CHANGE BOOSTS SMALL BUSINESSES ELIGIBLE FOR SCHEDULE C-EZ: In a move aimed at reducing the paperwork burden for small businesses, the Internal Revenue Service said that it would boost the number of small businesses eligible to file a simplified expense form. The IRS will double the business expense threshold to $5,000 from $2,500 for filing the Form 1040, Schedule C-EZ.
The IRS said that the change will mean a savings of five million hours of paperwork for small business taxpayers. The threshold change means approximately 500,000 more small businesses - a 15 percent increase - would be able to file the Schedule C-EZ, the agency said. The Schedule C-EZ, established in 1992, was intended to make it easier for small businesses with modest expenses to file a simplified form. Small business owners that file a Form 1040 use the Schedule C to report profits and expenses.
PWC FINDS NEARLY HALF OF CEOS EXPECT BIG JUMP IN FEDERAL BUSINESS TAXES: Almost half of fast-growth chief executives surveyed expect a major increase in their company's business taxes over the next two years, according to PricewaterhouseCoopers.
Overall, an average increase of 18 percent in business taxes is expected over the next 12 to 24 months, according to the poll of 392 chief executives of privately held U.S. product and service companies with revenues or sales of between $5 million and $150 million. Some 46 percent of CEOs expect that their companies' business taxes will increase by a substantial 40 percent, while 47 percent see them remaining about the same; 4 percent anticipate a decrease; and 3 percent didn't report. PwC said that the group anticipating the big increase is comprised of the fastest growers, who are expecting a 23.9 percent increase in revenues over the next 12 months - 37 percent greater than all others.
Marty Janowiecki, tax partner in PwC's private company services practice, noted that some firms may see business taxes increasing because two significant tax breaks are about to end. The Foreign Sales Corporation status, judged illegal by the World Trade Organization, is about to be repealed. In addition, the bonus depreciation allowance, a tax incentive for capital spending projects, is set to expire at the end of the year.
Despite the expected changes in business taxes, tax planning hasn't received greater management attention. Twenty-four percent of CEOs polled report that corporate tax planning isn't at all integrated into their business plan for the next 12 to 24 months, and another 30 percent said that it is only partially integrated. Nearly two-thirds (65 percent) said that their companies haven't increased the amount of time and effort spent on development and implementation of tax planning over the past two years.
What's more, PwC reported that 61 percent of CEOs weren't aware of Internal Revenue Service plans to increase audits of companies with assets of between $10 million and $250 million over the next few years. When alerted to the initiative, 44 percent said that they expect the projected increase in audits over the next 12 to 24 months to cause companies like theirs to be more cautious and conservative in their tax planning, but 51 percent said that it would not. Five percent were uncertain. Only 15 percent were aware of the related opportunity to jointly develop the scope of any new audit with the IRS at its commencement.
Sixty-two percent of those surveyed believed that their present internal resources would be capable of co-developing a new audit's scope at the start, while 34 percent did not. In total, 15 percent of the companies reported being audited by the IRS within the past five years, including 2 percent currently under audit. Incidence of audits was slightly higher among product sector businesses (18 percent, versus 12 percent for service companies) and for technology businesses (17 percent, versus 12 percent for non-techs).
While a net 33 percent said that they wouldn't do anything differently, a third of the audited companies (5 percent) reported that, based on their experiences with the IRS, they would've done something different to manage the audit. Twenty-six percent said that they'd be better prepared; 18 percent said that they'd rely more on external accounting firm resources; 11 percent would've relied more on external legal counsel; 9 percent said that they would've dedicated additional internal resources; and 4 percent would've accepted the IRS settlement earlier.
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