VOL. 114 | NO. 221 | Monday, November 13, 2000
Thinking about the holidays
Thinking about the holidays? Think about tax season instead
By SUE PEASE
The Daily News
As December approaches, many businesses are planning festive parties, signing holiday cards and tasting the many sweet treats that seem to overflow offices at this time of year. Even though tax planning doesnt fall into the year-end festivities category, this time of year can be a good point for companies, especially small businesses, to think about preparing for the April 15 tax filing.
The biggest issue for small businesses is record keeping, said Gayle Morin, area director for taxpayer education and communications for area eight of the small business and self-employed division of the IRS.
"Some of the really small businesses, particularly the sole proprietors, often dont keep many records. Particularly for them, they need to gather their records," she said.
The IRS, in an effort to assist taxpayers, restructured its organization Oct. 1.
The organization is now divided around taxpayers needs instead of being organized geographically.
"The reason the IRS divided itself was so that we can be more targeted in our assistance and compliance programs. As the taxpaying population gets bigger and more diverse and as the tax code gets more complex, it just made more sense to try to organize our business like tax payers are organized. I can work with small businesses taxpayers and really key in to what their issues are," Morin said.
There are four major operating divisions. Morin overseas the taxpayer communications in the small business segment.
The other three divisions include taxpayers who have wages and investment only. These 88 million taxpayers are the bulk of taxpaying people.
There is the large- and mid-size business division. These are businesses that have more than $5 million in assets, and there are about 210,000 of these types.
And the fourth segment is the tax-exempt and government organizations.
The small business and self-employed segment includes partnerships, limited liability companies a business in which filing is more complicated, filing at least a Schedule C.
The IRS estimates there are 45 million small business and self-employed taxpayers.
With the new IRS organization, there will be enhanced services soon, Morin said.
For the small business segment, taxpayers can access the www.irs.gov site and view the small business corner. She said the site will be adding enhancements soon and may be putting interactive systems on the site.
People can call also call the IRS toll-free number (800) 829-1040 and be directed to someone who has been trained in small business matters. The public can use the IRS walk-in office service too. In Memphis, the office is at 22 N. Front St.
Even at this time of the year, when tax season isnt a priority, taxpayers are using these services.
"Now is the time of year, people may get notices of tax liability for a return that they filed last year or didnt file last year. So really, for small businesses, it is pretty much year-round assistance," Morin said.
The expansion of services will help both the IRS and taxpayers in saving time, Morin said.
"It will prevent problems through increased education and assistance. While we have done some of that in the past, this is the first time we have really dedicated resources to that purpose."
This is a good time of year to also sit down with a financial planner and discuss what happened over the year financially and to start planning for next year.
Kent Mathis, investment representative for Edward Jones Investments, schedules meetings with all of his clients about this time of year.
"That way our clients know what they are suppose to be doing before Dec. 31," Mathis said.
There are many aspects to consider when trying to maximize their tax savings, Mathis tells small business owners.
"No. 1 is to check for a retirement plan and make sure you use it as much as you can," he said.
A lot of small business owners dont have a retirement plan, but a simple one to choose is one named just that a Simple IRA.
It is designed for small business owners and allows owners to save $6,000 a year tax-free. It is also a tax advantage for the company, because if the business is a Simple sponsor, it can match contributions.
"Its a huge hit and a lot of small business owners overlook that," he said.
A second plan is to look at insurance, including health, disability and long-term care.
"A lot of small business owners do not pay attention to it and it does give a lot of small business owners a tax break," he said.
Another item to remember is one that can be immensely important know the income tax bracket.
"For example, if youre married and earn $44,000 this year, then youre an idiot. There is just no nice way to put that. Because someone hasnt advised you to lower that realized income to $43,000," Mathis said.
If a person earns $44,000 this year, he or she will pay $12,320 in taxes, but those earning $43,000 will pay only $6,450 in taxes. One could lower earned income by opening an IRA and putting money in it, Mathis said.
"The bottom line that I would scream from the rooftops if I could get away with it, is to find an advisor who knows what she is doing and sit down with someone and say, what do I do here?" Mathis said.
Along with organizing receipts and records, and discussing matters with a financial planner, small business owners should check for any change in tax laws.
Dan Boone, IRS media relations specialist, said there have not been many changes this year for small businesses.
There has been an increase to $20,000 in Section 179, which is the expensing deduction.
"Generally, that applies to equipment that you can apply for business and it allows it to be expensed in the year that you buy rather than having to depreciate it over a number of years," Boone said.
"If you havent used your entire Section 179 deduction before the end of the year, it is a good time to do it now," he added.
The standard mileage rate, which is important for all people who travel, is 32.5 cents per mile this year.
This time of year, many people are thinking about making a charitable contribution and not only is it a generous idea it, of course, is tax deductible, too.
Boone also emphasized the importance of gathering those records.
"The general rule of thumb is that any expense that is ordinary and necessary that youve incurred in your business is generally tax deductible," Boone said.
And if youre back to thinking about holidays and those year-end parties, go ahead. A holiday party planned for all employees is recognized as a morale builder and is 100 percent tax deductible.
So, after collecting and organizing all those receipts and records, dont forget to kick back and enjoy.