CD ROM Paradise Collection 4/CD ROM Paradise Collection 4 1995 Nov.iso/business/sba952.zip/F246.SBE

Text File | 1995-05-31 | 27KB | 639 lines

@111 CHAP ZZ

        ┌───────────────────────────────────────────────┐
        │  INCOME TAXES AND ESTIMATED TAX REQUIREMENTS  │
        └───────────────────────────────────────────────┘

Individual federal income tax rates for 1995 (for joint
filers) are as follows:

            Taxable Income
               Bracket                Tax Rate and Amount
           ----------------          ---------------------
           $0 to $39,000             15% of Taxable Income

           Over $39,000, up          $5,850 plus 28% of
             to $94,250               excess over $39,000

           Over $94,250              $21,320 plus 31%* of
                                      excess over $94,250

           Over $143,600             $36,618.50 plus 36%* of
                                      excess over $143,500

           Over $256,500             $77,262.50 plus 39.6%*
                                      of excess over $256,500


(* The actual marginal rate for taxpayers with Adjusted
   Gross Income over $114,700 may be higher, by another
   1%, roughly, if they have certain kinds of itemized
   deductions which are subject to a phase-out, equal to
   a 3% reduction in allowable itemized deductions for AGI
   in excess of $114,700.  In addition, joint filers with
   AGI over $172,050 will have part of their personal exemp-
   tions phased out, at a rate of 2% of the exemption amount
   for each $2500 of AGI, or fractional portion of $2500, in
   excess of $172,050.  This would add 1/2% to 3/4% to the
   effective tax rate for each personal exemption claimed,
   depending on the tax bracket.  Thus, for a family of four
   in the 36% tax bracket, with AGI in the phase-out range
   for both itemized deductions and personal exemptions, the
   effective marginal tax rate on each additional dollar of
   income would be about 37 to 38% in 1995.  Congress "sim-
   plifies" the tax law like this each year, a blessing for
   which we can all be properly grateful.)

  Use the TAXES command--MAIN Menu--to calculate your
   1994 & 1995 taxes.

Each of the rate brackets noted above is indexed for infla-
tion in each year.  If your filing status is other than
married, filing jointly, the size of each of the above brac-
kets is smaller.  For example, for a single person, the 15%
bracket ends at only $23,350 of income, rather than at the
$39,000 level for married filing joint, in 1995.

1994 federal income tax returns for individuals are due on
April 15, 1995, although an automatic extension of time to
file (but not an extension of time to pay the tax due) to
August 15, 1995, is available, simply by filing Form 4868
and paying the approximate tax due on April 15th.  (An ad-
ditional filing extension to October 15, 1995 may be avail-
able, by filing Form 2688, if you have a valid reason for
the delay.)

It is also possible to file your federal income tax return
electronically and the IRS has begun experimenting with
combined federal/state filing of electronic tax returns.

PAYMENTS OF ESTIMATED TAX.  For individual taxpayers, such
as self-employed persons (sole proprietors or partners in
a partnership), whose tax liability is not substantially
covered by withholding from wages, it is necessary to make
quarterly payments of federal (and in most cases, state)
estimated income tax and federal self-employment tax.  The
federal tax payments must be made with Form 1040-ES by the
15th day of April, June, September and on January 15th of
the following year.  Any remaining tax due (or refund) is
reported on Form 1040, individual income tax return, on the
following April 15th.

To avoid penalties for underpayment of estimated tax, the
amount of the quarterly payments must generally equal 90%
of the tax liability, with a "safe harbor" for most taxpay-
ers if they pay in an amount based on 100% of the PRIOR
year's tax liability during the current year.

NOTE: This 100% of prior year's tax "safe harbor" was not
allowed in 1993 for certain taxpayers in certain complex
circumstances, which are now only of historical interest
to most of us (fortunately).

...However:  The 1993 tax act actually simplified things a
bit, thanks to some heavy lobbying by the American Institute
of CPA's.  Starting with 1994, the rules have become fairly
straightforward for individuals:

    . If your AGI for the previous year was $150,000 or
      less, you can base your estimated tax on 100% of the
      previous year's tax liability.

