Two important tax deadlines for corporations on March 17:
- Income taxes (returns and payments) due for December 31 corporations, and
- The deadline for electing S corporation status for 2014
Corporate income taxes for corporations with December 31, 2013, year ends are due March 17, 2014. That's because March 15, the due date, is a Saturday in 2014.This deadline is for corporate returns filed with Form 1120 and S Corporation returns filed with Form 1120-S. (All S corporations have a December 31 year end, in case you were wondering.)
If you haven't met with your tax preparer to work on your corporate tax return, you might want to consider filing an extension. You must file the extension application with Form 7004 by March 17, for an additional six months, to September 15, 2014.
If you file an extension, you must estimate and pay income tax due, by March 17. Then you settle up or get a refund after you file the final return.
Want to elect S corporation status?
A corporation can elect S corporation status in any year by filing an election form. The IRS requires that the Sub-chapter S election be filed no more than two months and 15 days after the beginning of the tax year the election is to take effectby the tax due date (March 17, for corporations with December 31 year ends). The IRS has eligibility requirements for S corporation status, including being a domestic corporation with under 100 shareholders and only one class of stock. You may want to check with your tax and legal advisors on the benefits of and drawbacks of S corp status.
More on tax reports, payments due in March, including payroll taxes.
That sinking feeling - you are preparing your business tax return and realize that your hard drive crashed, taking all your business records with it. Or you receive a tax audit notice and discover that your business records are lost.
The IRS requires that you provide records that are:
1. Accurate 2. Complete, and 3. Timely. That is, collected at the time of the expense, not later.
What if your record are lost, stolen, or destroyed?
In a recent Tax Court case, a real-estate agent diligently recorded her mileage every day, but her log was taken by her employer. She reconstructed the log using handwritten notes. When the IRS denied her mileage deductions, she took her case to the Tax Court. The Court found that she could reconstruct the log if she had evidence to establish the expenses. In this case, her testimony and gas receipts were enough to allow the deduction. (T.C. Summ 2013-106)
If you want to prove the expense, you an do it one of two ways, according to the IRS.
Your own written or oral statement containing specific information about the element, and
Other supporting evidence that is sufficient to establish the element.
I know this is vague; it's on a case-by-case basis and, like the taxpayer above, you might have to go to Tax Court to get your claim heard.
More helpful information:
The IRS has an article about how to reconstruct your business records which describes how to reconstruct specific records, including business records.IRS Publication 463 describes what type of records are required.
Business owners want to know - about their business ownership and taxes. How a business owner gets paid and pays taxes depends on the type of business legal form. Here are some questions I get asked about this issue, with short answers. More details in the linked articles.
Owners of corporations who work in the corporation are considered employees. Sole proprietors, LLC members, and partners are not considered employees, in most cases.
Sole proprietors, LLC owners, and partners in partnerships do not receive a paycheck but are paid from their capital accounts and out of the profits of the business. Corporation and S corporation owners who work in a business are considered employees and receive a paycheck, but they also receive dividends (corporate shareholders) or a distributive share (S corporation owners).
Owners of corporations can receive dividends as shareholders, based on the profits of the corporation. Other business owners take profits at their own discretion or by agreement, like a partnership agreement, shareholder agreement, or LLC operating agreement.
Dividends must be reported on a 1099-DIV form, which is included with the person's other income on his or her personal tax return.
Business owners who are not corporate employees must pay self-employment taxes (Social Security/Medicare tax). If you are the owner of a corporation and you actively work as an employee, you will have FICA taxes withheld from your paycheck. You don't have to pay self-employment tax in this situation.
Read more about Self-employment and payroll taxes for S corporation owners, from William Perez at Tax Planning.
Considering starting a business? This Guide to Selecting a Business Type takes you through the steps, including a discussion of how business owners get paid.
Last week, common business tax questions. This week, answers to the most commonly asked questions about filing business taxes....
1. When is my business tax return due?
For 2013 taxes, corporate taxes are due 3 1/2 months after the end of the corporation's fiscal year end. For all S corporations and December 31 year-end C corporations, corporate taxes are due March 17, 2014 (March 15 is a Saturday).
For other types of businesses, including sole proprietorships, partnerships, and LLCs, business taxes for 2013 are due April 15, 2014.
2. What form do I use to file my business taxes?
It depends on your business type:
- Sole proprietors and single-member LLC's use Schedule C.
