Important Internal Revenue Service issues for California businesses

April 12, 2014 (Press-News.org) The Patient Protection and Affordable Care Act (ACA) has caused numerous concerns for small businesses across the nation in the past few years. Changes to guidelines and delays in implementation of various portions of the ACA have caused some confusion for those trying to make financial decisions that will help keep their companies in the black.

Originally, the employer mandate provision required employers with more than 50 employees to provide health insurance to all of their employees beginning in 2014. That deadline was first bumped back to 2015 and, as of this February, has been moved further back to 2016. Additionally, the Obama Administration temporarily doubled the company size to more than 100 employees, opening a window of opportunity for numerous businesses to make some cuts and come in just under the limit.

However, the fine print in the ACA establishes some limits regarding how to execute a reduction in personnel. The Internal Revenue Service (IRS) requires a bona fide business purpose for a reduction of workforce that brings an entity below the 100-employee threshold. Failure to provide acceptable evidence may lead to penalties, according to a recent article in The Business Journals.

While some question the authority of the IRS to demand certification of personnel changes, small and medium size companies can add this IRS issue to their list of annual concerns.

Small business taxation issues

Owning and operating a business in California, while rewarding, can be fraught with confusing rules, inconsistent regulations and hidden pitfalls regarding issues of taxation, especially those at the federal level. The IRS aggressively scrutinizes businesses of all sizes, especially watching for those who unintentionally blur the lines between business and personal expenses.

Oftentimes, California business owners turn to taxation attorneys for legal assistance in order to avoid situations that can lead to tax litigation. Following are some areas of concern for entrepreneurs:
- Businesses operated out of an individual's home receive heightened scrutiny and owners must be careful to draw a deliberate line between business and personal expenses and use of space.

- If a small business or an individual employee works from a home office, take care to stay within the limits of the safe harbor rule established by the IRS in order to avoid an audit.

- Deducting some expenses for a business vehicle is okay but avoid claiming 100 percent of your costs, even if the vehicle is provided by the employer.

- While a certain amount of meals, entertainment and travel expenses are allowable, exceeding the normal level of business expenses for your type of occupation or industry can raise red flags, catching the attention of the IRS.

The bottom line should be that every expense you claim for your company should have a legitimate business purpose. Unfortunately, even with the best intentions, some business owners step over the line without realizing it, incurring an inquiry from the IRS. If this happens, turn to an experienced tax lawyer for assistance. An attorney knowledgeable about tax litigation, appeals, audits and collection matters can help.

Article provided by Brown, PC
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