    . If your AGI was over $150,000 the year before, you
      can now base your 1994 or 1995 (or subsequent year)
      estimated tax on 110% of the prior year's tax, if
      that is less than 90% of the current year tax.

SCHEDULES C AND E.  There is no separate tax return form
for sole proprietors. A sole proprietor simply includes the
income or loss from his or her business on Schedule C of
form 1040.  For returns filed in 1993 or later, some sole
proprietors may file a simplified Schedule C-EZ, which has
only about 1/3 as many lines to fill in as the regular
Schedule C.  The firms who qualify to use Schedule C-EZ
must meet 10 requirements, including the following main
ones:

  . Gross receipts of $25,000 or less;

  . Business expenses of $2,000 or less;

  . Using cash method of accounting;

  . Have only one sole proprietorship business;

  . No employees, no inventory;

  . No net business loss for the year; and

  . Not deducting home office expense.

@IF116xx]@NAME is a @ENTITY:
@IF116xx]
Like proprietorships, partnerships generally pay no tax
either, although they file an information return annually
(Form 1065) on which the income or loss of each partner is
reported on a Form K-1.  Each partner reports the income
or loss items on the K-1 form on appropriate schedules of
his or her Form 1040 (mainly on the Schedule E).  Accord-
ingly, partnerships and proprietorships do not, as enti-
ties, make estimated tax payments.

@CODE: AL
The maximum individual income tax rate in Alabama is 5%,
which starts at taxable income levels of $6,000 for married
persons filing jointly, or at $3,000 for other individual
taxpayers.
@CODE:OF
@CODE: AZ
Individual tax rates in Arizona have been steadily coming
down in recent years.  They were reduced after 1989 to a
maximum of 7% on income over $300,000 ($150,000 for single
or married filing separate), and were further reduced to a
maximum of 6.9% for 1994.  A further tax relief package,
enacted in early 1995, has reduced the top individual tax
rate in 1995 and subsequent years to only 5.6% on income
over the above-mentioned bracket amounts.
@CODE:OF
@CODE: AR
Individual tax rates in Arkansas start at 1% and rise to
a maximum of 7% on taxable income over $25,000.
@CODE:OF
@CODE: CA
          ┌───────────────────────────────────────────────┐
          │        CALIFORNIA PERSONAL INCOME TAXES       │
          └───────────────────────────────────────────────┘

California personal income tax rates begin at 1% of income
and rise to a maximum rate of 11% on income over $214,929
(over $429,858 for married taxpayers filing jointly, and
$289,081 for head of household) in 1994, which is higher
than the flat 9.3% rate at which California taxes the in-
come of corporations.  In addition, the individual alterna-
tive tax rate is 8.5%, so that the alternative tax is easy
to fall under.

California's estimated income tax payment system parallels
the federal rules rather closely, with payments made on
Form 540-ES.  Since 1993, California individual taxpayers
are also subject to the same new rule as was briefly adopted
for federal tax purposes, limiting the use of the "safe
harbor" for avoiding a penalty simply by paying in an amount
equal to the prior year's tax liability, for certain individ-
uals whose adjusted gross income is in excess of $75,000 and
has increased by more than $40,000 over the prior year's
income (with certain adjustments and exceptions).  (NOTE:
Starting in 1994, the federal tax law has done away with
this complex rule, instead allowing high-income taxpayers
to pay in 110%, instead of 100%, of the prior year's tax to
avoid underpayment penalties.  When and whether California
will conform to this simpler federal rule is uncertain....)

As under federal law, partnerships doing business in the
state of California are not generally taxable entities, but
must still file an annual information return (Form 565) by
April 15th of the following year (for a calendar year part-
nership).  However, a limited partnership in California is
now subject to payment of annual minimum franchise tax
($800 a year), the same as paid by corporations.

