CUMMING, Ga. — Business owners were given a lesson on the changes to taxes and how it affects them at a class hosted by the Cumming-Forsyth County Chamber of Commerce. The class, part of the chamber’s community outreach, was hosted at the University of North Georgia’s University Center in Cumming.
About 15 area business owners attended the new 2013 tax changes, audit risks and tax credit class led by Becky Brown, a certified public accountant and president and founder of North Georgia Accounting Consultants.
“The IRS has announced eight significant audit areas for small businesses that it will focus on in the coming year,” Brown said. “They are increasingly targeting small business underreporting.
“We are seeing more and more audits now. You aren’t going face-to-face with these IRS agents anymore. You are getting a letter in the mail.”
Letters are triggered by anything that falls under the new audit areas and the business is guilty unless proven innocent, said Brown.
The new audit areas ranged from employee use of company cars to offshore banking to proper worker reclassification. This year, the IRS has $944.5 million in additional funds set aside for enforcement.
For Ed Prine, owner of Sonic Services, a termite and pest control business, it was important to get an unbiased view of the tax rates and credits after the so-called “fiscal cliff.”
“When you watch all those panelists, you’re more confused than when you started,” said Prine. “I wanted somebody who didn’t have a dog in the fight to say, ‘all right, here’s what’s changed, and this is what it will affect.’”
Brown said dependent care and child credits stayed the same, instead of the rumors of decreasing, and the federal estate exemption will not change.
“If the federal estate exemption would have changed, it would have hit people hard,” Brown said.
Napoleon Foster, owner of A Minor Touch, a handyman service business, said he wanted to learn more.
“I might not have a need for it right now,” he said, “but in two weeks, a month or tomorrow, I might have a need for it.”
FIVE TAX CHANGES IN 2013
1. Individual tax rates and the alternative minimum tax
Individual rates have increased. The highest tax rate of 39.6 percent will affect only taxpayers with an income of $450,000. The alternative minimum tax has a permanent “patch” for inflation adjustment and the 2013 exemption amount is projected to be $85,750.
2. Federal Insurance Contributions Act (FICA) and Medicare
FICA withholding rate is up to 6.2 percent for the first $110,100 earned per taxpayer and now will be applied to the first $113,700 earned. Medicare’s withholding rate will increase to 2.35 percent for 2013 once taxpayers reach an income of $200,000.
3. Qualifying for medical and dental expense deductible
In 2013, only those who are 65 years or older will get the 7.5 percent AGI limit. Those under 65 years old will only be allowed to deduct medical and dental expenses that exceed 10 percent of their adjusted gross income.
4. Depreciation and Section 179
Bonus depreciation of 50 percent will be available again for first use property only for 2013. Section 179 limits will remain at $500,000, and a $2 million investment limit for new and used expenditures.
5. Ad valorem and sales tax on cars
The annual ad valorem will be eliminated with new and used vehicle purchases beginning in March. In its place, there will be a one-time title fee of 6.5 percent. The fee will go up to 6.75 percent in 2014 and 7 percent in 2015.
For casual sales, you will be required to pay the same title fee if vehicle is sold to an immediate family member after March 1. If sold or given away, there is no title fee. But there is a title transfer fee of one fourth of 1 percent of the value of the vehicle.
THE IRS’ EIGHT AUDIT AREAS
1. Fringe benefits
The IRS is looking for employers who are not reporting employees’ personal use of company cars on their 1099 or W-2 forms. If you supply vehicles for your employees and they don’t give you their receipts but you reimburse them, then it needs to be included in the W-2.
2. High income or high wealth taxpayers
The IRS classifies high income or high wealth taxpayers as people whose total gross income exceeds $200,000. In addition, the IRS will focus on taxpayers with a total positive income of $1 million or more who file a Schedule C business return.
3. Form 1099-K matching
In late 2013, the IRS will start Form 1099-K matching. The IRS has indicated that it plans to pilot a business-matching program that can address a large amount of small business noncompliance.
4. Credit for small business employee health insurance
This credit is now under IRS scrutiny. It will examine small business employers for compliance with eligibility requirements.
5. International transactions
Its third voluntary initiative for foreign banking is underway, and the IRS will be looking to pursue taxpayers who hide assets overseas.
A new emphasis for the IRS. They are looking to target large loss partnerships as well.
7. S corporations
The IRS is interested in S corporation audits where losses are taken in excess of basis on shareholder returns. It is also interested in the use of S corporation distributions to avoid payment of Social Security taxes. The IRS will focus on S corporations with income, distributions and little or no salary paid to officers.
8. Proper worker reclassification
The IRS thinks there is a significant noncompliance in worker classification because it understands that businesses have a financial reason to misclassify their workers as independent contractors rather than employees.