Tax Man Is Coming, Be PreparedBy Charlene O'Hanlon | Print
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The final countdown to tax day, April 15, has started. If you haven't filed your 2008 business tax, you may want to review some often overlooked pieces of the tax code.
They say the only two sure things in life are death and taxes. While neither of those choices sounds appealing, there are ways to avoid a visit from the tax man (the Grim Reaper is another story).
Since the majority of solution providers count themselves as small businesses, here’s some information to help you prepare for April 15, tax day:
It sounds like willingly hitting yourself with a brick, but self-employed people need to pay into Medicare and Social Security, too. For 2008, the maximum amount of net earnings subject to the social security part of the self-employment tax has increased to $102,000—that means if you make up to $102,000, you must pay Social Security tax. All net earnings of at least $400 are subject to the Medicare tax.
Free Parking, Sort of
If you provide transit passes or free parking for your employees, you can exclude $220 of the cost of qualified parking and commuter highway vehicle transportation and $115 of the cost of transit passes you provide to an employee from the employee’s wages.
Take the Mileage?
Employees who use a company car for both business and personal use must be taxed for the miles they accrue during personal use. You can determine the taxable amount by multiplying the standard mileage rate by the total miles the employee drives the vehicle for personal purposes, but only if the vehicle’s fair market value on the date you make it available to the employee isn’t more than $15,000 for a passenger automobile or $15,900 for a truck or van.
So what’s the cents-per-mile rule? For 2008, the standard mileage rate is 50.5 cents per mile for business miles driven through June 30 and 58.5 for business miles driven July 1 through Dec. 31; 19 cents per mile driven for medical or moving purposes through June 30 and 27 cents per mile driven between July 1 and Dec. 31; and 14 cents per mile driven in service of charitable organizations for the entire year.
Take This for That
Bartering is experiencing a resurgence as the economy continues to spiral downward and cash flows dry up. But, like most everything else, it’s taxable. The rules for reporting barter transactions may vary, and the IRS has a site containing useful information on bartering.
A few tips: Established businesses augmenting their sales with barter transactions need to report those sales as business income. And companies bartering business assets may have capital gains, ordinary gains and depreciation recapture—same with barter transactions of property where the fair market value is more than the cost or other basis.
Everything Must Go
If you’ve found yourself in the unwelcome position of having to declare bankruptcy, the tax obligations vary greatly. In general, however, when a debt owed to another is canceled, that amount is considered taxable income of the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. The canceled debt does, however, reduce the amount of other tax benefits the debtor would otherwise be entitled to.
As with all tax issues, it’s always best to consult a certified accountant when reviewing tax issues and preparing IRS and state filings.