Shareholder Loans

Shareholders are not allowed to have a revolving loan account with their corporation. Loans to shareholders from the corporation (or loans from shareholders to the corporation) must have written documentation. Shareholder loan documentation should resemble a typical bank’s loan. Loan terms between the shareholder and the corporation should have a reasonable interest rate and the date or terms of repayment. Shareholder loans to the corporation which lack documentation are treated as contributed capital. Shareholder loans from the corporation which lack documentation or which cannot be repaid are treated as either dividends (C-Corp) or distributions (S-Corp). De minimis rules allow some relief to shareholders though. Loans which are less than $10,000 between the shareholder and the corporation do not require documentation, if the loan can reasonably be expected to be repaid in less than one year.

 

Non-deductible expenses

As a small business owner, you have the opportunity to deduct certain expenses from your taxes. Don’t let yourself get carried away though; there are some expenses that are not deductible, regardless of the situation. Just as a reminder, below are some common expenses that CANNOT be deducted as a business expense. 

Clothing—Unless it is protective gear, or a uniform not to be worn during non-working hours, clothing cannot be deducted. 

Commuting Expenses—The cost of transportation from your home to your main/regular place of work. 

Life Insurance Premiums—If the business or the business owner is a direct or indirect beneficiary, the expense cannot be deducted. 

Lunches with Co-workers—Meals with co-workers are nondeductible, unless traveling away from home on business. 

Personal Legal Expenses—For example, legal fees relating to custody of children, divorce, preparation of a will, and personal injury claims are nondeductible. 

Political Contributions—Political donations and lobbying expenses to influence voters are not deductible. 

Residential Telephone Service—The first telephone line to your residence is non 

deductible even if used in a trade or business. 

Health Club, Social Club or Country Club Dues—In general, club fees and weight loss programs are nondeductible, even if your job requires you to stay in shape. (Note: If certain conditions are met, the expense may qualify as a medical expense.) 

Fines and Penalties—Traffic tickets, tax penalty payments, and violations of law are not deductible expenses. 

Are Retirement Plan Distributions Subject To Withholding?

Distributions from an employer-sponsored retirement plan may be subject to withholding. In some cases, withholding is mandatory and in others the recipient can elect out.

In general, the payor of any designated distribution that is an eligible rollover distribution must withhold an amount equal to 20% of the distribution. The recipient may not elect out of the withholding requirement. However, eligible rollover distributions are not subject to withholding if expected distributions are less than $200 for the year. Also, 20% withholding generally only applies to any previously untaxed amount. The most important exception by far is that no withholding is required if the plan directly rolls over (in a trustee-to-trustee transfer) the eligible rollover distribution amount to another qualified retirement plan or IRA.

The payor of a periodic payment (one made at regular intervals for more than one year) that isn’t an eligible rollover distribution must withhold from the payment as if it were a wage payment for the appropriate payroll period. Generally, the plan administrator must withhold at the rate for a married individual with 3 withholding exemptions. However, recipients have the right to elect no withholding or elect to have a different amount withheld and revoke the election at any time.

A nonperiodic payment is a distribution that usually isn’t made at regular intervals and isn’t an eligible rollover distribution. Nonperiodic payments generally are subject to 10% withholding. The recipient may elect no withholding or have a different amount withheld by filing a Form W-4P with the plan administrator.

 

3rd Quarter 2012 Due Dates

Due July 31:

◊ Employers. File Form 941 for
2nd quarter 2012.
◊ Employers. Form 5500 or
5500-EZ for calendar year
2011 due if you maintain an
employee benefit plan, or file
Form 5558 to request an
extension.

Tax changes slated for January 1 2013; how do they impact you?

There is lots of talk about changes to the tax code, real or imagined.  Find out exactly what will change, and how that could impact you or your business.  Visit http://www.padgettmichigan.com/business.html and click on the link to “Impending Tax Changes”.

Middle Class Tax Relief and Job Creation Act of 2012

On February 17, Congress passed H.R. 3630, the “Middle Class Tax Relief and Job Creation Act of 2012,” which extends the 2-percentage-point payroll tax cut through the end of 2012. As a result, for 2012, employees will pay only 4.2% Social Security tax on wages up to $110,100 (wage base for 2012) and self-employed individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to $110,100. (The maximum savings for 2012 will be $2,202 (2% of $110,100) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,404. )