- Partnerships file an information return on Form 1065 with Schedule K-1 for each partner's share
- Corporations file on Form 1120
- S Corporations file on Form 1120-2, with a Schedule K-1 for each owner.
3. How do I complete Schedule C? How do I file Schedule C?
4. How does my husband-wife business file a business tax return?
If your husband-wife business is not an LLC, partnership, or corporation and you both participate actively in the business, you can file as what the IRS calls a "qualified joint venture." You would file two Schedule C forms, showing your percentage of the profits or losses. This allows you both to get credit for self-employment taxes.
5. How and where do I file my business tax return?
In most cases, it's best to file online. If you use tax preparation software or a tax preparer, online filing is part of the service. You can also file online by using the IRS E-file system.
The Obama administration has once again delayed the Employer Mandate, according to the New York Times. The general delay in the requirement for all employers with over 50 employees is until January 1, 2015, with two additional delays to help smaller employers:
- Employers with between 50 and 99 employees don't have to comply until 2016, and
- "the requirement would be put into effect gradually for employers with 100 or more employees. Employers in this category will need to offer coverage to 70 percent of full-time employees in 2015 and 95 percent in 2016 and later years, or they will be subject to tax penalties."
To review, the employer mandate is a key provision of the health care reform act. The employer mandate requires business with 50 or more full-time employees to offer health insurance or face annual fines of up to $3,000 per employee.
Businesses with fewer than 25 full-time equivalent employees can receive a tax credit for providing health insurance, and those employers with between 25 and 50 full-time equivalent employees don't have to comply with the employer mandate but they aren't eligible for the tax credit.
Obamacarefacts (not part of the federal government) has more information on the Employer Shared Responsibility Payments
More details on the delay of the employer mandate, from Robert Longley at U.S. Government Information.
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Before you send off those W-2 forms at the end of February, consider e-filing:
You must submit all 2013 W-2s to the Social Security Administration (NOT the IRS!), along with transmittal form W-3, by February 28, 2014. The SSA's Business Services Online (BSO) is the place to go for e-filing W-2's. If you are filing 250 or more W-2 forms, you MUST e-file, but if you have fewer than 250 W-2s, you can benefit from e-filing:
- E-filing, according to the IRS, saves time and effort and helps ensure accuracy.
- You don't need to calculate and submit a W-3 transmittal form; the Social Security Administration generates a W-3 automatically.
- If you e-file, the due date is March 31, 2014, a month later than if you file these forms by mail.
- You can use the BSO site to verify Social Security Numbers for wage reporting purposes.
- The BSO site offers a tutorial, handbooks, a checklist and lots of other useful information to help you e-file those W-2 forms.
- If you find a mistake in one or more W-2 forms after you have submitted them, you can also submit W-2c (corrected) forms online.
- You can verify that your files have been received and check status online.
Remember these important dates:
- February 28 - the deadline for submitting all W-2s, with transmittal W-3, to the Social Security Administration
- March 31 - the deadline for e-filing W-2s with Business Services Online.
More on How to File W-2 Forms online
What about 1099-MISC forms? Can I e-file those forms too?
You can submit all Form 1099-MISC along with the transmittal form 1096 to the IRS by mail or online, using the Filing Information Returns Electronically (FIRE) system.
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Another confusing tax return question is whether to use IRS standard business mileage or actual mileage. Let's work through the options:
IRS standard mileage rate is set each year. For 2013, it's 56.5 cents for each business mile driven.
Actual mileage expense allows you to add up all expenses, including;
- Gasoline, oil, new tires, and other maintenance and repairs
- Interest expenses or lease payments
- Annual depreciation on the vehicle
- Registration fees, insurance premiums
- Tolls, garage rent, and parking fees
IRS Restrictions on Mileage Deduction Methods
- You must use actual expenses if you used five or more vehicles simultaneously in your business.
- You must use the standard deduction the first year you use the vehicle in your business. After that, you can use either method.
- You must use the standard deduction for a leased vehicle.
- You may not use the standard mileage rate if you used MACRS accelerated depreciation on the vehicle or used a Section 179 allowance.
There may be other restrictions and limits; check with your tax preparer.
Which Mileage Deduction Method To Use?
After you make sure you are complying with IRS rules, it's best to work the calculations both ways (I use free tax software to do this) to see which comes out with a higher deduction. If you use the vehicle less than 50% for business, you can probably keep it simple by using the standard deduction rate.
