This year it is particularly important for business owners to pay close attention to tax planning because significant increases in our federal taxes are set to kick in on January 1.
A little bit of foresight right now can save you significantly in the amount you pay in taxes in the next few years, according to account and tax expert Leonard Steinberg, of Steinberg Enterprises LLC.
Steinberg will speak at a breakfast meeting hosted by the Central Jersey Region of NJAWBO (New Jersey Association of Women Business Owners) on Tuesday, December 4, at 8 a.m. at the Americana Diner, Hightstown. Cost: $12, payable at the door. Reservations may be made online at www.NJAWBOMercer.org.
Steinberg , based in West Windsor, is a certified management consultant and an enrolled agent (EA) licensed to represent taxpayers before all levels of the IRS.
“I was always interested in tax work, even when I was working for a corporation,” says Steinberg, who graduated from Yeshiva University in 1968 with a degree in economics. He also received an MBA in 1982 from Hofstra University.
A native of Brooklyn, Steinberg is the son of a first-generation immigrant father. “I guess you could say I’m living the American dream,” he says. His father, who came the Ukraine, never finished grade school, and his mother did not graduate from high school. “They always told us that with hard work we could accomplish anything. I don’t think you could have a story like ours anywhere but in the United States.”
An advocate for small business, Steinberg has testified before the House of Representatives Committees on Small Business and the Subcommittee on Regulatory Affairs, most recently in April of this year. He also served on the Federal Taxpayers Advocacy Panel where he worked on behalf of individuals and business. As an enrolled agent, Steinberg personally handles many complex tax issues for his clients, “particularly business and individuals who have trouble or issues with the IRS,” he says.
With the “Bush tax cuts” about to expire many changes in tax law will go into effect unless Congress steps in to stop them. On top of these changes, in New Jersey many business owners are looking at damage and losses from Hurricane Sandy.
What To Do If You Have Storm Damage. If you have not already done so, take photographs of the damage and date them. Steinberg suggests putting a daily newspaper in the photo, with the date clearly visible, to verify when the picture was taken.
Also make a list of all property damaged or destroyed, the year in which you purchased it, and what you paid for the item. If you do not have original receipts, a “best estimate” will do, he says, though for valuable items, a professional appraisal may be needed. Once you have your documentation, notify your insurance company as soon as possible.
Whatever amount is not covered by your deductible or reimbursed by your insurance company may be eligible to deduct as an itemized tax deduction on your 2012 tax return. If you claim the money as a loss in 2012 and then receive an insurance reimbursement check in 2013, however, you may have to claim this money as income on your 2013 income tax statement, Steinberg notes. If the insurance company does not settle in time for filing your tax return by April 15, 2013, an extension can be filed until October 15, 2013.
The Affordable Healthcare Act. Several changes in taxes were written into the Affordable Healthcare Act and are set to go into effect in 2013. That means that business owners may want to push ahead with certain business decisions before the end of the year to take advantage of a more favorable tax climate, says Steinberg.
Married couples who earn $250,000 and singles who earn $200,000 will have an additional surtax of .9 percent. “This is discrimination against many two-earner households,” says Steinberg, “because there is only $50,000 difference.”
There is also a new 3.8 percent surtax on unearned income including interest, dividends, capital gains, annuities, royalties and passive rental income. The “floor” for the medical expense deduction will increase from 7.5 percent to 10 percent for taxpayers under 65; for taxpayers over 65 that increase will take place in 2017. There are also new, lower limits on Employer Flexible Spending Accounts. They will be capped at $2,500 rather than $5,000.
Another tax increase that will affect many people is the new 2.3 percent surtax on medical devices other than eyeglasses, contact lenses, and hearing aids. “If you need a knee replacement, for example, the device will cost the surgeon more and he will pass that cost on, but many insurance companies may decide not to pay for the increase, or if they do, it will be passed on through additional insurance costs,” says Steinberg. “Each of these small taxes affects the business owner in one way or another, either directly through increased taxes or payments, or indirectly through increased insurance costs for employees.”
How to Save Money Now. “Business owners should move as much income as possible into 2012 and as much debt as possible into 2013,” says Steinberg. Because the tax rate will increase in 2013, any income received this year will be taxed at a lower rate, and deductions for expenses will become “more valuable” in 2013.
“Ask your customers if they can pre-pay in 2012, or work out a payment plan so that at least some of the money is paid to you before the end of the year,” suggests Steinberg. It is always important to pay yourself first, and if you need to lend your company money, try to hold off until January.
Make sure that you make contributions to an IRA, Roth IRA or 401K, he adds. “Roth IRAs are particularly beneficial because right now they are never taxable — of course notice I say right now, because Congress can always make that change,” he says.
No matter what action Congress takes in the next few weeks regarding the so-called “Fiscal Cliff,” there will be increases to taxes in 2013. But by planning ahead, you can minimize their effect on your business, and not be taken by surprise with an unexpectedly high tax burden.