@CODE:OF
@CODE: CO
Colorado taxes individual income at a flat rate of 5%,
based on federal taxable income with certain adjustments.
@CODE:OF
@CODE: CT
After many years of only taxing investment income, the
state of Connecticut finally enacted a personal income
tax, at the rate of 1.5% of taxable income in 1991, and
4.5% after 1991.  The former tax on capital gains and
dividends is being phased out.
@CODE:OF
@CODE: DE
Individual tax rates in Delaware start at 3.2% on income
over $2,000 and rise to 7.7% on income over $40,000.
@CODE:OF
@CODE: DC
Individual tax rates in the District are fairly high, with
a top rate of 9.5% on income of only $20,000 or more.  Note
that business income of a partnership or sole proprietor-
ship is NOT generally reported on the individual partner or
proprietor's D.C. income tax return, but is instead separ-
ately taxable under the D.C. Unincorporated Business Fran-
chise Tax (Form D-30) at a tax rate of 10.5% from October 1,
1994 through December 31, 1994, and at 9.975% after December
31, 1994).
@CODE:OF
@CODE: GA
Georgia individual tax rates are fairly low, starting out
at 1% and rising to a maximum rate of 6% on income over
$10,000 (joint filers).
@CODE:OF
@CODE: HI

          ┌───────────────────────────────────────────┐
          │        HAWAII PERSONAL INCOME TAXES       │
          └───────────────────────────────────────────┘

Hawaii personal income tax rates begin at 2% of income and
rise to a maximum rate of 10%.  Since the maximum corporate
tax rate is only 6.4%, there is often a considerable tax
incentive to incorporate a Hawaii business, although the
opposite tilt in federal corporation tax rates (from the
federal Tax Reform Act of 1986 until the 1993 Clinton tax
bill) has often more than offset the state tax savings from
incorporating.  However, since 1993, the maximum federal
rate is also higher for individuals (39.6%) than for cor-
porations (35%), so that there may now be a double benefit
of doing business in corporate form in Hawaii, at least
for some taxpayers.

Hawaii's estimated income tax payment system closely paral-
lels the federal rules, with individual estimated tax dec-
larations made on Form N-1.  Quarterly payments are due in
the same months as federal estimates, but on the 20th day
(not the 15th) of each such month.  As under federal law,
partnerships in Hawaii are not taxable entities, but must
still file an annual information return (Form N-20) each
year.  The income from a partnership is reported on
Schedule E of the partner's Hawaii individual income tax
return.

District tax offices are located on each of the four major
islands, at the following addresses:

 Physical Address:                Mailing Address, Phone:
----------------------            -------------------------
OAHU DISTRICT OFFICE              P.O. Box 3559
830 Punchbowl Street              Honolulu, HI 96811-3559
Honolulu, HI 96813-5045            [phone]

MAUI DISTRICT OFFICE
State Office Building             P.O. Box 913
54 High Street                    Wailuku, HI 96793-0913
Wailuku, HI 96793-2126             [phone]

HAWAII DISTRICT OFFICE
State Office Building             P.O. Box 1377
75 Aupuni Street                  Hilo, HI 96721-1377
Hilo, HI 96720-4253                [phone]

KAUAI DISTRICT OFFICE
State Office Building             P.O. Box 1688
3060 Eiwa Street                  Lihue, HI 96766-5688
Lihue, HI 96766-1310               [phone]

@CODE:OF
@CODE: ID
Individual tax rates in Idaho start at 2% and range up to a
maximum of 8.2% in the top bracket.
@CODE:OF
@CODE: IL
Illinois taxes individual income at a rate of 3%, applied to
federal adjusted gross income with modifications.  This tax
rate was due to decrease to 2.75% after June 30, 1993, but
has now been indefinitely extended at the 3% rate.
@CODE:OF
@CODE: IN
Personal income in Indiana is taxed at a rate of only 3.4%,
based on federal adjusted gross income, with certain adjust-
ments.
@CODE:OF
@CODE: IA
Iowa has relatively high individual tax rates, reaching a
maximum of 9.98% on taxable income in the highest bracket
($47,700 of taxable income in 1994).
@CODE:OF
@CODE: KS
Kansas has a maximum individual tax rate (joint returns)
6.45% for joint filers and 7.75% for other taxpayers.
@CODE:OF
@CODE: KY
Individual income in Kentucky is taxed at a maximum rate
of 6%, on income of over $8,000.
@CODE:OF
@CODE: LA
Personal income tax rates in Louisiana top out at 6% on
income over $50,000 (per individual taxpayer, regardless
of filing status).
@CODE:OF
@CODE: ME
Tax rates under Maine's personal income tax law start at
2% and go up to a maximum of 8.5% (1994 rates).  A 1991-
1992 surtax has expired.
@CODE:OF
@CODE: MD
Maryland taxes the income of individuals at rates of 2% to
6%.  The 5% tax bracket begins at income levels of only
$3,000, however, and only reaches 6% at levels of $150,000
for joint filers or heads of household ($100,000 for single
or married filing separate).  The top rate drops to 5% after
12-31-94.  Many counties, including Baltimore, also impose
local income taxes, typically at rates equal to 50% to 60%
of the state income tax.
@CODE:OF
@CODE: MA
Most kinds of income, such as earned income, are taxed at
an individual tax rate of only 5.95% in Massachusetts after
1991.  However, investment income such as interest, divi-
dends and net capital gains are taxed at a 12% rate.  A
proposal is on the ballot for November, 1994, under which
Massachusetts voters are to decide whether to scrap the
current tax system and replace it with graduated rates.
@CODE:OF
@CODE: MI
Michigan imposes a 4.6% income tax on the taxable income of
individual taxpayers, which is based on federal taxable in-
come with certain adjustments and modifications.  This tax
rate decreased to 4.4% on May 1, 1994, so that the weighted
average tax rate for calendar year 1994 is 4.47%.

