Local tax preparers offer info on new changes
By BECKY THOMAS
Staff Reporter
As spring approaches, a sense of anxiety hovers over the West Plains like the threat of a late winter snowstorm: it's tax season.
People across the country are sitting down, at their kitchen tables or with their accountants, to deal with taxes. And with the continued slow economy, the federal government has made some changes to the tax code since last year. Some of the changes will help local individuals and businesses, while others will require more attention, documentation and belt-tightening.
Two Cheney-area tax preparers—Marie Shepard and Natasha Jernegan—and Eastern Washington University tax professor Susan Megaard offered insights into the changes and the complexities of the tax code in general.
Both Jernegan and Shepard pointed out the IRS website, http://www.irs.gov, as a resource for people with questions about their taxes. The site offers copies of commonly used forms and links to free filing services on its main page, as well as a search bar to find more detailed information.
In the past year, there have been several tax changes that may affect local businesses.
Shepard pointed out the HIRE Act, signed in March 2010, as a potential tax break that business owners may have missed.
“It's for 2010 and it encouraged the employer to hire,” she said. “If you missed out on it it's not too late.”
Shepard said employers can retroactively claim a tax credit if they hired a new employee who had been unemployed for at least two months. If the hire qualified, the employer's Social Security tax payment would be waived for the year.
At 6.2 percent, “That's a lot of money,” Shepard said. “You can go and get a signed affidavit for the employee—you don't file that but you have to have it on file—then do the amended (form) 941 and claim your credit.”
A new tax credit for small businesses could save local employers a lot of money on health insurance costs.
The Small Business Health Care Tax Credit offers credits of up to 35 percent of health insurance premium costs to small businesses, with 25 or fewer full time employees, that provide health insurance to those employees. The business must cover at least 50 percent of the employees' health care coverage costs, and the average annual wages paid must be less than $50,000. The rate of the credit will increase to 50 percent in 2014, but will phase out for employees paid between $25,000 and $50,000 annually.
“This is a big, big thing,” Shepard said. “It will save a lot of small businesses a lot of money.”
Jernegan pointed out that common action of business owners who pay themselves little or nothing could be called out for violating the tax code.
She said that many people who own businesses opt to incorporate the business, electing to become an S corporation to avoid paying self-employment tax. When the IRS grants a business S corporation status, the business must agree to pay the owners who work in the business “adequate compensation,” which is taxed for Social Security and Medicare like any other employee.
Jernegan said the IRS would begin penalizing business owners who don't compensate themselves enough by rededicating the business's profits as wages and taxing the funds accordingly.
“For businesses that are S corps, they may want to look at how much compensation they're paying their officers who are working in the business so that they can meet the criteria for reasonable compensation and it's not dictated to them,” she said. “Depending on how the economy's doing and what collections are, you either get the nice IRS or the mean IRS. In this case you're going to get the mean IRS.”
Jernegan also pointed out a change in education credits. The Hope credit was phased out and the American opportunity credit was reworded to cover more costs.
“They loosened up the things that qualify as education expenses. It used to be a real archaic language where…you could write off required textbooks but no recommended stuff. You had to buy it at the college bookstore but not online and this and that,” she said. “That's the kind of thing that frustrates people. Now it's a little easier to have those expenses covered.”
The American opportunity credit—up to $2,500—is available for students in undergraduate studies, while the lifetime learning credit—up to $5,000—is offered to graduate and post-graduate students.
Jernegan and Shepard both said they enjoy helping people with their tax returns. Jernegan said she offers clients peace of mind that their taxes are being handled by a professional. Shepard pointed out that accountants have resources that regular citizens don't have. Both accountants said they attend yearly classes to learn about the new tax laws.
“I sit down with people and they tell me their story. I don't memorize all of this (code), but I know there is something here for them, something there. I have resources,” Shepard said, holding up a thick stack of bound pages. “I have this whole book for 2010.”
Susan Megaard, EWU tax professor, said the tax code is more complicated than it needs to be.
“Politicians make the rules in the tax code and a lot of the time it has nothing to do with helping people understand,” she said. “It's political compromise.”
Despite the complexity of the code, Megaard said most people with simple tax returns could complete their own forms.
“Just read the directions carefully and fill it out,” she said. “If something changes in their situation, they might want to get some help.”
Megaard said the tax code needed to be rewritten, but she would be surprised if it happened in the current political climate.
“People are intimidated and frustrated by it, and justifiably so,” she said. “It's way more complicated than it needs to be.”
Becky Thomas can be reached at [email protected].
Reader Comments(0)