection employees told me yesterday. No insight as to whether they were going to continue to policy of assessment of taxes when a business doesn’t file their tax returns. I only can assume it is going to continue the policy.
