The Economic Stimulus package also offers incentives to spur business investment. The legislation would save businesses approximately $50 billion in near-term taxes through a temporary change to the tax code that will allow American businesses that buy new equipment this year to deduct an additional 50 percent of the cost of their investment in 2008. This will encourage businesses to expand and create new jobs now because buying equipment, software, and tangible property this year will dramatically lower their taxes.

The legislation also increases expensing for small businesses. This means that a business placing less than $800,000 of equipment into service this year would be able to immediately deduct up to $250,000 – up from $128,000 – of its investment in 2008.

The Economic Stimulus Act will allow Americans to keep more of their money to stimulate consumer spending.  The growth plan provides rebates to 128 million American households. Payments will go out through late spring and summer so we can get help to our economy when it is needed most. Under the legislation:

Individuals and families are eligible to receive up to $600 for individuals and $1,200 for couples.  A minimum of $300 per person and $600 per couple would be available to those with at least $3,000 of earned income. This relief would be available to everyone with adjusted gross income less than $75,000 for singles and $150,000 for married couples filing jointly. It will be phased out for taxpayers above those income thresholds. Taxpayers may qualify by filing a tax return for 2007 and including a valid Social Security number on their tax return.

Everyone eligible for this relief would also receive an additional $300 per child.  For example, this would mean up to $1,800 of tax relief for an eligible couple with two children.

Recipients of Social Security and certain veterans’ benefits are also eligible for rebates.  Those who receive at least $3,000 from any combination of benefits from these programs will receive rebates. The IRS and Treasury Department will be working closely with the Department of Veterans Affairs and the Social Security Administration, along with beneficiary organizations, to ensure that all eligible individuals are able to receive their payments.

Examples of Rebates

If you operate your business as a sole proprietorship or general partnership, you are personally liable for the debts and other legal liabilities of your business.  If you operate as a corporation, your personal assets are generally beyond the reach of business creditors.  For this reason, many business owners choose to operate in corporate form.

There are two types of corporations - “C” corporations and “S” corporations.  A C corporation must file returns and pay tax on business profits.  When the corporation distributes those profits to business owners in  the form of dividends, the owners must include the dividends as income on their individual tax returns.  Business profits are, in essence, taxed twice - once at the corporate level and again at the individual level.

Unlike a C corporation, an S corporation generally does not pay tax on business profits at the federal level.  Annual profits are allocated to each owner and reported as income on their individual tax returns.  Dividend distributions to the owners are not subject to tax.  The net effect is that S corporation profits are taxed only once.

In order to be an S corporation, your business must have no more than 100 shareholders.  Generally, the business must adopt a tax year that ends on December 31.  Also, each shareholder must agree, in writing, to elect S corporation status.  These written consents generally must be filed with the IRS by March 15 of the first year S corporation status is elected.  So if you are thinking of converting your C corporation to an S corporation and want to have the change effective for the current year, you must usually act by March 15.

Originally, the S corporation was designed to allow small business owners who operated as sole proprietors to gain the limited liability protection of corporate status with a pass-through tax device. Recently, the limited liability company (LLC) is also serving that role.

One of the biggest advantages of LLC’s is that it allows foreigners to be members/partners/owners of it unlike an S corporation.  However, the state of California is also “taxing” it on its gross income.  Besides, the pass-thru income from an LLC is also subjected to the self employment taxes.

In evaluating which business form is right for you, there is no “one-size fits-all” answer so always check with a professional first to determine which entity is right for your business.

The Internal Revenue Service has warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure.

At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early. The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.

This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments. Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.   

Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.

The vast majority of Americans who qualify for the payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year. The IRS will use information on the tax return to determine eligibility and calculate the amount of the stimulus payments.

For more information on the stimulus payments, including the amounts and eligibility requirements:

• View IR-2008-18, IRS Will Send Stimulus Payments Automatically Starting in May; Eligible Taxpayers Must File a 2007 Tax Return to Receive Rebate.
• View FS-2008-15, Facts about the 2008 Stimulus Payments.
• Listen to the Feb. 13 media briefing on the economic stimulus checks.
• Listen to IRS acting Commissioner Linda Stiff summarzing the key points of the economic stimulus payments in English or in Spanish.

Feb 15

Secure a new Form W-4 from employees claiming “exempt” during prior year.  Begin withholding income tax from employees who claimed exemption from withholding in prior year but did not submit a new Form W-4 by this date.

Feb 28

File information returns (Forms 1098, 1099 and W-2G) for certain payments made during prior calendar year. 

Feb 29

File Form W-3, “Transmittal of Wage and Tax Statements,” along with Copy A of all Forms W-2 you issued for prior year.

As a CPA in business for over 15 years, we are also QuickBooks Pro Advisors and provide a wide range of accounting, bookkeeping, incorporations, payroll processing, and tax preparation services to small service businesses and professionals. 

No client is too big or too small so everyone receives a personal attention from us as we focus more on your needs! Most of our work can be accomplished by using the phone, fax, email or postal services so it doesn’t matter a whole lot as to where you live or where your office is at. 

You may send us your information and we may still be able to do your work without anybody having to travel at all!  Most of our clients are in the Los Angeles and Orange County areas but we can still serve you if you are outside the immediate vicinity.
 

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