Wednesday, March 11, 2009

Hidden stimulus traps — how federal COBRA subsidies can choke company cash flow

This is something I received recently from AIPB (American Institute of Professional Bookkeepers).

The new law includes a 65% federally funded COBRA continuation subsidy that lasts up to 9 months for workers (and their families) involuntarily terminated from Sept. 1, 2008 - Dec. 31, 2009. The subsidy terminates when the former employee is offered employer-sponsored health care coverage by a new employer, or becomes eligible for Medicare; or has COBRA coverage that has expired.

Notify within 60 days of Feb. 17 former employees involuntarily separated between Sept. 1, 2008 - Feb. 17, 2009. Notify those who elected COBRA that they are entitled to a lower premium starting in the first coverage period after Feb. 17. Notify those who rejected COBRA that they have have 60 days to elect COBRA and receive the subsidy. You can let former employees choose a less expensive plan. No subsidy is available to former employees whos income is over $125,000 a year or a family income over $250,000 a year, but employers are not required to monitor for the income phaseout.

The impact on small businesses: Because the new law allows employers to collect from qualified COBRA participants only 35% of the premium cost (instead of the current 102%), employers must recover the federally funded 65% by reducing their federal employment tax deposit. Result: Monthly and quarterly depositors must advance 65% of the premium cost for each COBRA enrollee for as long as it takes to offset in their tax deposits the amount due them. Problem: When the subsidies add up to more than your company's tax deposit, your company must request reimbursement from the U.S. Treasury. At this point, there is no way to know how long you will have to wait for reimbursement.

Administrative burdens: Subsidized health care premiums may be due as soon as Mar. 1, leaving you little time to compute the lower premiums and issue the required notices.

Contact your health insurer (and payroll service, if applicable) to assure the fastest possible COBRA subsidy refund. Any delay may cause you bigger cash flow problems.

The first period for reporting COBRA subsidy refund requests is 1st q. 2009, with your 941. For timely filing, make sure you are familiar with changes in Form 941 and related guidance.

Be ready for the IRS to require reports of annual COBRA participant subsides. Because of the subsidy's income phaseout, the IRS may also ask you to file an annual 1099 or W-2, Box 12 data to report total premium subsidies for COBRA participants receiving the subsidies.

Be sure to review with your accountant how this and other tax changes impact your business.

Labels: , , ,

posted by The Office Grapevine at 11:43 PM 0 comments

Wednesday, February 21, 2007

Small Business Bookkeeping and the IRS

Whether you are a sole proprietor or a Limited Liability Company you are required to report all income and pay taxes on that income.

Your saving grace is your bookkeeping. Why you say?

Each of the above is asked to attach a Schedule C to their personal income taxes in order to show profit or loss from operating a business. This form believe it or not can help you become organized in your company records and help make important purchasing decisions.

Tell me, Cathy, how? On the Schedule C you are required to post all of your gross income, which if that is all you had done all year is collect fees and not had one expense or cost of goods sold you would have to pay taxes on all of that.

But here is the saving grace. Business expenses incurred that are deductible lowers the amount of tax due. Thank goodness huh?

For instance we'll take line 8 on the Schedule C which is advertising. Hmmmmm advertising? What all does that cover? What is deductible? Is placing a banner on a friend's website going to reduce my taxes? Well yes a banner is deductible! In addition if you pay someone to design, update, write and host a web site for your business, these costs are also deductible as advertising. Paying someone to proof read an advertisement is also deductible on line 8 therefore decreasing your tax due.

But did you know that postage for shipping out your flyers, post cards, and other advertisements are not added to line 8 advertising but is reported on line 48 other expenses.

Yep there other instances of advertising deductions you may not have thought of. That is why it is so important to maintain your company's books correctly or to have a good bookkeeper keep those transactions straight for you.

During tax season is not a good time to discover that you owe more tax than your business can afford to pay. At the beginning of the year as it is now is the perfect time to set your books up properly or look for that bookkeeper that can offer you assistance in an area that might not be familiar to you and show you the deductions you could be missing in order to lower your taxes.

The IRS will be looking more closely at small businesses than usual as stated here: http://www.contracostatimes.com/mld/cctimes/business/16265628.htm

Labels: , , , ,

posted by The Office Grapevine at 1:09 AM 0 comments