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As you have seen in the news there has been a lot of activity in the tax world this year. Some of the measures that have passed or are being discussed will directly affect small business daily operation. We have highlighted some of these changes and proposed changes below. If you should have any questions regarding this information please do not hesitate to contact our office.

S Corporation due date: The deadline for S Corporation tax returns is March 15, 2010. If your return has been extended the due date is September 15, 2010. The IRS is penalizing S Corporations for late filing. The penalty is $89 per shareholder per month. This penalty will increase to $195 per shareholder per month beginning with 2010 tax returns. If you have not already filed your S Corporation return please contact us so that we can assist you in preparing and filing the return timely to avoid these penalties.
New Hire Incentive: Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employers share of Social Security tax on wages paid to these workers after March 18. In addition, for each qualified employee retained for at least a year, whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return.
These tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives generally do not qualify.
Employers must get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. IRS Form W-11 can be used to meet this requirement.
Form 941: The form 941 has been revised for 2nd quarter returns due August 2, 2010. The new form provides for the exemption for the New Hire Incentive Act.
The House and Senate has recently debated changes in the way S Corporation earning would be taxed for Social Security and Medicare. We are watching this closely and will update you when we have definitive information.
Health Care Tax Credit: The small business health care tax credit, created under the Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
The credit takes effect this year and is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small employers that primarily employ low- and moderate-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers. The maximum credit goes to smaller employers ­­ those with 10 or fewer full-time equivalent (FTE) employees ­­ paying annual average wages of $25,000 or less. The credit is completely phased out for employers with more than 25 FTEs or with average wages of more than $50,000.
Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
Retirement Contributions: The annual deductible contribution limit for an IRA for 2010 is $5,000. Also for 2010, a $1,000 "catch-up" contribution deduction is allowed for taxpayers age 50 or older by the close of the taxable year. These may be subject to phase out rules.

Roth IRA permits nondeductible contributions of up to $5,000 a year. For 2010, a $1,000 "catch-up" contribution is allowed for taxpayers age 50 or older by the close of the taxable year. These also may be subject to phase out rules.

The SIMPLE plan deferral limit is $11,500 for 2010. For 2010, a $2,500 "catch-up" contribution is allowed for taxpayers age 50 or older by the close of the taxable year.

S Corporation Wages and Benefits: 2% or greater shareholders of S Corporations are required to have wages paid to them from the corporation. The wages must reflect reasonable compensation. If you are currently not paying wages to shareholders please consider discussing with us the tax implications of this position, and make plans to do so.

Shareholders are allowed to claim 100% of the amount paid during the taxable year for medical insurance that constitutes medical care for themselves, their spouses and dependents as an above-the-line deduction, without regard to the 7.5% of
AGI floor. The deduction is available if the premiums are paid pursuant to a plan and you receive a W2 from your company which includes these amounts.

The above information is summarized, so be sure to seek professional advice if you wish to implement or apply any issue noted above. The Internal Revenue Code is built by exception, so careful planning is essential.