Updated 2 yearss ago
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.
|Basic Tax Tips|
Keep business and personal accounts separate. A business checking account will make it much easier to identify tax-deductible company expenses.
Create a system for record keeping. Whether you use an accounting software program such as Quicken or your own proprietary system, keep records organized and up-to-date.
File online. Many businesses are required to file Florida's sales and use tax, unemployment and other state tax forms electronically. Check myflorida.com/dor/eservices for more details.
Two useful publications are a tax calendar (Publication 1518) as well as a "Tax Guide for Small Business" (Publication 334).
Other useful IRS resources are "Circular E, Employer's Tax Guide" (Publication 15) and "Starting a Business and Keeping Records" (Publication 583). All are available on the IRS's website, irs.gov.
Free CD-ROMs are available on a variety of tax topics of interest to small business owners. Go to irs.gov and click on "Business" and then "Small Business/Self-Employed."
The Florida Department of Revenue website, MyFlorida.com/dor, includes information on the various types of taxes. Forms and publications are available for download. Businesses may e-register and e-file for sales and use tax, unemployment tax and other taxes. In many cases, e-payment is also available.
Small Business Taxes
Federal Corporate Income Tax
Due: March 15 (if the business's fiscal year corresponds to the calendar year)
C-Corporations pay income tax using federal form 1120 or 1120A. A limited liability company classified as a corporation for federal tax purposes must file a federal corporate income tax form.
An S-Corporation generally is not liable for federal income tax, but it must file a federal form 1120S annually and pay tax on certain investment income and capital gains. Returns are due by the 15th day of the third month after the close of the corporation's fiscal year.
Federal Employment Tax
(Income, Medicare and Social Security)
Due: Monthly or semiweekly (in most cases)
Businesses that have employees must withhold federal income tax, Medicare tax and Social Security tax from employees' wages. In most cases you pay the tax monthly or semiweekly, either by the Electronic Federal Tax Payment System (required if deposits total more than $200,000 annually) or by using form 8109, Federal Tax Deposit Coupons. Report the tax on form 941, Employer's Quarterly Federal Tax Return.
New for 2006: Small employers that have an employment tax liability of $1,000 or less for the year may now pay annually. File form 944, Employer's Annual Federal Tax Return.
Federal Unemployment Tax (FUTA)
Due: January 31, April 30, July 31, October 31
Floridians are required to report wages and pay taxes to the Federal Unemployment Compensation program if they paid $1,500 in wages within a calendar quarter or have employed one person for any portion of a day in 20 different weeks during the calendar year. The tax rate is 6.2% on the first $7,000 of wages, but you can take a credit for the amount paid in state unemployment tax up to 5.4%, which is the maximum rate in Florida. If a business's FUTA tax liability for a quarter is $500 or less, the tax may be held over to the next quarter and added to that quarter's tax liability. Pay the tax either by the Electronic Federal Tax Payment System (required if FUTA tax liability for any quarter in 2006 is over $500) or by using form 8109, Federal Tax Deposit Coupons. Report the tax annually on federal form 940, 940-EZ or 940-PR (Spanish).
Florida Corporate Income Tax
Due: April 1 (if the business's fiscal year corresponds to the calendar year)
Corporations doing business in Florida are subject to the 5.5% tax. C-Corporations pay the tax on form F-1120. If a corporation owes more than $2,500 annually in Florida corporate income tax, it must make estimated tax payments on form F-1120ES on or before the first day of the fifth, seventh and tenth month of the taxable year and the first month of the following tax year.
If the business owes less than $2,500 in tax, shows net income of $45,000 or less and conducts all business in Florida, it may file the short form, F-1120A. Limited liability companies classified as a corporation for federal tax purposes must file a Florida corporate income tax return. Limited liability companies that are classified as partnerships for federal tax purposes are required to file a Florida Partnership Information Return (form F-1065) if they are doing business in Florida and one or more of their owners are corporations.
An S-Corporation in Florida files an F-1120 corporate income tax return for the first year it does business in the state, and answers the form's information questions. Unless there is federal taxable income at the corporate level, no state filing is required for subsequent years as long as the S-Corporation does not owe federal tax.
Florida Unemployment Tax
Due: January 31, April 30, July 31, October 31
Floridians are required to report wages and pay taxes to the Unemployment Compensation program if they paid $1,500 in wages within a calendar quarter, have employed one person for any portion of a day in 20 different weeks during the calendar year or are liable for federal unemployment tax (FUTA). (A business owner who is the only employee must pay taxes on his or her own wages if the business is a corporation.) The initial tax rate for new employers is 2.7% for the first 10 calendar quarters (or in some cases 11 quarters), at which time the business will receive a computed tax rate. The maximum tax rate allowed by law is 5.4%. Unemployment taxes must be paid on the first $7,000 of wages paid to each employee per year. Taxes are paid quarterly on form UCT-6 to the Florida Department of Revenue. Businesses that pay taxes on 10 employees or more in any calendar quarter must use e-filing.
Florida Sales and Use Tax
Due: First day of the month
Florida businesses must collect sales tax for many products and services. Check with the Florida Department of Revenue to determine what's taxable. If your business will involve taxable transactions, you must register as a sales and use tax dealer (form DB-1). Most businesses pay monthly on form DR-15, with returns and payments due on the first day of the next month after the tax was collected. Payments are late after the 20th of the month. Thus, tax collected in April would be due May 1 and would be late after May 20. Businesses that file $1,000 or less per year, however, may file quarterly. If a business files $500 or less, it may file annually. Businesses that pay $30,000 annually in sales and use tax are required to file electronically at myflorida.com/dor.
Florida Discretionary Surtax (Local Option)
Due: First day of the month
Many Florida counties impose an additional discretionary sales surtax on transactions that are subject to the state sales and use tax. The discretionary sales surtax applies to the first $5,000 of any single taxable item when sold to the same purchaser at the same time. Written purchase orders or agreements and certain bulk sales may qualify for the $5,000 limitation.
Businesses report the surtax on form DR-15 with sales and use tax. These local option taxes range from 0.25% to 1.5%. new rates become effective on January 1 each year, but expiration dates vary. In 2006, 58 of Florida's 67 counties impose sales surtaxes.
Use Tax on Out-of-State Purchases
Due: First day of the month after the quarter in which the purchase was made.
This tax applies to items purchased out of state from internet sites, mail order catalogs, auctions, shopping networks or toll-free shopping services. It is also imposed on items purchased during out-of-state travel when the merchandise is shipped to the individual's home or business's location in Florida. Form DR-15MO is used to make payment.
Florida Intangible Personal Property Tax
Due: June 30 For 2006
Florida corporations and individuals who manage, own or control intangible personal property (such as stocks, bonds, mutual funds and leases) must file an annual Intangible Personal Property Tax Return (form DR601C for corporations and DR601I for individuals). The tax was repealed effective Jan. 1, 2007.
There is a $250,000 exemption for businesses, and the minimum payment is $60. (If the tax due, before taking a discount for early filing, is less than $60, you are not required to pay the tax or file a return.) So if a business had $350,000 in intangible personal property, $250,000 would be exempt and the business would owe 0.5 mill (50 cents per $1,000) on the remaining $100,000. But, since that would put the tax at $50, the business would not have to pay or file.
Florida Tangible Personal Property Tax
Due: April 1
Florida businesses that own tangible personal property (equipment, furniture, computers, etc.) that is not included in the assessed value of the real property must pay an annual tax. Inventory that is for sale as part of the business is not taxed. The tax is paid on form DR-405 to the county property appraiser.