However, a person's business income is also subject to the
2.35% Michigan "Single Business Tax" (2.3% after October 1,
1994), which is somewhat similar to an income tax, but with
no deductions for wages or salaries, and without taking into
account interest income or expense or royalty income or ex-
pense, as well as making certain other adjustments.
@CODE:OF
@CODE: MN
Minnesota taxes individual incomes at rates of 6% to 8.5%.
There is also an alternative minimum tax, which applies to
alternative taxable income at a rate of 7%.
@CODE:OF
@CODE: MS
Mississippi taxes individuals' taxable income of over
$10,000 at a 5% rate.  Tax rates start at 3% on the first
$5,000 and go up to 5% on taxable income over $10,000.
@CODE:OF
@CODE: MO
Tax rates on individuals in Missouri start at 1.5% and rise
to 6% on income over $9,000.
@CODE:OF
@CODE: MT
Montana has the distinction of having one of the highest
individual tax rates of any state, at 11% on income over
$62,700 in 1994.  The Montana individual tax system was
completely overhauled in 1993, with the legislature enact-
ing a flat tax rate equal to 6.7% of taxable income for
individuals, but with no itemized deductions or personal
exemptions allowed under the new tax system.

(LATE UPDATE:  An initiative [Referendum 112] has resulted
in a suspension of the 6.7% rate for 1993, until the sus-
pended law can be voted on at a special election or the
November 1994 general election.  Thus, the Montana Director
of Revenue announced that the 1992 tax rates and laws
would apply again in 1993.  Voters were due to decide in
a special election or the November, 1994 general election on
how to sort this all out.  Stay tuned....)
@CODE:OF
@CODE: NB
Individual income tax rates in Nebraska start at 2.62% and
go up to a maximum rate of 6.99% (1993, 1994 and subsequent
year rates).
@CODE:OF
@CODE: NJ
Personal income tax rates in New Jersey were substantially
increased, to 7% for various brackets, depending on filing
status, beginning in 1991.  However, 1994 tax legislation
has reduced to top rate to 6.65%, starting in 1994.
@CODE:OF
@CODE: NM
New Mexico's personal income tax begins at a tax rate of
2.2% on income of $8,000 or less and tops out at a maximum
tax rate of 8.5% on taxable income in excess of $64,000
(joint filers).
@CODE:OF
@CODE: NY
New York State individual income tax rates start at 4%
(4.55% in 1995) and are graduated up to a maximum rate of
7.875% on income taxable in the highest income bracket
(1994 rates, for married couples filing joint returns).
The maximum rate is scheduled to decline in 1995 to 7.5%
and again in subsequent years (to 7%), but don't hold
your breath, in light of the state's current fiscal dilem-
ma.  (The top rate of 7.875% has already been "extended,"
and this is likely to occur again.)

There is also a "tax table benefit recapture supplemental
tax" that takes back the benefit of lower tax brackets, on
a sliding scale, for taxpayers whose adjusted gross incomes
exceed $100,000, with full recapture occurring at levels of
$150,000 or more.

