Businesses

Important Topics:
New NOL Carryback Option for Businesses
Red Flag Rules
Pennsylvania Home Improvement Consumer Protection Act
Emergency Economic Stabilization Act
Bonus Depreciation
Pennsylvania Smoking Ban
Eligibility for Educational Improvement Tax Credit
1099 Information Returns
Limitations on Deductions for Meals, Travel and Entertainment
Cellular Telephones
Requirements for Business Vehicle

New NOL Carryback Option for Businesses - NEW!!!
The Worker, Homeownership, and Business Assistance Act of 2009 allows eligible small businesses to elect to increase the Net Operating Loss (NOL) carryback period for an applicable 2008 and 2009 NOL from 2 years to 3, 4, or 5 years. Prior to the Act, an NOL could only be carried back two years and forward 20 years.

Red Flag Rules - UPDATED!!!
After receiving several inquires regarding the Red Flag Rules, we feel it is important to relay this important information to you:

The Federal Trade Commission (FTC) has issued regulations regarding fraud and identity theft prevention.  Known as the "Red Flag Rules," the Fair and Accurate Credit Transactions (FACT) Act of 2003 requires all entities that extend credit to consumers to develop and officially adopt an "Identity Theft Prevention Program" by November 1, 2008.  However, due to confusion over the regulation's definition of "creditor," this deadline has been postponed by the FTC until December 31, 2010.  According to the FTC, the term "creditor" refers to "any entity that regularly extends, renews, or continues credit."  A "covered account" is "an account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions." If you receive payment after providing goods and/or services to consumers by maintaining Accounts Receivable, you may be required to comply with the FACT Act.  Please note, accepting credit cards as a form of payment does NOT meet the definition of "credit" as established by the FTC.

Please note, your Identity Theft Prevention Program must be written and formally adopted by your board of directors, shareholders, or partners by the December 31, 2010 compliance deadline.  If you have not developed a plan already, please do so immediately.

For more information about the Red Flag Rules and compliance guidelines, please download this informational pamphlet from the FTC.  You may also want to review this compliance model distributed by the National Rural Water Association.  This model was specifically designed for water utility providers, but can be adapted for almost any business model and industry.

If you have any questions regarding the Red Flag Rules or what they mean to you, please contact our office at (717) 336-3801.

Pennsylvania Home Improvement Consumer Protection Act
As of July 1, 2009, all contractors who perform at least $5,000 worth of home improvements per year are required to register with the state Attorney General's Office.  The application can be completed online at www.attorneygeneral.gov.  There is a $50.00 registration fee and contractors are required to renew their registration on a biennial basis.  Contractors are issued a license number, which they are required to include on all advertisements. 

The registration website listed above also contains a "Frequently Asked Questions" section that provides extensive information regarding this act and the registration process.

The Act also provided for several key changes for individuals.  Some of the most notable changes include:  AMT exemption amounts for 2008 have been increased to $65,950 for married couples filing jointly, $46,200 for singles, and $34,975 for married couples filing separately; IRA holders over the age of 70½ may once again transfer up to $100,000 to an eligible charity tax-free in 2008 and 2009; the $4,000 deduction for higher education expenses has been extended through 2009; expenses incurred by teachers for classroom supplies up to $250 is extended through 2009; and the option to deduct state and local sales tax or state and local income tax, whichever is higher, has been re-instated through 2009 (if deducting sales tax, you may use actual receipts or the IRS-provided table plus receipts for big-ticket items).  Additionally, taxpayers that do not itemize deductions will be allowed to deduct property taxes in addition to the standard deduction in 2008 and 2009, with a maximum deduction of $1,000 for married couples and $500 for singles.  Also, the energy credits for solar equipment, fuel cells, and energy-efficient improvements to an existing home were extended through 2016.

Be sure to contact us if you have any additional questions concerning the Emergency Economic Stabilization Act and what it means to you.

Bonus Depreciation
The Economic Stimulus Act of 2008 has provided for a bonus first-year depreciation of 50% of the adjusted basis of qualified property.  Qualified property is most new (not used) property that is purchased after December 31, 2007 and before December 31, 2009 and is depreciated using the MACRS method with a life of 20 years or less. Section 179 depreciation may still be taken along with the bonus depreciation.  Please contact us so that we may help you take advantage of this bonus depreciation and the benefits it provides for your business.

