Emotions run high on both sides of the campaign that ended Tuesday with a victory for the supporters of Measure 66 and 67. Now the buzz is all about really trying to understand the new taxes. How will the taxes affect you? Everyone is talking about it, but misinformation seems to be the only common denominator. Let’s talk about the facts and answer some of the misunderstanding about the new law.
Measure 66 increased the state income tax rate for households who have taxable income over $250,000 or individuals with taxable income over $125,000 from 9% to 10.8% plus a temporary bracket for those earning over $500,000 at 11%. This tax is retroactive to 2009 so high income tax payers will have a tax bill that they didn’t plan for.
Business in Oregon is affected by Measure 67. If you have a business entity of any kind except for sole proprietors, you will pay some additional tax. The Oregon Center for Public Policy has created a flow chart that is the best I’ve found in making the tax implications to business clear. The flow chart helps to bring clarity to the new taxes and who they will affect.
S Corporations, LLC’s and partnerships will pay $150 to file a tax return rather than $10. They will continue to pay tax on the net business income on their personal tax returns. The biggest misrepresentation of the campaign was that corporations only pay $10 in tax. Of course anyone with common sense knows that this wasn’t true. Business owners of S Corporations or LLC’s pay plenty of tax in Oregon. Luckily if you have an S Corporation or an LLC this is the extent of your tax increase (unless your business income puts you in the “high income” category for personal taxes). However, also tied to this legislation you will now pay $100 to renew your corporate filing each year rather than $50.
C Corporations are the ones who get hurt the most. Corporations are designated with the IRS as either a “C Corp” or “S Corp.” The difference is that a C Corporation pays tax as an entity rather than passing its taxable income to its owners. If you are a C Corporation who has revenue over $500,000, even if you don’t have any profit, you will now pay a minimum tax of $500 and the tax increases as your revenues increase. This will affect small and large companies in Oregon.
Do you remember last April when your paychecks got a little fatter? That was due to the Making Work Pay Credit which was the government’s 2009 method of stimulating the economy. This credit is similar to 2008’s Recovery Rebate Credit in that it was a way for our federal government to get more money in your pocket in hopes that you would spend it to stimulate our economy. Rather than sending out paper checks or depositing money in your bank account, this credit was given to you through fatter paychecks.
Now when you file your 2009 tax return you will attach a Schedule M to calculate this credit. The credit will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. The credit phases out if your AGI exceeds $75,000 or $150,000 for married filing joint.
So will the MWPC make your 2009 tax refund bigger. First of all if you don’t work you won’t get the credit. Retirees will get a reduced $250 credit. Second, your refund is a function of the tax withheld from your paychecks in 2009. Some taxpayers may be dismayed to learn that the withholding adjustment was more than the credit and now their refund is smaller than expected.
Now is also a good time to determine if your 2010 withholding is enough to cover your expected 2010 tax. Having too little tax withheld from your paycheck will result in a smaller refund or a balance due at filing time. The Making Work Pay Credit is also in effect for 2010. The adjustment to withholding is spread out this year over all 12 months rather than 9 months. Ask your tax professional to help you determine if your 2010 withholdings are going to cover your 2010 tax. You can also perform a quick check of your withholding using the interactive IRS Withholding Calculator.
Also find out more about the American Recovery and Reinvestment Act of 2009.
So I’m way behind on my effort to give you valuable business and tax advice in the form of a monthly blog article that peaks your interest and solves your tax problems. Things like filing payroll tax reports, deciding on a new web site and 2010 marketing campaign creep into my to-do list and the monthly blog article falls to the bottom of the list every time. This being “self employed” life is just great!
You know the drill – waking up in the night to ponder on which health insurance plan you should choose or thinking about how to start a Facebook page to promote your business. The days of regular steady pay checks and cushy benefit packages are long gone. In their stead are late nights with Quickbooks trying to process the bills, lunch from the microwave at the desk, calls home to say I’ll be home late again tonight. It is the up and down cycle of working for yourself. Maybe it sounds familiar.
My goal in 2010 is to help you brave entrepreneurs who fight the battle every day so that your burden is a little easier. I want you to be confident that you are making good business decisions and that you have the resources to make those decisions.
Now on the task list for most clients is gathering and processing the 2009 financial data. Keep your files clean and organized. Hire someone to help you if this is not your strength. Organization is the key to finding the information that you need to succeed. I love to see happy clients come in with up-to-date records that are organized and ready to file 2009 taxes. If this doesn’t describe you then talk to me about ideas to make this happen. No business ever grew and thrived in chaos and disorganization. Strive for the peace of mind that comes with good records.
Here is a task list for business owners in January:
• File 1099 Forms for all persons paid $600 or more for services
• File W-2 forms and annual payroll reports
• Review your asset list to clean up any equipment that is gone, obsolete or not in use
• Prepare and file your personal property tax report
• Clean and store your 2009 data and make room for the new 2010 filing system
• Back up your records and file in a secure and safe place (of course you should do this all the time – but here is a great reminder to do it again)
• If you have inventory – count it and reconcile inventory on hand with your financial statement
Make 2010 your best year ever. I can’t wait to hear about the business growth and success that we all will see in this New Year.
