Pending the approval of the Senate and House, the Bush tax cuts will be extended for all taxpayers for two years. Also, the reduced capital gains and qualified dividend rates will be extended. We will send an update if/when this becomes official.
Also, for 2011, the Social Security tax rate will be reduced by 2% to 4.2%. For a taxpayer earning $50,000, this will result in increased take home pay of $1,000 for the year. Again, this is still not official.
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The IRS released on Friday, December 3rd, the standard mileage rates for 2011. The optional standard mileage rate can be used by taxpayers to calculate the deductible costs of operating an automobile, in lieu of the actual cost method.
The new rates are: Business use – 51 cents/mile; medical or moving expenses – 19 cents/mile; services to charitable organizations – 14 cents/mile. For tax year 2010, the rates were 50 cents, 16.5 cents and 14 cents respectively.
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A reminder for S-Corporations – for all shareholders who own more than 2% of the stock of the corporation, health insurance premiums paid by the corporation must be added to boxes 1 and 14 of the shareholders W-2 form. If you use a payroll service bureau, this amount needs to be reported to them when you process your last payroll of the year.
Employers get a break on reporting the value of health coverage on W-2s. IRS won’t require it for 2011 W-2s that employers will file in early 2012, as originally called for in the health care law. The delay gives firms additional time to make the necessary changes to their payroll systems. And even when the values of the coverage is shown on the W-2, it won’t be included in the employees’ incomes. Congress added the reporting rule so employees will have a better appreciation for the amount that their employers spend on their heath insurance coverage.
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Please be aware that the State has had an across the board increase in the base tax rate and as a result your unemployment tax rate will increase for 2011 even if you have had no claims.
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Under the Small Business Jobs Act of 2010, which was enacted on September 27, 2010, there are some new and extended loan programs available for businesses. This covers both commercial real estate and capital equipment financing as well as business acquisition, expansion and working capital. Please contact our office if you would like more information on these programs.
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Our staff recently attended a full day seminar on “Sales and Use Taxes” (tax/taxes) in Colorado. The complexity of the rules between the state and the cities makes Colorado one of the most difficult places to compute these taxes. In addition, audits have increased dramatically due to the budget shortages currently being experienced by all levels of government, so they are looking for every dollar they can recover.
The state of Colorado and many of the cities have excellent websites that can help guide you through this complex task. We encourage you to review all the necessary websites that affect your business to be sure that your invoices are being generated correctly and that you are paying use tax when appropriate.
Here are some of the items to consider:
Go to www.taxcolorado.com to get started, or Google your city and look for Sales Tax.
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W-2 Reminder
Shareholder health insurance premiums must be included in Box 1 of the W-2 form and Box 14 in order for the shareholder to deduct this amount on their personal tax return.
If you use a payroll service bureau this amount needs to be reported to them when you process your last payroll of the year.
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IRS form W-11 is to be used as an affidavit for new employees to complete and sign if they are eligible for the new HIRE credit.
Employers do not have to pay the matching Social Security tax (6.2%) on the wages of workers hired after February 3, 2010 if they worked less then 40 hours in the previous 60 days. The exemption applies to wages paid after March 18, 2010 and before January 2, 2011.
The exemption is claimed on Form 941. The 6.2% exemption for qualified wages the employers pay from March 19 through March 31 will be claimed on the 941 for the second quarter. IRS has revised the 941 form to reflect the exemption. In the interim, employers can reduce their tax deposits by the amount of the exemption or elect to receive the overpayment their 941.
There will also be a credit if the individual remains with the employer for 52 consecutive weeks. This business credit will be the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52 consecutive week retention period.
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The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that take effect this year and more that will be implemented during the next several years.
News For 2010: Tax Credit Helps Small Employers Provide Health Insurance Coverage.
WASHINGTON – Many small businesses that provide health insurance coverage to their employees now qualify for a special tax credit, according to the Internal Revenue Service.
Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.
The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers.
The credit is specifically targeted to help small businesses that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.
The maximum credit goes to smaller employers – those with 10 or fewer FTEs – paying annual average wages of $25,000 or less.
When we prepare your 2010 tax return we will require additional information from you to calculate if you are eligible for this credit.
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Effective with the September 2010 Returns.
The Department of Revenue is developing a new computer system to manage Colorado sales and use taxes. They will begin to use the new system when they process September 2010 filing period returns, which are due October 2010. The improved system will allow them to process taxes more efficiently and better assist businesses. But with the improvements will come some changes in how certain types of sales tax filers submit their returns.
No major changes are anticipated for the Colorado sales tax return. However, businesses with more than one location will file a separate return for EACH of the business’s locations- reporting all taxes for that location, including sate and special district sales taxes. The state and special district taxes will not be combined on one sales tax return as currently filed.
Taxpayers who use spreadsheets to file their sales tax will not be able to use their current spreadsheet filing methods after September. There will be an option to electronically file those returns.
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