By: Barbara Weltman, author of J.K. Lasser’s Small Business Taxes 2012 (Wiley, 2011)
There are some new and revised forms to be aware of for your 2011 tax filing -- as well as new and expanded tax breaks to know about:
1. Don’t over-report income
Starting with 2011 returns, credit card processors and other financial companies handling electronic payments must report to the IRS transactions made by merchants on Form 1099-K (there is an exception for payments processed for very small merchants).
This information is based on the gross transactions and does not take into account returns, allowances, cashbacks or other reductions that diminish the income from the transactions.
On your return, report the amount on the 1099-K and then make adjustments to reflect the net income received from the transaction.
Businesses that pay nonemployee compensation to independent contractors must report payments of $600 or more to the IRS on Form 1099-MISC. Contractors in turn report the income on their returns.
This year, instructions to this form tell payors not to include payments they make by credit or debit card, or by other electronic payment (e.g., PayPal) because these amounts will be on the Form 1099-K.
However, because this is the first year of the 1099-K, there likely will be double reporting (on the 1099-MISC and 1099-K) of the same income.
If you receive both statements for the same income, request that the payor issue a revised 1099-MISC. If this is not done, then include what is reported to you and then make adjustments so your tax return reflects only the actual payments you received.
2. Make decisions about writing off equipment purchases
For 2011, there are three possible ways to deduct the cost of machinery and equipment:
- Regular depreciation, which spreads deductions for the cost over 5 or 7 years or other periods fixed by law.
- Bonus depreciation, which allows 100% to be deducted immediately.
- First-year (Section 179) deduction, which limits the first-year write off to $500,000; it can be combined with regular depreciation for an even greater deduction in 2011.
The deduction rules vary with each option. For example, bonus depreciation applies only to new property (not to pre-owned items); it applies automatically, but can be waived.
First-year expensing is only beneficial if you are profitable; if desired, it must be elected. Work with a tax advisor to look not only at your tax picture for 2011, but also look ahead to determine which write-off is best for your situation.
3. Take post year-end action
Even though the tax year has closed, it is not too late to make certain payments that can still reduce your 2011 taxes:
- Contributions to qualified retirement plans. As long as the plan was set up by December 31, 2011, you can contribute up to the extended due date of your return. If you have not already set up a retirement plan, you have until the extended due date of the return to set up a SEP, which is similar to a profit-sharing plan, and make contributions to it.
- Contributions to health savings accounts. If you were covered by a high-deductible health plan in 2011, you can contribution to a health savings account for 2011 up to April 17, 2012 (there is no extra time even if you obtain a filing extension).
4. Get a filing extension if you need it
The filing deadline for 2011 returns is March 15, 2012, for corporations, and April 17, 2012, for individuals, partnerships, and limited liability companies (in most cases).
If you do not have all the information you need to complete your return or for any other reason, you can request a filing extension.
For example, if you are an owner in a limited liability company that has not provided you with a Schedule K-1 by the time you have to file your personal return, request a filing extension.
Individuals request a filing extension on Form 4868; partnerships, limited liability companies, and corporations on Form 7004. The extended due date for filing a 2011 return depends on your return:
- Corporations (both C and S): September 17, 2012. (This also becomes the deadline for S corporations to give Schedule K-1s to their shareholders.)
- Partnerships and limited liability companies: September 17, 2012. (This also becomes the deadline for these entities to give Schedule K-1s to their owners.)
- Individuals: October 15, 2012.
5. Pay estimated taxes for 2012
If you report your share of business income on your personal return (e.g., you’re a sole proprietor or an owner in a limited liability company), you probably have to pay estimated taxes to cover your anticipated tax bill for 2012.
The first estimated tax payment for the year is due on April 17, 2012. This date applies even if you obtain a filing extension for your return.
You can pay electronically using EFTPS, which is a free Federal service for this purpose.
Caution: Don’t wait until you file your return for the year to pay what you owe. This will cost you in tax penalties. Even worse, you may not have the lump sum needed at that time; better to pay in installments as required.
Last word
Action on your part can minimize your tax bill for 2011 and avoid interest and penalties this year and next. The sooner you start, the easier it is to complete actions on time.
Reprinted with permission of John Wiley & Sons, Inc., Barbara Weltman, Contributing Editor of J.K. Lasser’s Your Income Tax 2012 and Author of Small Business Taxes 2012.
Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Monster.
Author Bio:
Barbara Weltman is author of J.K. Lasser’s Small Business Taxes 2012 (Wiley, 2011) She is an attorney and a nationally recognized expert in taxation for small businesses, as well as the author of many top-selling books on taxes and finance, including J.K. Lasser’s 1001 Deductions and Tax Breaks. Find out more at jklasser.com.
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