Keeping up with the Changes
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As you are likely aware, tax law changes almost on a daily basis. As a self-employed individual you are required to keep up with income tax law, sales tax law, payroll tax law and in some case excise tax law, among others. It’s difficult to do, but not keeping up can be costly.
Look what happened in New York with Wal-Mart (NYSE:NASDAQ). Walmart apparently believed that New York had finally passed the “Sugar Tax” when they hadn’t. According to a recent article in Forbes, they overcharged customers by 15% on cases of Coke during a Father’s Day sale and told the customers the extra cost was due to the “Sugar Tax.” The consensus is that Walmart employees were lying. This could be. It could also be that someone in Walmart’s accounting department believed the tax was in effect and programmed the cash registers to reflect this tax law change. It cost the company $66,000 in penalties and other costs after the Attorney General investigated.
It’s important to keep up with tax law changes. Last week I received a flyer from the California State Board of Equalization. It looked like an ordinary innocuous piece of junk mail. And if I hadn’t recognized the return address, I may have just tossed it into the trash. But I tore along the perforations as instructed and unfolded the document to reveal a change in sales tax rates beginning October 1 for four California cities. A local jurisdiction would experience an increase of one percent.
I wondered how many businesses in that district would overlook this information and continue charging the old rate. Then when the quarter ends and it’s time to file the return, they will find out the bad news and have to supplement what their customers had paid.
Payroll tax law changes every year as well. New wage thresholds are introduced for Social Security and Medicare as well as for state withholdings and employer paid taxes. Business owners will receive documentation regarding these changes in December or January.
Naturally, there are many income tax law changes every year and many of those apply to small business. Currently, there are 55 extenders that expired at the end of 2013 that have not been enacted upon for renewal by Congress. One is the Section 179 expensing of capital assets. Every year the expensing ceiling changes. For example, during 2013, a business owner could purchase equipment, furniture, fixtures, qualified vehicles for up to $250,000 and write off the entire cost rather than depreciating the asset over its useful life. Well, that provision expired at the end of 2013 and reverted back to the original 1986 threshold of $25,000.
But as they say, it’s not over until the fat lady sings. Sometime before the end of the year, Congress will decide what the final number will be for 2014 and for how long the new threshold will be in effect. That’s just one of many tax laws for which to stay tuned. It could greatly affect how you do business and what your tax liability will be next April 15.
So, a couple of tips:
- Don’t toss any “junk mail” from your governmental agencies. Read and understand what the tax law change is and how it will affect your business.
- Make sure you have engaged a competent tax pro who will keep you advised of tax law changes
- Make sure your in-house bookkeeper reads, understands, and passes on key tax law changes to you
- If you have a payroll service, they will automatically implement new thresholds at the beginning of each year. However, it is your responsibility to pass on correspondence you receive about your state payroll tax changes. Many of those changes are “experience rates” that are specific to your business rather than to the industry in general.