PLEASE work with your tax preparer on this issue.
ALSO PLEASE make sure you have good at-the-time" records to support your business mileage and expenses, even the standard deduction. The IRS will disallow your deduction if you don't have good records.
For more details, read "Car Expenses" in IRS Publication 463 (PDF)
DISCLAIMER: I am not a CPA or attorney, and nothing on this site in articles, emails, blog posts, or other communications is intended to be tax or legal advice. The purpose of this site is to provide general information to readers. No claim is made regarding the accuracy or legal status of information on this site. Federal, state, and local laws and regulations change, and every business situation is unique. Readers should not take action on any tax or legal matter without reviewing options with a tax advisor or attorney.
Today, answers to the most commonly asked business tax questions :
1. Do I have to file a business tax return if I don't have a profit?
Yes, if you have income, you must report that income on either (a) your personal tax return or (b) a business tax return.
2. Can I use tax software to file a business tax return?
Most of the major tax software programs have business versions. Look for the version that has your specific business tax form. Shirley Elmblad at Financial Software reviews the top tax preparation software programs for personal taxes. Not sure which form to use? Read this article on how business types pay income taxes, including forms for each type.
3. Do I need a CPA to prepare my business taxes?
It depends on your business type and the complexity of your business. A simple service business (no products) filing Schedule C can use a tax software program, but a corporation or complicated partnership probably needs a tax expert.
4. How do I figure out my business income?
5. Can I deduct all my business expenses? Are all business expenses deductible?
To deduct business expenses, you must be able to prove (a) that you are in business to make a profit and (b) that these expenses are "ordinary and necessary" for business purposes. Some business expenses may not be deductible at 100%. Check out this list of business tax deductions A to Z.
6. Must I pay self-employment taxes?
Self-employed business owners (not owners of corporations) must pay self-employment taxes (Social Security and Medicare taxes), based on the income of the business. This tax is added to other taxes on the owner's personal tax form.
Stay up to date with the latest on legal and tax issues affecting your business. Subscribe to my newsletter or follow me on Google+ or Twitter.
Clearing up some confusion about the 1099-MISC form:
I had a conversation with my CPA last week. Since she knows I write about payroll tax issues, she was telling me her woes in trying to convince small businesses that they must send out 1099-MISC reports to almost everyone they do business with. It's the law, folks.
The IRS says you must (my emphasis):
File Form 1099-MISC for each person to whom you have paid ...at least $600 in rents, services (including parts and materials)...other income payments... or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;... or gross proceeds of $600, or more paid to an attorney during the year.
And, the IRS continues, "Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable." But, the person you paid, and to whom you owe a 1099-MISC, doesn't have to be in business. It can be someone who is self-employed, or someone who doesn't file business taxes on a separate business tax form.
That means everyone your business paid more than $600 to during the year. EVERYONE. You don't have to send a 1099-MISC to a corporation, and there are some other exceptions. But please check with your tax advisor on this.
If you haven't send someone a 1099-MISC yet for 2013, there's still time. Be sure you first get a W-9 form verifying taxpayer ID number.And send all 1099-MISC forms to the IRS along with the transmittal form 1096, to the IRS before the end of February.
More on Reporting 1099-MISC Income from William Perez at Tax Planning
From the other end, here's an article from Tom Taulli on Forbes on what to do with a 1099-MISC form you received.
After you hire your first employee, it's too late to prepare. Before that first employee walks in the door and starts to work, there is much you must do. Just one example: Employers are required to have a signed W-4 form from an employee before issuing the first paycheck. All of these steps - and more - are described in detail in this Checklist for New Employers.
1. Get an Employer ID Number. Your business may already have this number (it's kind of like a Social Security number for a business).
3. Collect new hire sign-up forms you will need for that first hire.
2. Register with the IRS and with your state. From that point, you are officially "doing business" with the IRS for payroll tax purposes. And don't forget you must register with your state's taxing authority.
3. Get ready to verify employment eligibility, by getting and using I-9 forms or signing up for the E-verify system of the U.S. Customs and Immigration Service.
4. Sign up for worker's compensation insurance and unemployment insurance. You must pay for both of these protections for workers.
5. And get workplace posters from the U.S. Department of Labor.
You will also need to set up a payroll processing system. You can add this option to your accounting software , or hire the services of a bookkeeper, or get a payroll processing service.
Don't wait until you have that first employee on board. Some of these steps must be in place before you issue that first paycheck.