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"May all your troubles last as long as your New Year's resolutions."
~ Joey Adams (1911-1999), Comedian
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New Year, New Laws
 Start the New Year off right by learning about new laws -- on the federal, state, and local levels -- that will impact your business. Doing this now will help you adjust quickly and avoid problems later on.
New federal laws
New laws and regulations take effect on January 1.
Here are some selected items of note:
Affordable Care Act Provisions. As you probably know by now, employees' flexible spending account (FSA) contributions are limited by law to $2,500; previously your company was able to set any limit. Check guidance on how this limit impacts your business.
Other changes from this law taking effect on January 1 include:
- The deduction for employer subsidiaries for retiree drug coverage is no longer available.
- The 2.3% excise tax on the sale of medical devices.
- States must indicate to the Secretary of Health and Human Services whether they will operate an American Health Benefit Exchange. This could impact your decision on whether to provide health coverage for staff starting in 2014 or let employees join exchanges.
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7 Ways to Minimize Your Audit Chances
| What can you do now to minimize the likelihood that you'll come under IRS scrutiny? While there are no guarantees, there are some actions that may be very helpful in this regard.
1. Know the tax rules
As the old saying goes, the best defense is a good offense. Knowing the tax rules and following them will go a long way toward keeping you safe from an audit. At the very least, having a reasonable belief that you are following tax rules can help to avoid tax penalties if it turns out that you are audited and found to be in the wrong.
2. Keep good records
While this won't prevent an audit, it may avoid escalation into a broader examination by the IRS. Say the IRS sends a letter (which is a correspondence audit) asking for proof for a specific deduction. With good records, you can substantiate positions taken on the return if the IRS raises questions. Without the proof, the IRS may raise additional questions.
3. Use IRS programs
If you prefer to take a conservative approach, you can rely on certain IRS programs to protect yourself for specific matters. Examples:
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The Right Business Entity for Your Company
| C corporation? S corporation? Limited liability company? Whatever your current legal entity, you may want to make changes this year. The sooner you act, the more options you have.
Consider being C
Most small business owners think that being a C corporation is meant only for publicly traded companies. They'd be wrong. There is a growing list of reasons to consider being a C corporation:
- Lower tax rates. Look for tax reform to lower the maximum corporate tax rate from its current 35% rate. This will enable the corporation to accumulate some of the corporation's earnings that can ultimately be harvested by owners at favorable capital gains rates.
- Access to funding. Starting this year, equity crowdfunding will enable C corporations to raise up to $1 million from numerous small investors.
- Potential for tax-free gains. There had been a 100% exclusion for any gain on stock acquired in certain types of C corporations before 2012 and held for more than five years. This tax rule could be re-introduced (currently there is a 50% exclusion, which isn't too bad).
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Our Readers Ask
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Q: I am the sole shareholder of an S corporation. How does the new Medicare tax on net investment income impact distributions and allocations I receive from my business?
A: Your question involves more than just the new 3.8% Net Investment Income Tax (NII tax). It also entails the new 0.9% additional Medicare tax on earnings. Wages that you receive from your corporation are subject to this tax. Your K-1 income from the corporation is not subject to the 3.8% tax as long as you are active in the business (running the business and taking a salary for your efforts means you are active). The NII tax applies to passive income from an S corporation or other pass-through entity.
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Book Review
Extreme Productivity: Boost Your Results, Reduce Your Hours
Robert C. Pozen ~ Harper ~ Hardcover: $27.99
 If you're like me, there aren't enough hours in the day to accomplish everything on the to-do list.
The main lesson from this book: It's not the hours you work but how productive you are that counts.
In this book, Bob Pozen, one of the world's most productive people, shows how to be more effective. Bob shows readers how to run a more efficient meeting, write memos faster, maintain your energy and focus throughout the day, and more.
Bob has lived by example; while a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institute, he also found time to write this and other books.
Listen here to my recent radio interview of Bob.
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Please Note:
DETAILS ABOUT A RESOLUTION OF THE FISCAL CLIFF WILL APPEAR IN THE
NEXT ISSUE
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It's a Fact!
Partnership Returns On the RiseAccording to the latest stats, more than 3 million returns for 22 million partners were filed for 2010 (a 2.5% increase over 2009). The majority of the growth came from limited liability companies (LLCs) filing partnership returns. Of all partnership returns filed, 64.3% were for LLCs. Source: Statistics of Income Bulletin, Fall 2012
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~~~ Build Your Business Radio's
Featured Podcast
of the Month!
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