Indiana Business Law Blog

Businesses and nonprofit organizations that have recently hired unemployed veterans and those that do so before 2013 may be eligible for a tax credit of as much as $9,600 for each unemployed veteran hired by a business or as much as $6,240 for each unemployed veteran hired by a qualified tax exempt organization. Qualifying businesses will receive a credit against income tax, and qualifying tax exempt organizations will receive a credit against the employer's share of Social Security tax.

The tax credit is a result of the bipartisan VOW to Hire Heroes Act of 2011, unanimously passed by both houses of Congress and signed by the President on November 21, 2011, which expanded the Work Opportunity Tax Credit (or "WOTC") to include certain classes of unemployed veterans. The amount of credit available depends on the length of time the veteran was unemployed before being hired, the number of hours the veteran works, the amount the veteran is paid in the first year of employment, and whether the veteran has a service-related disability.

Critical Deadlines

Businesses and tax exempt organizations that wish to take advantage of the tax credit need to be aware of two critical deadlines. You will not get the tax credit if you fail to meet either one:

• First, the expanded tax credit expires at the end of the year. The veteran must start work on or before December 31, 2012.
  


• Second, the employer must file certain forms within 28 days after the veteran starts work. (Other rules were in place for veterans hired before May 22, 2012.) Different forms are required for businesses and for tax exempt organizations. The process of for claiming the credit, including a list of the required forms, is summarized here.
  

The IRS has provided several other sources of information on the WOTC for veterans, including a list of frequently asked questions and a detailed description of the WOTC. You should also consult your tax advisor.

Continue reading "Hiring soon? Consider an Unemployed Veteran!" »

The Internal Revenue Service has announced the following standard mileage rates used to calculate income tax deductions for business travel expenses and for travel expenses incurred while serving charitable organizations.

• Business, $0.565 per mile
• Charitable service, $0.14 per mile

These rates, which are one cent per mile higher than the standard rates for 2012, take effect on January 1, 2013.

Continue reading "IRS Standard Mileage Rates Will Increase in 2013" »

Last November I wrote about a new law that expanded the requirement to issue Form 1099 to include reporting of payments made to corporations and to suppliers of goods. The law was set to go into effect for payments made in 2012. In January I wrote that Representative Dan Lungren (R. California) had introduced a bill to repeal the new requirement. On April 14, President Obama signed Congressman Lungren's bill into law, eliminating the expansion of the reporting requirements.

Everyone knows when individual tax returns (Form 1040 or one of its variations) are due. Today. April 15. Right? Not this year! This year individual tax returns are not due until Monday, April 18.

That's because of the "Saturday, Sunday, holiday rule," which says that if April 15 falls on a Saturday, a Sunday, or a legal holiday, Form 1040 is due on the next day that is not a Saturday, Sunday, or legal holiday. You might not have known that April 16 is Emancipation Day, a legal holiday in Washington, D.C. that commemorates the signing of the Compensated Emancipation Act by Abraham Lincoln on April 16, 1862. But this year, April 16 falls on Saturday, so Emancipation Day is being celebrated on Friday, April 15. Therefore, Form 1040 is not due until Monday, April 18.

By the way, if you make quarterly estimated tax payments, that's not due until Monday either.

[This is the last of a seven-part series of posts discussing the characteristics of limited liability companies and comparing them to the characteristics of corporations, general partnerships, and sole proprietorships. Here's the entire list.

Part 1. Background on sole proprietorships.
Part 2. Background on partnerships.
Part 3. Background on corporations.
Part 4. LLCs are distinct legal entities, separate from their owners.
Part 5. A limited liability company's owners are not liable for the LLC's obligations.
Part 6. Options for an LLC's management structure.
Part 7. Options for an LLC's tax treatment.]

In prior posts, I've discussed several characteristics of LLCs. First, like corporations, LLCs are entities separate from their owners. Second, also like corporations, the owners are not liable for the obliigations of the LLC. Third, they offer choices of management structures: They can be managed directly by the owners, like sole proprietorships and many partnerships, or they can be managed by others who are selected by the owners, in much the same way that shareholders of a corporation elect directors to run the business. This last post of the series looks at the tax characteristics of LLCs.

Interestingly, LLCs do not have a specific category in the Internal Revenue Code or the Tax Regulations. Instead, their tax treatment is governed by the so-called "check-the-box regulation." It provides that the LLC may elect to be treated in one of several ways, and the choices depend on whether the LLC has one member or more than one member.

The default status for a single-member LLC is that it is a "disregarded entity" in that all the income and expenses go directly on the member's personal tax return, just like a sole proprietorship. The LLC itself doesn't even have to file a tax return. The default status for a multi-member LLC is to be taxed as if it were a partnership. Alternatively, either a single-member LLC or a multi-member LLC can elect to be taxed as if it were a corporation, either as a Subchapter C corporation or, if the LLC meets certain criteria, as a Subchapter S corporation. To decide which is the best tax strategy for your LLC, you should consult both your lawyer and your accountant.

Continue reading "Just what IS a limited liability company? Part 7. It's a bundle of tax choices." »

As discussed in my post of November 24, businesses and nonprofit organizations face a significant increase in the requirements to issue 1099 forms beginning with payments made after December 31, 2011. However, a lot could change between now and then. Several legislators introduced bills during the previous session of Congress that would have dramatically reduced the new reporting requirements or even repealed them altogether. Although none of them passed, similar bills are being introduced again in the new session.

