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BUSINESS FORUM

Tax Planning Tips for the new 3.8% Net Investment Income Surtax

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With a new 3.8% tax on “unearned” income kicking in in 2013, it’s very difficult to limit your tax to just “ordinary” income tax. If your income is earned, you pay 15.3% Self-Employment (Social Security) tax. If your income is un-earned, you now have the new 3.8% Net Investment Income (NII) tax to pay.

Profits from an S corporation are just about the only income that escapes Self-Employment tax as well as the 3.8% NII tax. The S corporation is now an even more attractive form of entity to minimize taxes for owners of certain businesses, depending upon the facts and circumstances. After paying reasonable compensation to the owners, the remainder of the profits flow through to owner’s personal tax returns subject only to income tax, not Self-Employment or NII tax.

 There are several areas you can address to possibly reduce your overall tax. Is your “Reasonable Compensation” unreasonably high? If it is, you may be paying Social Security tax on that compensation unnecessarily. Even if you are over the Social Security wage limit ($113,700 in 2013) you still continue to pay the Medicare tax of 2.9% coupled with the new 0.9% Medicare surcharge for high-wage earnings totaling 3.8%. Find out what is the standard of executive compensation for companies of your size, industry niche and profitability. [Read more…] about Tax Planning Tips for the new 3.8% Net Investment Income Surtax

NJ Division of Taxation Warns of Solicitations Mailed to Businesses

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Many NJ businesses have recently received a solicitation concerning “Annual Corporate Records Form”. The mailing, which has an official appearance, solicits a fee of $125 in return for the recording of corporate shareholders, directors and officers. The Division of Revenue is alerting all New Jersey businesses that there is no requirement to file this form State of New Jersey, and the sender isn’t affiliated with the State.

New Jersey businesses that receive the mailing may report it by:

  1. Filing a complaint with the New Jersey Division of Consumer Affairs, PO Box 45025, Newark, NJ 07101 (complaint forms can be downloaded at http://www.nj.gov/oag/ca/complaint/ocp.pdf)
  2. Contacting the United States Postal Inspections Service to report mail fraud at (877) 876-2455 or http://postalinspectors.uspis.gov/forms/MailFraudComplaint.aspx.

Sleepy’s Wage and Hour Case Goes to NJ Supreme Court

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This is nothing to snooze about. The New Jersey Supreme Court has agreed to rule on a case that will have a broad impact on NJ businesses and workers. In Hargrove v. Sleepy’s, Plaintiffs Sam Hargrove, Andre Hall and Marco Eusebio accused Sleepy’s of using an “Independent Driver Agreement” as a ruse to avoid paying them employee benefits. The case was initially dismissed by U.S. District Judge Peter Sheridan in March 2012, as he applied the common-law “right to control” test. This test focuses on how much control the employer has of the workers. In this case, the plaintiffs drove for several other companies in addition to Sleepy’s, and maintained their own trucks, paying for gas, tolls, tickets and repairs. This bolstered the argument that they were in fact independent contractors.

On appeal, the National Employment Law Project, a New York non-profit workers advocacy group, contended that the “right to control” test shouldn’t be a determining factor. They reasoned that the New Jersey statutes at issue- the Wage Payment Law and the Wage and Hour Law- define “employee” more broadly than common law. Under the NJ statute a worker is considered an employee unless he meets all of the following three provisions:

  1. The worker has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact
  2. The service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed
  3. The worker is customarily engaged in an independently established trade, occupation, profession or business

It’s Official: IRS Allows Gay Couples to File Joint Tax Returns

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As predicted after the  Supreme Court’s ruling on the Defense of Marriage Act (DOMA) in June 2013, the IRS has announced that the government will be issuing regulations that will allow same-sex couples to file joint tax returns.  This will pertain only to the 13 states that recognize same-sex marriage (New Jersey isn’t one of them). They will also be allowed to move freely throughout the country and their filing status will not change.

IRS Scrutinizing Small Businesses

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Even if your business doesn’t have “Tea Party” in its name, you may be receiving a notice of inquiry from the IRS. The controversial notices, titled ‘Notification of Possible Income Reporting’, have already been sent to at least 20,000 small businesses across America. The IRS is gathering data from several third parties, including credit card companies, to check that all income is being reported. Form 1099 has been modified in a manner that provides the IRS with more details about credit and debit card transactions. A high percentage of card transactions may trigger suspicion that not all cash receipts are being reported.  

The IRS Notificatin may also state that the business’ receipts are deficient from an IRS average (without revealing its source), and requests documentation to prove why the numbers don’t fall within IRS’s standard. The recipient has just 30 days to respond. This campaign further complicates compliance and strains small business’ costs, not exactly a winning situation, especially in today’s economy.

Owe NY Taxes? It Could Cost You Your Driving Privileges

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Ignoring a tax debt could cost you more than you might think. Approximately 16,000 delinquent New York taxpayers were recently informed that their driving licenses will be suspended if they don’t pay up.  Businesses or individuals who owe less than $10,000 will not be affected. New York is following the lead of California, which passed a similar law in October 2011.