Note that taxpayers in New York City are also subject to
New York City income tax.  Tax rates were supposed to de-
crease on January 1, 1994, but this has been postponed now
to January 1, 1996.
@CODE:OF
@CODE: NC
Tax rates on individual income in North Carolina start at
6% and go up to a maximum tax bracket of 7.75% in 1994.
@CODE:OF
@CODE: SC
Tax rates on individual income in South Carolina start at
2.5% and go up to a maximum tax bracket of 7% on income
over $10,800.
@CODE:OF
@CODE: ND
North Dakota has a very high nominal tax rate of 12% on
individual income over $50,000.  However, taxpayers may
elect to instead pay a tax equal to 14% of their federal
income tax (with adjustments) for the year.
@CODE:OF
@CODE: OH
Ohio's highest individual tax rate is 7.5% in 1993 and
subsequent years.  This rate applies only at income
levels of $200,000 or more.
@CODE:OF
@CODE: OK
Oklahoma's personal income tax law imposes a relatively high
maximum tax rate of 10%, but allows taxpayers a deduction
for federal income taxes.  For taxpayers who do not deduct
federal income tax, a lower Oklahoma tax rate applies,
with a maximum bracket of only 7% (in 1994).
@CODE:OF
@CODE: OR
Oregon taxes individual income at rates ranging from 5%
to 9%.  The 9% bracket kicks in at only $10,500 of taxable
income in 1994 for joint filers and heads of households
(at $5,250 for single or married filing separate returns).
@CODE:OF
@CODE: PA
Pennsylvania's  current regular income tax rate is 2.8%
ot taxable income.  Pennsylvania taxable income consists
of 8 categories of income, and in general bears very little
resemblance to federal taxable income.  No personal exemp-
tions are allowed, for example.

In addition, the cities of Philadelphia, Pittsburgh, and
Scranton all impose city income taxes on individuals' ear-
nings and on net profits from businesses and professions.
@CODE:OF
@CODE: RI VT
Individual taxpayers in @STATE compute their state
income tax as a percentage of their federal income tax
liability, which, at present, is computed at the rate of
@CODE:OF
@CODE: RI
27.5% of the federal tax.  On federal tax in excess of
$15,000, the rate was temporarily increased in 1993 to
32%, up to $35,929, dropping to 27.55% between $35,929 and
$75,528, and to 25.05% on federal tax liability in excess
of $57.528.  (Joint return rates)
@CODE:OF
@CODE: VT
25% of the federal liability.  (A special "land gains tax"
also applies to capital gains on land sales or transfers,
if the land was held for less than 6 years.)
@CODE:OF
@CODE: UT
Utah taxes individual taxpayers at income tax rates ranging
from 2.55% up to 7.2%.
@CODE:OF
@CODE: VA
Personal income tax rates in Virginia range from 2% up to
a maximum tax bracket of 5.75%, which begins at $17,000 of
income.
@CODE:OF
@CODE: WV
West Virginia taxes individual income at rates up to 6.5%
on income of over $60,000 (over $30,000 for married filing
separate returns).
@CODE:OF
@CODE: WS
Wisconsin individual income tax rates range from a low
bracket of 4.9% to a top bracket of 6.93%.  In addition,
for business income, there is a "recycling surcharge"
equal to 0.4345% of net business income of individuals,
estates, trusts, partnerships and S corporations, in
1993 and 1994.  The minimum recycling surcharge is $25
and the maximum is $9,800.  (On farm businesses, the
surcharge is $25.)
@CODE:OF
@CODE: AK FL SD NV TX WY WA TN NH
There is no individual state income tax in @STATE.

@CODE:OF
@CODE: NH
(Except on certain investment income -- interest and divi-
dends -- at a rate of 5%.)

However, there is also an 8% Business Profits Tax, similar
to an income tax, on all business entities, incorporated
or otherwise, with over $12,000 of gross income.  The tax
rate will drop to 7.5% for fiscal year 1994, and to 7% for
fiscal year 1995.