Representative Dan Lungren (R. California) originally introduced a repeal measure last April, just one month after the original legislation was passed, but was unable to obtain the signatures necessary for a vote on the matter. Rep. Lungren re-introduced his bill to repeal the 1099 tax provision earlier this week and plans to continue fighting against the new tax provisions. The bill, referred to as "The Small Business Paperwork Mandate Elimination Act," has 180 co-sponsors and was one of the first bills to be introduced during the 112th Congressional Session.

Other members of Congress have sought to lighten the impact of the reporting changes without repealing them altogether. Senator Mary Landrieu (D. Louisiana) introduced a bill last September that would increase the reporting threshold from $600 to $5,000. Senator Landrieu has yet to re-introduce the bill, but it is likely that similar efforts will begin to surface in the new Congress.

Many organizations representing small business owners have also shown great concern about these changes, which increases the possibility of amendments or a total repeal before next year. Continue checking back here for updates on the 1099 reporting requirements and how they will affect your small business or non-profit organization.

Continue reading "Important Update on 1099 Form Reporting Changes...Could they be Repealed?" »

The recent changes to the filing requirements for 1099 forms may turn out to be quite a hassle for many business owners beginning with payments made in 2012. Having to file a 1099 for each entity a small business or non-profit organization pays more than $600 in a calendar year has the potential to be time-consuming and confusing. Thankfully, the Internal Revenue Service (IRS) has decided to allow an exception for all payments made with credit cards. Any time a small business or non-profit organization uses a credit card to make a purchase, that transaction will NOT require a 1099 form. This exception stems from the fact that credit card companies are required to report transactions to the IRS, so there is no need for double-reporting.

For those businesses that do not already use a credit card for their purchases, now would be a great time to consider applying for one. Not only will all transactions made with a credit card be exempt from 1099 reporting, credit cards are also great tools for organization. It is much easier to keep accurate business records when you have an itemized credit card bill that shows exactly what you spent and where you spent it. Obviously, there are some purchases that cannot be made using a credit card. For those transactions, businesses will need to be sure and obtain the Tax Identification Number (TIN) for the person or company they are paying.

In addition, if you're a business owner and you don't already accept credit cards, now might be a good time to start. Your customers may thank you at tax time!

While these changes do not take effect until January 2012, it is still crucial that small businesses and non-profit organizations begin thinking about these new changes. Hopefully, the exception for credit cards will lighten the load for many businesses and make compliance easier and less time-consuming.

**Please note this entry has been amended to reflect that the changes to the 1099 form filing requirements take effect in 2012 for 1099 forms issued in 2013.**

Continue reading "The credit card exception to the 1099 filing requirement changes may ease the burden for many small businesses and non-profit organizations" »

Click here for an update to this post.

Congress recently passed legislation that will dramatically change the filing requirements for 1099 forms beginning in early 2013 for payments made in 2012. Under the new rule, small businesses and non-profit organizations will be required to file 1099 forms with the Internal Revenue Service (IRS) for goods as well as services. The new legislation also requires that 1099 forms be filed for transactions with corporations, while currently reporting is only required for expenditures made to non-corporate entities. It is clear at this point that these changes will greatly affect the way many businesses operate on a day-to-day basis.

The new rule will require all small businesses and non-profit organizations to file a 1099 form with the IRS for every entity they pay $600 or more for goods in a calendar year. That means that even the smallest of businesses will likely be filing many more 1099 forms than they have in the past. It is not difficult to imagine how even minor purchases with a single vendor can add up to over $600 in a year. For example, even spending only $50 a month on lunch for employees or for flowers to decorate the office would add up to $600+ over a year. In order to properly and completely fill out their 1099 forms, businesses will also need to provide the Taxpayer Identification Number of each company or individual they report.

To minimize extra burden in the future, small businesses and non-profit organizations should begin tracking their spending more efficiently now. Obtaining the correct Taxpayer Identification Numbers for each of their payees and recording ALL payments, large and small, made to both corporate and non-corporate entities will reduce headaches in 2012. A future article will explain the exception for payments made with credit cards.

**Please note that this entry has been amended to reflect that the 1099 filing changes take effect for payments that are made beginning in 2012 for 1099 forms issued in 2013, NOT for payments made in 2011.**

Continue reading "How will the upcoming changes to the filing requirements for 1099 forms affect your small business or non-profit organization?" »

Often referred to as an "information return," a 1099 form is a tax document that businesses are required to file with the Internal Revenue Service (IRS) to report certain business expenditures. 1099 forms must be filed by all businesses and non-profit organizations, regardless of their size and yearly revenue. Currently, the threshold for reporting is limited to expenditures for services to a single non-corporate entity that total $600 or more in a calendar year. The $600 amount includes not only single transactions with a service provider, but also reccurring transactions with a single entity that add up throughout the year.

Businesses and non-profit organizations must file a separate form for each service provider to whom they pay $600 or more. The IRS website provides a list of some of the services for which a 1099 form is required and which specific version of the 1099 must be filed for that particular service. After filling out the correct 1099 form and filing it with the IRS, a business is also required to send a copy of the completed form to the service provider or "payee." Given that $600 is a fairly low threshold, some businesses file hundreds of 1099 forms each year. Businesses are allowed to submit up to 249 information returns each year on paper, but all businesses who file 250 or more must do so electronically.

Due to recent legislation, the filing requirements will expand in 2012 to include corporate payees and transactions for goods as well as services. Stay tuned for more information on these changes and how they will affect your small business or non-profit organization.

Continue reading "What is a 1099 form and how does it apply to your small business or non-profit organization?" »