Health Insurance Premium Credit

Is your business eligible for the health insurance premium credit?

February, 2012

Remember the postcard you got from the IRS last year introducing the health insurance premium credit for small businesses? To paraphrase the old song, there's no letter in the mail for you this year.

Your business can still get the credit, though. When you qualify, you can use it to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees.

Three general tests for eligibility are:
Employing fewer than 25 "full time equivalent" employees.
Paying average annual wages of less than $50,000.
Paying at least 50% of health insurance premiums for those employees.
Each test has specific requirements. For example, you may qualify for the credit, in full or in part, when you have more than 25 employees. That's because "full time equivalent" is based on hours your employees worked during the year.

In addition, some employees aren't counted for purposes of the credit, such as seasonal staff who were on the payroll for less than 120 days. Other excluded workers are sole proprietors, owner/employees, and shareholders who own more than 2% of the stock of an S corporation.
According to a recent report, many businesses that qualify for the health insurance premium credit fail to take it. Give us a call at (949) 453-1521 or email us at taxalert@maxwellcompany.com. We'll make sure you get full benefit of all the tax breaks available to you$

How to be "audit ready"

February 2012

How to be "audit ready"

No one likes to see a policeman's flashing lights in the rearview mirror, and no one likes to receive a phone call or letter from the dreaded auditor. But if you operate a business or your organization receives federal or state grants, at some point you may find auditors making that contact. And while it's true that only a small percentage of individual taxpayers suffer through an IRS audit in any given year, it makes sense to be prepared—just in case. One key to being ready is knowing how auditors think.

Why can't they just take my word for it? Auditors are trained to be skeptical. In fact, they're required by professional standards to maintain questioning minds while performing their duties. They don't necessarily assume that you're dishonest, but they won't put much stock in your honest face and sparkling personality either. If you claim a deduction for charitable contributions, for example, an auditor doesn't really care whether or not you're a generous person. He or she will want to see proof that you actually donated the amount of money that's listed on your tax return. If your business says it incurred certain expenses while entertaining clients, the auditor may need to examine actual restaurant receipts. To an experienced auditor, skepticism is second nature. Don't take it personally.

Show me the documents. Auditors love documentation. It makes their job easier. When you can put your hands on an invoice that exactly matches the amount claimed on your federal form, you may actually bring a smile to an auditor's face. On the other hand, if he or she asks for supporting documents and you hem and haw and search for hours, be prepared for trouble. They're not mad at you. They just have a job to do, and the burden of proof is on you. The best way to prepare for an audit is to maintain good records throughout the year. Stay organized. Know how to find your documents and be ready to support every number claimed.

Having good records and thinking like an auditor can make actually going through an audit much easier. If you need assistance at any point, contact our office at (949) 453-1521 or email us at taxalert@maxwellcompany.com$$