To figure out taxable income for your business, you must choose a tax year. A tax year is an annual accounting period used for keeping records and reporting income and expenses. The tax year determines the accuracy with which your business's income is matched with the expenses that generate the income. All the income received or accrued within a single year is reported on that year's tax return, along with all the expenses paid or accrued.

The two tax year options are calendar year and fiscal year (including a 52-53-week tax year). Unless you are part of a partnership, S corporation or personal service corporation (PSC) and have a required tax year (required tax years for partnerships, S corporations and PSC’s will be discussed in next week’s blog posting), you can adopt a tax year by filing your first income tax return using that year. If you have already selected a tax year, but wish to change it, see the section below entitled “Changing Your Tax Year.”

Calendar Year - 12 consecutive months beginning on January 1 and ending on December 31

If you use the calendar year, you must maintain your books and records and report your income and expenses from January 1 through December 31 of each year on your tax return. You are required to adopt the calendar year if:

• You do not keep books or records
• You do not have a tax year
• Your present tax year does not qualify as a fiscal year
• You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations

Fiscal Year - 12 consecutive month period ending on the last day of any month except December 31

If you are allowed to adopt a fiscal year, you must maintain your books and records and report your income and expenses using the same tax year.

Schools generally report their financials using a fiscal year from July 1 to June 30. By using this time period, the schools’ accounting and tax records conclude at about the same time that the school year ends and students are off for the summer.

52-53-Week Tax Year - fiscal tax year that varies from 52 to 53 weeks, but does not need to end on the last day of a month

If your business has a specific, non-calendar business cycle, you may want to consider the 52-53-week tax year. A highly seasonal business, such as a restaurant in a summer resort area, would likely benefit from a fiscal year because it would provide a better measure of a how the business performs over its natural business cycle.

If you make this election, your 52-53-week tax year must always end on the same day of the week. For example, if you elect a tax year that always ends on the last Monday in March, your 2011 tax year will end on Monday, March 26, 2012.

To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return:

1. The month in which the new 52-53-week tax year ends
2. The day of the week on which the tax year always ends
3. The date the tax year ends. It can be either of the following dates on which the chosen day:
   • Last occurs in the month in (1) above or
   • Occurs nearest to the last day of the month in (1) above

Changing Your Tax Year: If you wish to switch from a calendar year to a fiscal year (or vice versa), you will need to obtain permission from the IRS by filing Form 1128, Application To Adopt, Change or Retain a Tax Year.

For more information on tax years, please go to http://www.irs.gov/pub/irs-pdf/p538.pdf.

This posting serves as part of the Education portion of the new Stone Carlie SC CARES Program. SC CARES further demonstrates Stone Carlie’s commitment to promoting Community Awareness, Responsibility, Education & Service to our clients and the community.

Circular 230 Compliance: Pursuant to Treasury regulations, any federal tax advice contained in this communication (including all constituent email correspondence, attachments, enclosures and/or exhibits) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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Donations made to qualified organizations may help reduce the amount of tax you pay. Here are 4 tips to help ensure your charitable contributions are properly deducted on your tax return.

1) Donate to Qualified Organizations – In order to receive a legitimate tax deduction, you must donate to a qualified organization. Refer to IRS Publication 526, Charitable Contributions, for rules on what constitutes as a qualified organization. Note: You cannot deduct contributions made to specific individuals, political organizations or candidates.

2) Determine Fair Market Value of Non-cash Donations - Donations of stock or other non-cash property are typically valued at the fair market value of the property. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, when neither party is required to buy or sell, and when both parties have reasonable knowledge of  all the relevant facts. If you receive a benefit as a result of your contribution such as merchandise, tickets to a ball game or other goods and services, you can deduct only the amount that exceeds the fair market value of the benefit received.

