Tag Archives: new hampshire taxes

What @CPAsteve says about New Hampshire business tax returns (Video)

CPAsteve explains how the Business Profit Tax, Business Enterprise Tax, and Interest/Dividends Tax all work in New Hampshire and whether your small business needs to be concerned about it.

 

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Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in keeping his clients OnTrack with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.

Tax breaks when your New Hampshire Business meets disaster

Most small business owners are simply not prepared if disaster were to strike their business, whether it’s in New Hampshire or elsewhere. At least there are some tax breaks if disaster does strike, and that’s what we’ll discuss here.

 

Small businesses are particularly vulnerable to the effects of a catastrophic event such as a fire, flood, tornado, most recently landslides, or other natural disaster.  While business casualty and other types of insurance coverage are available, there will still be other losses that are not recoverable and leave your business facing a deficit.

 

Casualty covers a range of sudden, expected or unusual loss due to damage of property.  Some typical events can include natural disasters like hurricanes, as well as acts of vandalism, theft, car accidents and embezzlement. Events that are not deductible include deterioration due to age, weather, termites and drought.  Like any part of the tax code, there are a few exceptions including when a drought may be considered a casualty if the property damaged was used for a trade or business, or in a transaction for profit such as an investment in farmland,

 

Business inventory losses can be treated a few different ways.  According to IRS Publication 584-B – Business Casualty, Disaster, and Theft Loss Workbook, the loss can be considered as a casualty loss described above.  Conversely, the loss can be treated as part of the business’ goods sold. The loss against goods sold may help to reduce the business’ net income thereby reducing the amount of Self-Employment Contributions Act (SECA) taxes paid.

 

 

If the property was a total loss, then the value of the loss will depend on whether it was a business or personal property. If it was a business property, the calculation used must take the adjusted tax basis after the loss, minus any salvage value received. You’ll notice that FMV doesn’t come into the equation at all. Additionally, if more than one item was damaged by the casualty, each item must be calculated separately in order to take the deduction.

 

 

Once the calculations are done, be prepared to prove that your losses are: a) real (i.e. that you suffered a legitimate and provable loss), b) you had actual possession of the property, and c) any lack or insufficiency of reimbursement (typically by the insurance company) to cover the loss.  That means that you’ll want to keep receipts and considering that casualty usually involves some type of catastrophic event like a hurricane, keeping a digital off-site copy of receipts ‘in the cloud’ is a great way to ensure that you’ll still have a safe, legal paper trail well after the event. Acceptable proof of theft can include witness reports from those who saw your property taken, police reports, and even newspaper accounts of the event. 

 

 

If you found this article useful, please do not keep this a secret. Share it with a friend.

 

 

Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in helping small business owners with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.

What? New Hampshire has business taxes?

Most small businesses are required to file the New Hampshire Business Profits tax and Business Enterprise tax. Are you confident you know what these taxes are and how much you should plan to owe on them as a small business owner?

 

NEW HAMPSHIRE BUSINESS PROFITS TAX

 

If your business has gross receipts over $50,000, then you are required to file a Business Profits Tax Return, a tax of 8.5% of the ‘net income’ apportioned to New Hampshire. . From this , you can then take a deduction for reasonable compensation for personal services. A typical small business owner who’s typically doing the work in his small business will have no problem often justifying that 100% of his or her Schedule C income is reasonable compensation. But there are all sorts of traps here, so be certain you’re doing this right, particularly once we introduce the BET tax!

 

NEW HAMPSHIRE BUSINESS ENTERPRISE TAX

 

This is a tax of .75% on your Enterprise Tax base of all wages (including Reasonable Compensation above), interest (including any Mortgage interest from a Home Office), and any dividends paid. This tax will also reduce dollar for dollar any Business Profits Tax you would owe. So, essentially the Business Enterprise Tax is a minimum tax to make sure that all small business owners pay something, particularly since so many avoid the clutches of the Business Profits Tax.

 

What I just presented is a simplified explanation of these taxes. Quarterly estimates are required to be made as well.

 

Do you know if  your small business is affected by the New Hampshire Business taxes? Because we have no income tax IN New Hampshire, many small business owners  often don’t file these tax returns, until several years later when the state comes knocking, and they will.

 

Also, planning can be extremely difficult with these two taxes, particularly where certain techniques often used in other states will backfire in New Hampshire, partly because New Hampshire does not recognize flow through entities such as S Corporations.

 

We run into clients all the time that haven’t prepared these taxes or simply prepared them incorrectly, often we end up saving them a substantial amount in overpaid taxes once they come to us. This is what Business Financial Confidence is all about. Let our accountants help you get that confidence with our Business Financial Confidence Map.

What the IRS does when your small business gets audited

Have you ever wondered how the IRS audits a business for unreported income, particularly when we’re talking about a small business with little internal controls, and a business model where customers can pay with cash?

 

Well, the IRS has published an audit guide explaining what they look for.

 

In the guide, they explain the 3 principal ways income goes unreported:

 

  • It can be skimmed from receipts, for example, pocketed before it is recorded. If this happens it will not be discovered by auditing the books.
  • It can be stolen after it has been recorded, for example, cash removed from the cash register or goods stolen from the shelf for future resale.
  • A fraudulent disbursement can be created, for example, a payment to a vendor that is actually cashed by the owner’s son.

 

What may be more useful is understanding the audit techniques the IRS might use when your small business gets audited:

 

The most significant indicator that income has been under reported is a consistent pattern of losses or low profit percentages that seem insufficient to sustain the business or its owners. As an accountant/tax preparer, I like to call this the ‘smell test’, a technique I often use on all the tax returns I prepare.  For instance, if someone is consistently showing income of only $5-10,000 per year, but at the same time consistently shows substantial (if any) home mortgage interest, real estate taxes, and charity, then this return would fail the smell test. Typically, I would ask the taxpayer a lot more questions, at least so I can be reasonably comfortable that the return is correct, since if I think the return is suspect, so will the IRS.

 

Other indicators of unreported income can include:

 

  • A life style or cost of living that can’t be supported by the income reported. Can the business support the houses and vehicles that are recorded in the owner’s name?
  • A business that continues to operate despite losses year after year, with no apparent solution to correct the situation. Oftentimes, people will worry about the ‘hobby’ rules, but the real threat is if the government can’t understand where the losses are even coming from.
  • Bank balances and liquid investments increase annually despite reporting of low net profits or losses.
  • Accumulated assets increase even though the reported net profits are low or a loss.
  • A significant difference between the taxpayer’s gross profit margin and that of their industry.
  • Unusually low annual sales for the type of business.

 

Having good books and records, including cash register receipts, is crucial in an audit. Having daily balancing of the cash register, and monthly balancing of the bank account to the books can be extremely useful in helping an auditor be comfortable that income has been reported.

 

One technique that you can expect on virtually any audit of a small business is a gross receipts test of all the bank accounts, both business and personal, where the government will try to agree your reported income or gross sales to the amounts actually deposited into your bank account(s).

 

If you’re not sure if your business would survive an audit (and we continue to see a noticeable increase in clients being audited),  I would be happy to sit down with you and discuss in more detail how your books and records could be improved upon.