Single Member LLC Tax Requirement
Reminder:  for all wages paid on or after January 1, 2009, all single member LLCs are required to file and pay taxes in the name and EIN of the LLC.  Taxes may no longer be filed under the name and EIN of the single member.  An LLC may secure an EIN online at www.irs.gov or by filing a Form SS-4, Application for Employer Identification Number.

Pennsylvania Smoking Ban
On September 11, 2008, Pennsylvania law makers passed the Clean Indoor Air Act, which effectively bans smoking in public and workplace spaces, with only a very few minor exceptions.  Employers and employees alike will want to ensure they are in compliance with the new law, which not only bans smoking, but also requires “No Smoking” signs to be posted in all spaces included in the law.  For more information, please visit PA’s health website at www.health.state.pa.us.  Here you will find frequently asked questions, free downloadable “No Smoking” signs, and a Business Owner’s Clean Indoor Air Compliance Toolkit.

In June of 2008, Pennsylvania added an additional way for businesses to take advantage of the EITC.  Effective July 1, 2008, personal income taxes generated by pass-through business income, as reported on PA Schedules RK-1, PA-65, or PA 20-S, are now eligible to be offset by the EITC.  In order to receive this tax credit, you must first apply to the state.  There is a finite amount of funds set aside each fiscal year (July 1 – June 30) for this credit, and it is given away on a first-come, first-served basis.  If you are approved, you will receive a credit equal to 75% of your contribution.  If you agree to contribute equal amounts in two consecutive years, the credit is increased to 90% of your contribution, but you must still apply each year.  Applications are accepted all year, but credits are only awarded until the total amount set aside for the current year has been used.  Renewal applications for the 2009-2010 fiscal year were able to be submitted beginning May 1, 2009.  Initial applications were accepted starting on July 1, 2009.

Note:  The new pass-through tax credit qualification does not apply to sole proprietorships, Schedule C businesses, and single-member LLCs.  For more information on this tax credit or for help with the application process, please call our office.

 1099 Information Returns
Businesses are required to file Form 1099 information returns for various payments made throughout the year. These forms are to be used to report payments to individuals and partnerships paid by you as follows:

Be aware of the various forms required and provide us with the addresses and social security numbers where necessary. Form W-9 should be completed by all payees prior to making any payments that would require a 1099 form. Failure to file the forms and failure to provide account numbers are each subject to a $50.00 penalty per failure. For businesses located in Pennsylvania, 1099 forms are to be filed with the Internal Revenue Service Center, Austin, TX 73301.

NOTE: On the recipient’s copies, you are required to include the telephone number of a person to contact in case of questions. It is recommended that the contact phone number be included in the section with the filer’s name and address.

Limitations on Deductions for Meals, Travel and Entertainment
With the continued scrutiny of travel and entertainment costs by the IRS, it is important that you maintain some basic information for all travel and entertainment costs. The law specifically requires that any deduction claimed for meals and entertainment must be substantiated by records indicating the amount, time, place, and business purpose of the expenditure. Receipts are required on all expense account items over $75.

Cellular Telephones
The IRS has included cell phones in its definition of "listed property". Listed property includes assets, such as vehicles and computers, that have the potential to be used more than a minimal amount for personal purposes. As such, taxpayers must meet some strict substantiation requirements in order to deduct expenses for listed property. If the employer requires the employee to keep accurate and detailed records of business versus personal use, and the employee uses the phone exclusively for business purposes, all of the cell phone usage is excludable from the employee’s income. However, if personal use of the cell phone exists (except in a minimal capacity) the value of any personal cell phone use and a portion of the monthly maintenance charges for the phone are includable in the employee’s gross wages.

Requirements for Business Vehicle
The IRS continues to be strict in requiring proof of business use of vehicles. A taxpayer that claims a deduction for the business use of an automobile without maintaining written records can expect an IRS examination. A taxpayer should not assume that an IRS agent will compromise and allow part of a claimed business deduction based solely on the taxpayer's own statement. In all likelihood, no deduction will be allowed without substantiation of the taxpayer's statement.

Taxpayers should maintain regularly prepared written records of their vehicles' business use.

Please also be aware that personal use of a business owned vehicle creates taxable income. This should be reported as compensation subject to federal and FICA taxes on an employee’s W-2 at year end.