3) Keep Records of Your Donations, Regardless of the Amount

a) To deduct a contribution of cash, check or other monetary gift, you must maintain a bank record, payroll deduction record or a written communication from the organization containing the name of the organization, the date and the amount of the contribution.

b) For cash or property equaling $250 or more, you must obtain a bank record, payroll deduction record or a written acknowledgement from the qualified organization showing the amount of the cash, a description of any property contributed and whether the organization provided any goods or services in exchange for the gift. Note: One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.

c) For text message donations, a telephone bill meets the record-keeping requirement as long as it shows the name of the receiving organization, the date of the contribution and the amount given.

4) Deduct Contributions on Your Tax Return - To deduct a charitable donation on your tax return, you must file Form 1040, U.S Individual Income Tax Return, and itemize your deductions on Schedule A.

a) Total Non-cash Contributions More Than $500 - If your total deduction for all non-cash contributions for the year is more than $500, you must complete and attach IRS Form 8283 Non-cash Charitable Contributions to your return.

b) Donated Items Valued at More Than $5,000 - Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, Noncash Charitable Contributions, which generally requires an appraisal by a qualified appraiser.

c) Vehicle Donations – Special rules apply for vehicle donations. Click here for information regarding these rules.

For more information on charitable contributions, refer to Form 8283, Noncash Charitable Contributions and its instructions, as well as IRS Publication 526, Charitable Contributions. For information on determining the value of donations, refer to IRS Publication 561, Determining the Value of Donated Property.

This posting serves as part of the Education portion of the new Stone Carlie SC CARES Program. SC CARES is a part of Stone Carlie’s commitment to promoting Community Awareness, Responsibility, Education & Service to our clients and the community.

Circular 230 Notice: Any tax advice contained in this communication was not intended or written to be used, and may not be used, for the purpose of avoiding penalties that the IRS might attempt to impose on a taxpayer.  No one, without our express prior written consent, may use any part of this communication in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any other taxpayer.  We impose no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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By Brett A. Rugen, CPA
Stone Carlie & Company - CPAs, Wealth Advisors and Business Consultants

Missouri offered over 50 types of income tax credits for the 2011 tax year. These credits have a wide range of purposes, from housing development, farming assistance, job creation and everywhere in between. Credits are offered to both individual and corporate taxpayers and in many cases can be sold by entity who earns them to another taxpayer who can utilize the benefit.  Today, I will be focusing on two of the credits, the Brownfield Jobs and Investment Credit and the Small Business Incubator Tax Credit.

1. The Brownfield Jobs and Investment Credit (Brownfield) provides financial incentives for the re-development of commercial sites that are contaminated with hazardous substances. These sites must either be abandoned or underutilized for at least three years.  The applicant cannot be a party who caused the release (or potential release) of hazardous substances. The city or county must endorse the project if the property is not already owned by a public entity. The Missouri Department of Economic Development (DED) must forecast that the project will result in the creation of at least 10 new jobs or the retention of 25 jobs by a private commercial operation. The DED can issue tax credits up to the entire cost of the project (75% upon proof of payment of the costs and 25% when a clean letter is issued by the Department of Natural Resources (DNR)). The Brownfield tax credit can be applied to income taxes and corporation franchise taxes, can be carried forward 20 years and is transferable. This credit is available to companies located throughout the entire state of Missouri. Applications can be submitted to the DED and DNR year-round and are reviewed on a case-by-case basis.
2. The Small Business Incubator Tax Credit encourages private investment in incubators. To be designated as an approved incubator, the sponsor must apply to the DED and will be judged on the economic impact that the incubator will have on the community (among many other factors).  Then each contributor must apply for their contribution to receive a portion of the credits allotted to a designated incubator.  If approved, the taxpayer will receive a tax credit equal to up to half of their contribution.  This credit can apply towards income tax or corporation franchise tax. Almost any taxpayer may be a contributor. The DED reviews submitted applications on a first-come basis and makes decisions based on the annual amount of tax credits allocated to an approved incubator.

Applications for both of these credit programs can be submitted year-round.  If you think you may be able to take advantage of any tax credits, be it as a recipient or by purchasing credits, you may want to take a look at the list of Missouri’s tax credits found on the Department of Revenue’s website - http://dor.mo.gov/taxcredit/.

