It’s that time of the year again when it’s out with the old and in with the new. This month is the ideal time to clean out business files to get a fresh start for the new year and get paperwork organized. Here are some tips to help small business owners get ready to file their 2012 taxes and get ready for 2013:
The 2010 law governing gift and estate taxes is set to expire at the end of this year. For 2013, assuming Congress does not act, the lifetime limits on gift tax will fall from $5.12 million to $1 million. That means an individual can gift, over his lifetime, no more than $1 million tax-free starting in 2013. The top gift tax rate on amounts of more than that $1 million threshold is also scheduled to rise from 35 percent to 55 percent starting next year.
If you are living outside the U.S. and using a foreign address on your credit-card and electronic payment accounts, you will probably not be issued the new 1099-K tax form, says Barbara Weltman, a New York-based tax attorney and author of J.K. Lasser’s Small Business Taxes 2012. In the instructions governing 1099-K reporting, the IRS specifically exempts payment processors from having to report transactions made to payees with foreign addresses. (I took a look at what the new rule means for businesses in the U.S. in a previous column.)
Of course, if your accounts are set up under a U.S. address, you will get the form. And either way, if you are a U.S. citizen you must file a Form 1040 and pay federal taxes on your income, regardless of where it comes from, says Wonsun Willey, a tax partner in the Morgan Hill (Calif.) office of CPA firm Sensiba San Filippo. Depending on whether you own property or have business interests in specific states, you may also be required to file state tax forms, Willey says.
Starting in January 2012, business owners will begin getting new tax forms issued by their credit-card and online-payment processors and intended to keep businesses from hiding income. The form, called 1099-K, will document all 2011 transactions processed for sellers with more than 200 transactions and $20,000 in annual gross receipts. The IRS estimates that 53 million forms will be issued by such processors as eBay, PayPal, and Amazon as well as credit-card companies, says Steven Aldrich, chief executive officer of Outright.com, which makes online bookkeeping applications for self-employed people and small business owners. Aldrich spoke with Smart Answers columnist Karen E. Klein about how small business owners should handle the new forms.
The new 1099-K requirement was signed into law by President George W. Bush in 2008 but is just now taking effect. Why is the government mandating this?
According to data compiled in tax year 2009, more than 4 million Americans claimed the home-office deduction on their tax returns. That’s about 3 percent of the total 140 million returns filed in 2010. The number is likely to increase this year, with business startup rates having increased substantially in 2011.
Kathy Pickering, executive director of the Tax Institute, research and analysis division of tax-services provider H&R Block (HRB), says the average home-office deduction is valued at more than $2,600. Yet many taxpayers are unclear about how to claim the deduction, or they worry that if they do, they’ll face an IRS audit. Pickering says that although the home-office deduction is scrutinized closely, it should be used by those who are eligible.
Individuals with policies in their name or that of their business can deduct premiums as long as they weren’t eligible for coverage via another source