Recent Changes That Could Lower Your 2011 Taxes
Tax season is here, and that’s not all bad news for small businesses this year, according to Physician accounting and Pharmacy accounting firm Gustavo A. Viera CPA. Important changes due to the 2010 Small Business Jobs Act and the Tax Relief Act of 2010 could help small healthcare professionals save a few bucks this time around when it comes time to corporate tax preparation.
New Internal Revenue Service guidance on Physician accounting and Pharmacy accounting on the laws has been fast and furious during the past few months, so carefully review the following before you accountant does your corporate tax preparation. Not doing your own taxes? Be sure you mention these topics to your tax preparer or accountant if they apply to your corporate tax preparation.
Equipment write-offs: Section 179 of the IRS code is where you account for many of the major purchases your business makes. Items such as medical equipment, lease-hold improvements, and computers generally have to be capitalized and depreciated over several years. But Section 179 allows some of those purchases to be treated as expenses, which will decrease your taxable income this year. For purchases made during 2010 and 2011, the new law increases both the deductions you can take (up to $500,000) and the kinds of items that qualify, according to Physician accounting and Pharmacy accounting firm VieraCPA.
Faster depreciation: For business equipment purchased in prior years, or equipment that does not meet the criteria for Section 179, you’ll still have to file a depreciation schedule (Form 4562) with your corporate tax preparation. But you may be able to depreciate the equipment faster than previously allowed. There is a Section 168(k) allowance for additional first-year depreciation of 50 percent. Better yet, capital purchases made between September 8, 2010, and January 1, 2012, may qualify for 100 percent bonus depreciation. During calendar year 2012, first-year bonus depreciation will be 50 percent.
Startup write-offs: If you’ve launched your practice recently, you may have had to depreciate legal and organizational expenses according to GAAP and physician accounting norms (pharmacy accounting is the same). Section 2031 of the IRS code now allows you to expense up to $10,000 for startup costs. There are some limitations, and the expense allowance decreases if your startup costs exceeded $60,000. Look for further instructions on this topic under IRS code section 195(b). Startup expenses are reported as “Other Expenses” on either corporate tax preparation or personal (1040 Schedule C or F) returns.
Natural disaster tax relief: Storms, hurricanes, tornados, floods, and earthquakes. We had them all this year, and if you were affected, you may qualify for special consideration, including extra time to file. Rules vary depending on the event and where you live. You may qualify if you live in Pennsylvania, New Hampshire, Massachusetts, Connecticut, Vermont, North Carolina, New Jersey, New York, Virginia, Iowa, Texas, Kentucky, South Dakota, Missouri, Nebraska, Montana, and Puerto Rico.
Cell phone taxation: Once considered a taxable benefit, company-sponsored cell phones are no longer of concern to the IRS. The Small Business Jobs Act effectively removes any tax consideration from providing cell phones to employees (or reimbursing employees for personal cell phones), as long as there is a business need for the phone.
New mileage deduction: If you (or your employees) use a personal vehicle for work purposes, be sure you’re claiming reimbursement. The maximum rate at which the company can reimburse travel started at 51 cents per mile in 2011, then increased to 55.5 cents a mile for all business miles driven from July through December 2011, according to physician accounting firm VieraCPA.
Health insurance tax credit: The Patient Protection and Affordable Care Act includes a tax credit, retroactively available for the 2010 and 2011 tax years, to offset the cost of insurance paid by small companies for their employees. If you have 25 or fewer employees earning an average of $50,000 or less, you may be able to claim a tax credit equal to 35 percent of what the company paid. Next year the credit increases to 50 percent of premiums paid.
Carryback and carry-forward: Various new tax rules allow businesses to “look backward” and apply general business credits earned this year to prior years’ taxes paid. You can now look backward up to five years. So if you can’t use all the credits you’ve earned, dig up your old returns as far back as 2006 (as long as your gross sales were less than $50 million). And if you can’t go back, you can still go forward. Specifically, pharmacy accounting this year’s health-care tax credit can be applied through 2013 and for two additional years beginning in 2014. Other credits may have different carry-forward periods.