Does your business take payments via credit card? Do you accept payments through another service such as PayPal?
The 1099-Kis a new IRS information return for reporting electronic financial transactions to improve voluntary tax compliance. You should get a 1099-K by the end of January 2013 if, in 2012 you received payments from:
- merchant card transactions (e.g., debit or credit cards) OR,
- in settlement of third party payment networks (e.g., PayPal or Google Checkout) at or above our minimum reporting thresholds
-gross payments that exceed $20,000, AND
-more than 200 such transactions.
Of course the purpose of the form is to improve compliance with reporting taxable income for businesses. So if you get one in the mail, keep it because you will report it on some part of your tax return for 2012.
For individuals who are sole proprietors or report their business income on Schedule C, there is a new line that will hold information from your 1099-K. Also, look on Schedule E for new lines for reporting 1099-K amounts as well as on Schedule F.
For businesses tax returns, such as form 1120 or 1120S, there are new lines for reporting amounts from your 1099-K.
If you are a nonprofit organization that uses a merchant service to collect payments, you will receive a 1099-K from that service provider. Keep these on file, but as of this moment there does not appear to be a place for reporting on form 990.
Lots of online sources are there for your help if you have questions. I would start with the IRS website.
- Form 1099-K: A Refresher Course (outright.com)
As the end of 2012 approaches, donors are likely thinking about their favorite charity or ministry and what they may be able to do in the way of support.
I know I am. I am always encouraged when I think about the important mission of these organizations and how lives are being changed as a result of what they are doing. After all, that is why we give. We give because we are taking part in something bigger than we are. We give because we believe in the mission of these great organizations. We give because we believe in the power of giving to transform lives, maybe even our own.
So, after dwelling on the good stuff it is then time to consider how to give. Should I give cash? Should I donate stock? Should I do something else?
Having served in some nonprofits, I know we were always thankful for unrestricted gifts in whatever form they came to us. This might be your first consideration and I would recommend making your gifts unrestricted so that the organization can put it to use in the best way possible.
Next, if your cash position is good you will certainly want to share the wealth. Here are a few reminders about cash gifts–
- Make sure you are donating to a qualified organization if you want a tax deduction.
- Make sure to get an official receipt for your gift, especially if it is over $250.
- For tax purposes, cash donations generally have a deductible limit of 50% of your AGI.
- You must make your gift before the end of the year or make sure it is postmarked December 31 if mailed.
If you want to make stock gifts at the end of 2012, this is a positive time to do so. The stock market has performed well over the past couple of years and you may have stocks that you feel have appreciated significantly. Also, the fiscal cliff that has been the focus of the post-election likely will see income tax rates and capital gains tax rates rise after 2012. With this in thought, making a stock gift seems like the right and prudent thing to do. Here are some reminders about making stock gifts–
- You can take a tax deduction for the fair market value of the stock at the time of the gift.
- For tax purposes, stock gifts and other capital gain property gifts are limited to 30% of your AGI.
- Make sure to give the stock directly to the charity (don’t sell it yourself and then give the cash).
Of course, make sure you consult your professional advisor as you plan your year-end giving.
No matter what your situation, you have the ability to make a difference through your giving to nonprofits. Keep that in mind as you move forward into this holiday season.
- 6 Mistakes to Avoid When Giving to Charity (forbes.com)
- Should the Charitable Tax Deduction Be Eliminated? (usnews.com)
Taxpayers are facing what is perhaps an unprecedented set of circumstances – the expiration of the tax rates enacted in 2001, the expiration of more than 150 tax provisions and a tax increase of more than $500 billion overall – that could result in a much higher tax liability when they file their next return.
As we edge nearer to the “fiscal cliff,” as it’s being called, several changes are looming, including (but not limited to) a possible increase on long-term capital gains, restrictions on itemized deductions, reinstatement of the full payroll tax, and an increase in both the estate tax rate and the number of estates that will be subject to the estate tax. In addition, a new 3.8% surtax on some investment income will become effective Jan. 1, 2013.
Many of these changes will have an impact on small businesses. This calls for tax planning and possible actions now to soften the potential burden (especially if you operate as a pass-through entity as many tax increases will affect individuals). Now is the time to review your tax situation and develop a strategy that makes sense for you.
- 4 tax deals Congress can make to avoid fiscal cliff (bizjournals.com)
- Should Small Business Fear the Fiscal Cliff? (Opinion) (news.terra.com)
Go ahead and get started if you haven’t already.
