10 Tax Law Changes You Need to Know About

Before you develop your tax strategy for 2005, check out these changes to see if they affect your business.

It can be easy to miss a tax law change. But ignorance of thelaw is never an excuse when the IRS comes calling.

The AmericanInstitute of Professional Bookkeepers (AIPB) has alerted its30,000 members to 10 tax law changes for 2005 that every businessshould be aware of and, as co-president of AIPB, I'd like toshare these changes with you. Miss any of these and it can costyour business plenty.

1. To deduct cell phone usage, at least 50 percent ofcell calls must be for business--and your records must substantiatebusiness vs. personal use.

2. The IRS ended the "mailbox rule," whichstates that timely deposit of a return or payment with the U.S.Postal Service is treated as timely delivery to the IRS. The newrule stats that other than direct proof of delivery, a certified orregistered mail receipt is the only way to claim that a taxdocument was delivered to the IRS or tax court on time.

3. Now you can use "industry practice" as proofthat workers are independent contractors (not employees). In akey 2004 court case, a cable TV firm proved that paying installersas independent contractors was industry practice.

4. If your firm leases a car worth over $17,500, includeemployee personal use in gross income using IRS inclusion amounttables. An alternative is to apply the cents-per-mile method toemployee personal use. (This is not permitted for vehicles placedin service in 2004 or 2005 that have a value of $14,800 ormore.)

5. Self-insured medical and/or flexible-spending plans (MSAsor FSAs) can now use debit or creditcards to reimburse medical expenses without creatingtaxable income for the company or employees.

6. The IRS is hunting for compensation disguised as tax-freefringe benefits--especially spousal travel, tax preparation,and use of computers and company aircraft.

7. Some employee gifts are now taxable income. Anemployee gift certificate for, say, a turkey at a specified localstore is now taxable wages.

8. First-year Section 179 deductions for SUVs and othervehicles under 14,000 pounds are now limited to $25,000.Before, they could be completely written off.

9. New state laws protecting employee Social Security Numbersare sweeping the country. To avoid employee lawsuits againstyou for identity theft, base company policy on the Oklahomalaw.

10. If your company has an incentive stock option or employeestock option plan, don't apply FICA or FUTA taxes totransfers of stock when options are exercised, and you do not haveto withhold federal income tax.

And remember, always consult your financial or tax professionalbefore you implement a new tax strategy.

Steve Sahlein is the co-president of the American Institute ofProfessional Bookkeepers, a 30,000-member association andcertifying body for bookkeepers.

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