New legislation also has created a new "Business Enterprise
Tax" at the rate of 0.25% of the taxable "enterprise value
tax base" (which is essentially the sum of all compensation,
interest and dividends paid or accrued by a business enter-
prise), effective July 1, 1993.  Annual returns are required
for every business enterprise that has gross business re-
ceipts over $100,000 during a taxable period and whose "en-
terprise value tax base" is greater than $50,000.  The new
"Business Enterprise Tax" is allowed dollar-for-dollar as a
tax credit against the Business Profits Tax.  (However, it
will still catch many small businesses and professionals who
are not subject to the Business Profits Tax.)
@CODE:OF
@CODE: TN
(Except a 6% tax on certain investment income -- interest
and dividends from bonds and stocks.)
@CODE:OF
@CODE: WA
However, Washington imposes a Business and Occupations tax,
which varies by type of business, on most forms of business
gross income. The tax rate ranges from about 1/2 of 1% up to
2%, generally, with a new 2.5% tax on various business ser-
vices, effective July 1, 1993.  Some activities may be sub-
ject to more than one B & O tax, but a "multiple activities
tax credit" effectively limits the total tax to the highest
of such multiple tax rates.  For example, a Washington
manufacturer that ships all its output outside of the state
may be exempt from the retailing B & O tax, but will still
have to pay the manufacturer's B & O tax.

The B & O tax also applies to vertically integrated firms,
so that your company may be taxed on its own internal deal-
ings, such as a retailer that has its own wholesaling dis-
tribution network.

A tax credit is allowed against the B & O tax for small
firms, if their monthly tax before the credit is less than
$70.  (If less than $35 a month, the credit completely off-
sets any B & O tax.)  Effective January 1, 1995, a new R & D
tax credit is allowed against the B & O tax, in an amount
equal to 2.5% of Research & Development expenditures that
exceed 0.92% of the company's taxable gross receipts after
deductions.
@CODE:OF

        ┌───────────────────────────────────────────────┐
        │      CORPORATE ESTIMATED TAX REQUIREMENTS     │
        └───────────────────────────────────────────────┘

A C corporation (or an S corporation, if it is subject to
tax, which it usually is not) must make quarterly payments
of estimated federal corporation income taxes on the 15th
day of the 4th, 6th, 9th, and 12th months of its taxable
year.  All such tax payments must be made as tax deposits
in a depository bank, accompanied by a Federal Tax Deposit
coupon.  Don't attempt to send such corporate tax payments
directly to the IRS, which will either return them to you,
lose them, or ignore them, any one of which results will
be most unpleasant to you, including the standard 5% pen-
alty that will apply if you try making a direct payment to
the IRS. (This, of course, is the infamous Catch 22
you've heard so much about -- You can be penalized for
PAYING your taxes, as well as for not paying them....)

With certain exceptions, a corporation must generally pay
in 97% (100% for taxable years that begin after December 31,
1993) of its total tax liability for the year as estimated
tax payments in order to avoid the penalty for underpayment
of estimated tax.  Alternatively, smaller corporations may
base their current year estimated tax payments on 100% of
their PRIOR year's tax liability.

However, certain "large" corporations are not allowed to
base their current year estimated tax payments on their
prior year tax liability, except for the first quarterly
payment of the current year.

@CODE: CA
California also requires corporations to make quarterly
estimated tax payments, on the same due dates as the fed-
eral quarterly payments, and generally following the same
rules.  However, the first California quarterly franchise
tax payment by a corporation must at least equal the mini-
mum franchise tax for the year, which is $800 a year.

Starting January 1, 1993, the percentage of estimated tax
that must be paid in as estimated tax payments increased
from 90% to 95% of the actual California franchise tax
liability for the year.  However, corporations other than
certain "large" corporations are still able to avoid tax
underpayment penalties if they pay in an amount equal to
at least 100% of the PRIOR year's tax liability.

"Large" corporations, for this purpose, are those that
had at least $1 million of taxable income in any of the
three preceding taxable years.

@CODE:OF
@CODE: HI
Hawaii also requires corporations to make estimated income
tax payments, with Form N-3.  However, unlike the quarterly
federal payments, Hawaii requires only 2 annual payments to
be made, on September 20 and the following January 20th for
a calendar year corporation.

@CODE:OF
@CODE: NV TX WA WY
Most states also require corporations to make payments of
estimated corporate income taxes (but there are no such
taxes in @STATE).
@CODE:OF