Friday, June 24, 2011

Standard Mileage Rate Increased by IRS

We’re going to take a quick reprieve from discussing business retirement planning in order to pass out some information recently released by the IRS. For the majority of us, the rising price of gas has not gone unnoticed. With Announcement 2011-40, the IRS has taken notice as well by establishing a new standard mileage rate for the final six months of 2011. The optional standard mileage rates can be used by taxpayers for computing the deductible costs of operating an automobile for business, medical, or moving expense purposes and for determining the reimbursed amount of these expenses that is deemed substantiated.

The revised standard mileage rates effective July 1, 2011 are as follows:

• Business: 55.5 cents per mile
• Medical: 23.5 cents per mile
• Moving: 23.5 cents per mile
• Charitable: 14 cents per mile (no change from previous rate)

In lieu of using the standard mileage rates, taxpayers always have the option of calculating the actual costs of using their vehicle. If you own your business, this is a conversation you should be having with your CPA. Owning your automobile through your business can be tax advantageous under the right circumstances. If you are asking yourself that question and not receiving any advice, then contact our Firm and we will be glad to assist you in that decision.

brad@mcarthurco.com
704.544.8429

Monday, June 13, 2011

Retirement Planning for your Small Business

For the small business owner, day-to-day business decisions can be daunting enough to occupy their time and energy. However, from a retirement planning and tax deferral perspective, it is important to not neglect selecting and employing the right retirement plan for your business. There are a number of plans out there, each of which has its own unique characteristics, limits, and rules. We will take some time in our next few blogs to briefly review some of these plans. As always, these decisions should not be made in a vacuum, so please consult your CPA and other financial advisors before implementing a retirement plan in your business.

SEP IRA

The SEP IRA is an inexpensive plan to put into place and requires little commitment or maintenance from the business owner. If discretion is a key component of the plan you are looking for as a business owner, then the SEP IRA can fit that need. A SEP is established by executing a formal written agreement, providing each eligible employee with certain information about the SEP per the mandated guidelines, and establishing a SEP-IRA for each eligible employee. SEP plans must be established and funded by the tax-filing deadline of the business, including extensions.

Who is an Eligible Employee?

As defined by the IRS, an eligible employee is any individual who has attained the age of 21, has worked for the employer in at least 3 of the last 5 years, and has received at least $550 in compensation from the employer for the year. These are the maximum requirements; however, and employer can establish less restrictive requirements if desired.

What are the funding/contribution guidelines?

First and foremost, employee elective deferrals are not permitted. Only employer contributions are permitted and they are discretionary. Funding a SEP IRA is discretionary in the sense that you can elect whether or not to make a contribution and you can elect at what percentage that contribution will be made of total compensation. However, it is not discretionary as to who receives the contributions. If you, as a business owner, elect to make a SEP contribution at 10% of compensation, then that 10% must go to every eligible employee; you are not able to pick and choose.

Annual contributions an employer can make to the employee’s SEP-IRA cannot exceed the lesser of 25% of compensation or $49,000 for 2010 and 2011 (indexed for inflation). Once these contributions are made, they are vested 100% immediately. These contributions are not taxable to employees and are a tax deduction on the business tax return being filed.

A SEP IRA has its place in the retirement planning arena, and is worth considering for certain small business owners. It’s important to know your options, so we will look further into retirement plans in our next blog post as to analyze the Owner-Only 401(K) plan.

brad@mcarthurco.com
704.544.8429