In the Know
Florida Department of Revenue and You
Your accountant will probably handle most of the details, but it's still wise to keep abreast of changes in federal and state tax requirements that can have a big impact on your business.
What's New, 2006
The business mileage rate as of Jan. 1, 2006, is 44.5 cents per mile. That's down from 48.5 cents per mile for business travel from Sept. 1, 2005, through Dec. 31, 2005.
Businesses may expense up to $108,000 of new or used depreciable, tangible personal property using the section 179 deduction. (That figure is up from $105,000 in 2005.) If the business spends more than $430,000 on section 179 property, the amount of the deduction is reduced by $1 for every $1 over $430,000. Check IRS Publication 946, How to Depreciate Property, for more details.
The self-employment tax rate on net earnings remains the same for 2006. The 15.3% rate is a combination of 12.4% for Social Security and 2.9% for Medicare. The maximum amount of the Social Security part of the tax in 2006 has increased to $94,200 (up from $90,000 in 2005).
Social Security and Medicare
The employer and employee will each continue to pay 6.2% for the Social Security tax and 1.45% for Medicare. The maximum amount of the Social Security part of the tax in 2006 has increased to $94,200 (up from $90,000 in 2005).
For the first time since the mid-1990s, Internal Revenue Service audited more small businesses in 2005 -- 17,867, which represents more than a 140% increase from 7,294 in 2004. "The IRS is a bit of a pendulum," says William Bernard "Bernie" McCarthy, a tax partner with Shutts & Bowen law firm in Miami and a former IRS trial attorney. McCarthy says the IRS's focus typically shifts from taxpayer education to enforcement every so often, and we are in one of those periods now.
Who is likely to get picked for an IRS audit? McCarthy says it is usually one of three scenarios:
- Computer Selected Audit. This occurs when a business's income or expenses fall outside the norm for businesses of that size or industry. This is the most common way an audit is triggered.
- IRS Special Projects. If a business falls into a certain category that the IRS is studying, such as offshore credit card use or when tips are a large part of compensation, it may trigger an audit.
- Informants. An audit may be ordered when a disgruntled family member, customer or competitor tips the IRS off to questionable practices.