small business tips

Small Business Health Care Tax Credits

  • Westchester NY accountant Paul Herman has all the answers to your personal finance questions!

    Small Business Health Care Tax Credit

    Changes to the SBHCTC beginning in 2014:

    • The credit increases to 50 percent for small businesses and 35 percent for tax-exempt employers.
    • You must purchase insurance for your employees through SHOP.*
    • The credit is only available to you for 2 consecutive years.
    *SHOP, or Small Business Health Options Program, is the Health Insurance Marketplace for small business and tax-exempt employers.
    Small Business Health Care Tax Credit for Small Employers
    Federal budget sequestration required cuts will reduce the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under the Internal Revenue Code section 45R. The refundable portion of the claim will be reduced by 8.7 percent.
    Review additional information about the effect of sequestration on the Small Business Health Care Tax Credit to see if this has potential impact for you.

    tax-credit-2Small businesses and tax-exempt organizations may be eligible for a valuable tax credit – the Small Business Health Care Tax Credit. The credit applies to small employers who offer health insurance coverage for the first time or maintain coverage they already have, and is specifically targeted for those with low- and moderate-income workers. In general, the credit is available to small employers and tax-exempt organizations that pay at least half the cost of single coverage for their employees.

    If you’re an employer who may be eligible for the Small Business Health Care Tax Credit, you can use the Small Business Health Care Tax Credit Estimator. The credit is designed to encourage small businesses to offer health insurance coverage for the first time or maintain coverage they already have. For some employers and tax-exempt organizations, this could save thousands of dollars by providing a credit against income tax (a refundable credit for certain tax-exempt organizations).

    For tax years 2010 through 2013, small businesses can claim up to 35 percent, and tax-exempt organizations can claim up to 25 percent. For tax years 2014 and later, there are changes to the credit.

    • Small businesses can claim up to 50 percent and tax-exempt organizations up to 35 percent.
    • You must purchase insurance for your employees through the Small Business Health Options (SHOP) Marketplace.
    • The credit is only available to you for two consecutive years.

    This tax credit is included in the Patient Protection and Affordable Care Act approved by Congress in early 2010, and signed into law by President Barack Obama. This credit is one of the first provisions of the bill to go into effect. Eligible small businesses and tax-exempt organizations can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.


    Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

    Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Incorporating: FAQs

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! Business Incorporating FAQs from Scarsdale Accountant The following are questions our Westchester CPA firm frequently receives regarding incorporating businesses:
▼ What is the definition of a corporation?

A legal entity that exists independently of its owners is a corporation. When correctly filled out articles of incorporation are filed with the proper state authority and all fees are paid, a corporation is created.

▼ There is a difference between an “S” corporation and a “C” corporation, what is it?

Every corporation begins as a “C” corporation and must pay income tax on the taxable income made by the corporation. After filing federal form 2553 with the IRS, a “C” corporation becomes an S corporation. The net income or loss of an “S” corporation is included in their personal tax returns and are “passed-through” to the shareholders. There is no double taxation as with “C” corporations because income tax is not taxed at the corporate level. Also known as Subchapter “S” corporations, they are limited to 100 shareholders.

 Is an attorney necessary to incorporate?

Obtaining a lawyer is not a necessity to incorporate (except in South Carolina, where an attorney’s signature is required). You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand.

A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure of the process, or if there isn’t time for research. Prepare a list of questions before the consultation.

▼ Is there a process for naming my corporation?

Take time to think about a name for your corporation. The most common rule for naming your corporation is that it cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as “Incorporated”, “Inc.”, “Company”, and “Corp.” Each state has suffix standards of their own.

▼ Are there benefits to incorporating?

Limiting your liability to the assets of the corporation is the primary advantage of incorporating. It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn’t personally sign for the loan and your corporation defaults on it, your personal assets are safe. With a sole proprietorship or partnership, this is not the case. There are many tax advantages that are available to corporations and not sole proprietors.

A few of the advantages are:

  • A corporation allows for easier setup of retirement funds and qualified retirement plans (such as a 401k).
  • The life of a corporation is not limited and is not dependent upon its members. The corporation will continue to prosper and do business even if an owner dies or wants to sell their interest.
  • A corporation has a centralized management.
  • It is easy to transfer ownership of a corporation.
  • With the sale of stock, capital can be raised more easily.
▼ What exactly is a Registered Agent?

In the majority of states, a corporation is required to name a “registered agent.” The agent must be located in the formation state. The registered agent must be accessible during regular business hours to receive official state documents or service of process.