Yes, there are some uncertainties to consider as we see 2013 coming. Many of the pro-taxpayer tax provisions will expire at the end of 2012. The so-called “Bush tax cuts” are expected to end unless Congress acts soon. So start planning and acting soon if you want to minimize the impact.
Here are some items you need to think about:
1. In 2013, the income tax rates for high income individuals are scheduled to increase because of the expiration of the “Bush tax cuts” and the new Medicare surtaxes on high income individuals (3.8% of net investment income and .9% of wages and self-employment income).
2. Estate tax changes will occur. The $5,120,000 lifetime exclusion from estate, gift, and generation-skipping taxes is scheduled to fall to $1,000,000; the maximum estate, gift, and generation-skipping tax rates are scheduled to increase from 35% to 55%.
3. With these matters in mind, you should consider accelerating ordinary income, capital gains, and dividends into 2012 and defer deductions into 2013 if it would result in significant tax savings.
4. Regarding estates, you may consider creating family limited partnerships and trusts before making transfers of significant assets to your heirs.
Some members of Congress support extending the lower tax rates through 2013. The best thing to do is be ready with your plan and then waiting until you see how Congress acts.
- What’s in the fiscal cliff? (money.cnn.com)
The end of 2012 approaches, and so does an end to unlimited insurance on business non-interest bearing transaction accounts.
You may recall that the U.S. government’s Transaction Account Guarantee (TAG) program has guarded small banks in particular from large withdrawals during the 2008 financial crisis and after. When the TAG program ends after 2012, non-interest bearing accounts will be insured up to $250,000 only.
Many local and small banks want to see the program extended because it encourages money to stay local, providing much-needed cash for small business lending. But the U.S. Congress has yet to bring up the topic of extending TAG.
So right now if your business is blessed with strong cash balances, you may want to begin evaluating your alternatives. With money market rates unappealing at the present, many will likely look to government issues as an option. The strange thing is that even a one-month commitment of your cash may not protect you from market volatility.
Some are predicting that the expiration of TAG will not bring significant deposit changes, while other experts see a major shift in cash from small banks to the large “too big to fail” banks. Regardless of what happens, you need to consider your best strategy for 2013 now.
- IOLTA Accounts May Lose FDIC Protection (legaltimes.typepad.com)
- Why the F.D.I.C.’s Approach to Financial Failures Makes Sense (banklesstimes.wordpress.com)
- Use CDs to beat FDIC limit (bankrate.com)
- Banks want insurance extended (bankrate.com)
No doubt if you are a general contractor today who is bidding on those large contracts, you must be aware of how your financial statements influence your bonding capacity. The stronger the company’s financial statements, the greater the company’s bonding capacity.
Should you be concerned? Just a few short years ago bonds were not typically required on Half-million dollar contracts, but they are today. So contractors should vigilantly manage their jobs and seek to improve the financial position of their company in order to be competitive.
How do we make this practical? Think working capital. Improving your cash position is your ultimate goal, but take into consideration all of your current assets and liabilities. This could include, other than cash, your accounts receivable, over and under billings, inventory, prepaid expenses, accounts payable, accrued expenses, current portions of long-term debt, and other liabilities. Working capital is simply your current assets minus your current liabilities.
On the asset side, make sure to sell any idle equipment or property. Improve your billing processes by approving change orders promptly. Reduce inventory.
On the liability side, use long-term debt to purchase new equipment. Refinance short-term and long-term debt. Implement strategies to reduce income tax liabilities.
Another item to note is that the surety will take out of working capital and equity any related party receivables.
These are just a few considerations. You will surely want to stay close to your surety and keep them informed of current developments in your company. It is a competitive bidding environment for most contractors, so make sure you stay on top of your financials with current, timely, and accurate information.
- Do Contractor License Bond Costs & Requirements Vary Based Upon A Contractors Choice of Legal Entity? (californiacontractorbonds.com)
- The Importance of Understanding the Financial Statement: By Guyton Galdeira (guytongaldeirablog.com)
- Current Ratio: A Misunderstood Liquidity Analysis Metric (theshareholdersplaybook.com)
Senate Dems prep $272B tax-cut extension by Alan Fram
Tax planning for 2013 by Ted Sarenski
The 401(k) Option That You’ve Probably Never Heard Ofby Erik Carter
The Threat to Next Year’s Tax Refunds by Kevin McCormally