If you have any questions on this article or would like help with your tax credits, please contact Brett Rugen, CPA, and member of the Stone Carlie Tax and Business Services group.
Email:      brugen@stonecarlie.com
Phone:     314-889-1138

Blog Disclaimer: This blog is for informational purposes only. The nature of the information is intended to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that if tax, R&D credit advice or other expert assistance is required, the services of competent professional person should be obtained.

Circular 230 Notice: Any tax advice contained in this communication was not intended or written to be used, and may not be used, for the purpose of avoiding penalties that the IRS might attempt to impose on a taxpayer.  No one, without our express prior written consent, may use any part of this communication in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any other taxpayer.  We impose no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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The Internal Revenue Service (IRS) has issued a warning about an emerging tax scheme promising refunds to people with little or no income and who normally don’t have a tax filing requirement. Typically senior citizens and low income individuals are targeted.

Abusing a popular college tax credit, promoters claim they can obtain a tax refund or non-existent stimulus payment based on the American Opportunity Tax Credit, even if the victim is not enrolled in or paying for college. Typically, con artists falsely claim that refunds are available even if the victim went to school decades ago. A variation of this scheme incorrectly claims that college credit is available to compensate people for paying taxes on groceries.

The promoters charge exorbitant upfront fees to file these claims and are often unavailable when victims discover they’ve been scammed. The IRS is reminding people to be careful of this scheme because all taxpayers, including those who use paid tax preparers, are legally responsible for the accuracy of their returns, and must repay any refunds received in error. 

To avoid this scheme, the IRS says taxpayers should beware of any of the following:

• Fictitious claims for refunds or rebates, based on false statements of entitlement to tax credits
• Unfamiliar for-profit tax services selling refund and credit schemes to the members of local churches
• Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers
• Homemade flyers and brochures implying that credits or refunds are available without proof of eligibility
• Offers of free money or promises of refunds with no documentation required
• Claims for the expired Economic Recovery Credit Program or for economic stimulus payments
• Unsolicited offers to prepare a return and split the refund
• Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area

For additional information on tax scams, see the 2012 Dirty Dozen list and to get the facts on education-related tax benefits, go to the Tax Benefits for Education Information Center on IRS.gov.

This refund scheme features many of the same warning signs IRS cautions taxpayers to watch for when choosing a tax preparer. For advice on choosing a competent tax professional, see Tips for Choosing a Tax Return Preparer on IRS.gov.  

If you have any questions regarding this brief or any other tax  or IRS related matters, please feel free to contact a Stone Carlie Tax Professional at 314-889-1100, or email us at taxinfo@stonecarlie.com. 

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A payroll tax cut that gives nearly 160 million workers an extra 2% of their income has been extended through the end of 2012. The Middle Class Tax Relief and Job Creation Act of 2012 extends the 4.2% social security tax withholding rate as opposed to 6.2%. The reduced tax rate was originally in effect for 2011, but was extended to the end of 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011.

Self-employed individuals also benefit from a 2% rate reduction, from 12.4% to 10.4%, in the social security portion of the self-employment tax. The tax applies to the first $110,100 of wages and net self-employment income received by an individual.

As a result of the extension, the Internal Revenue Service (IRS) has revised Form 941, the Employers Quarterly Federal Tax Return Form. Employers must use this form to properly report the newly-extended payroll tax cut.

No action is required by workers in order to continue receiving the payroll tax cut and the lower rate is not expected to affect workers' future Social Security benefits.
The IRS will provide additional guidance regarding the implementation of the payroll tax cut and updates will be posted on IRS.gov. 

If you have any questions regarding this Brief or any other tax  or IRS related matters, please feel free to contact a Stone Carlie Tax Professional at 314-889-1100, or email us at taxinfo@stonecarlie.com. 

Circular 230 Notice:   Any tax advice contained in this communication was not intended or written to be used, and may not be used, for the purpose of avoiding penalties that the IRS might attempt to impose on a taxpayer.  No one, without our express prior written consent, may use any part of this communication in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any other taxpayer.  We impose no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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