▼ Do I need a specific number of Directors or Shareholders?

Most states permit one person to function as director, shareholder, and all officer roles.

 Are there a number of shares of stock I should choose and at what par value?

You may select any quantity that you wish. The par value is either “No Par Value” or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.

▼ What does EIN stand for and what is a Federal Tax Identification Number?

A Federal Tax Identification Number, which is also known as a Employer Identification Number (EIN) is required for each corporation so the IRS may track payroll and income taxes paid by the corporation. Just as a Social Security number, an EIN is used for almost every function of the business.

▼ After I incorporate, what do I do next?

If your director(s) have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director(s). After that, you will need to hold the first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company’s bylaws and issue your stock, as well as other actions.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Larchmont NY, Tarrytown NY, Bedford NY, Dobbs Ferry NY, Scarsdale NY, Katonah NY, Armonk NY, Pound Ridge NY and beyond.

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Limited Liability Companies: FAQs

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! LLC FAQs from Scarsdale CPAThe following are questions our Westchester CPA firm frequently receives regarding Limited Liability Companies:
 Who should establish an LLC?

If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC (Limited Liability Company). For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. An LLC gives you personal protection from these and other possible claims again your business.

However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking, trust and insurance industries.

 Is an LLC or an S corporation better?

Even though the special tax status of the S corporation does away with double taxation, it doesn’t have the elasticity of an LLC in distributing income to the owners.

Various classes of membership interests are offered with an LLC, whereas you can only have one type of stock with an S corporation.

In an LLC, a variety of individuals or entities may have interests, although the number of shareholders who can have ownership interest is restricted to no more than 100. C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of S corporations. It is also important to note that LLCs are permitted to have subsidiaries without limitations.

▼ What does an LLC Operating Agreement signify?

It allows you to structure your financial and working relations with your co-owners in a way that best fits your company. Your co-owners and you determine each owner’s percentage of ownership in the LLC, his/her rights and responsibilities, his/her share of gains or losses, and what will become of the business in case one owner leaves.

 Is it necessary to have an Operating Agreement?

It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one. The following are a few reasons why an operating agreement is necessary:

  • By showing that you have been meticulous about organizing your LLC, it aids in guaranteeing that courts will be respectful of your personal liability protection.
  • Rules that regulate how profits will be separated, the process for making major business decisions, and the measures for handling the departure and addition of members are established.
  • It aids in avoiding misunderstandings between the owners and management over finances.
  • It prevents your LLC from being regulated by the default rules in the LLC laws of your state, which may not be to your advantage.
▼ Is it necessary to have LLC meetings?

Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability, although this is not typical of LLCs in most states. For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings.

▼ Are there exceptions to Limited Liability?

Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute. The owner of the LLC may be held personally responsible if he/she:

  • purposefully does something illegal, fraudulent, or clearly wrong that causes injury to the company or someone else
  • is unsuccessful in depositing taxes withheld from employees’ wages, or personally certifies a business debt or a bank loan that the LLC defaults on
  • personally and directly hurts someone, or
  • acts as the LLC in the broadening of his or her personal affairs instead of an individual legal entity.

The most important is the final exception. There are times when a court may declare that an LLC isn’t real and find that its owners are actually conducting business as individuals who are in fact responsible for their actions. To prevent this, be sure that your co-owners and you:

  • Act legally and rationally. Do not hide or misrepresent material facts or the position of your finance to creditors, vendors or other third parties.
  • Sufficiently fund your LLC. In order to meet foreseeable expenses and liabilities, make sure to invest adequate funds into the business.
  • Maintain the LLC and personal business separate. Maintain your personal finances away from your LLC accounting books. Create a business-only checking account and obtain a federal employer identification number.
  • Prepare an operating agreement. To create liability for your LLC’s separate existence, a formal operating agreement in writing is helpful.

When your limited liability protection doesn’t shield your personal assets, a good liability insurance policy will help. For example, if you are a massage therapist and you hurt a customer’s back by accident, you will be covered by your liability insurance policy. This insurance also comes into play to protect your personal assets in the event that the court ignores your limited liability status.

This insurance can also protect your corporate assets from claims and lawsuits, as well as protect your personal assets in certain situations. However, it is important to realize that commercial insurance typically doesn’t protect corporate or personal assets from unpaid debts of the business, whether they’re personally insured or not.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Mamaroneck NY, Purchase NY, Rye NY, White Plains NY, Greenwich CT and beyond.

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Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.