There is a lot of news on the federal tax front. Uncle Sam has made a number of changes recently, and more are on the horizon. This is a good time for retailers to chat with their tax advisors, in order to take full advantage of benefits available and avoid penalties.

Here are tax law developments that every business owner should know about:


Husband-and-Wife Businesses   
An amazing percentage of pet stores (and small businesses in general) are owned and operated by a husband-and-wife team. Such businesses–if they are not run as corporations or LLCs–have some tax issues to consider. How business owners proceed can affect not only the tax forms they prepare, but also how the husband and wife later qualify for Social Security and Medicare benefits.

Generally, the IRS classifies an unincorporated husband-and-wife business as a partnership. This means that partnership records must be kept and a partnership tax return must be filed with the IRS each year. Couples often avoid the paperwork hassle by treating the business as if owned by one spouse only. The business files a Schedule C in the name of that spouse. The problem is that only the named spouse receives credit for Social Security and Medicare coverage purposes.

There’s now a way for a husband- and-wife team to avoid being classified as a partnership–and for both spouses to get credit toward Social Security and Medicare benefits. They can elect to be a “qualified joint venture.”

A retail pet business can become a qualified joint venture if the husband and wife owners:

• are the only members of the venture

• file a joint tax return

• both materially participate in the business, and

• both elect not to be treated as a partnership.

Each spouse will prepare a separate Schedule C showing their respective shares of business profits or losses.  And, if they are subject to self-employment taxes, each spouse will prepare a separate Schedule SE. These will be sent to the IRS with an annual Form 1040.


Payroll Tax Holiday
Congress has provided an incentive for businesses to hire new employees this year. It applies to new-hires who were unemployed during the 60 days before they joined the store staff.

Retailers who have hired such people after February 13, 2010, don’t have to pay the employer’s share of Social Security taxes through the end of 2010. However, the business owner will still have to pay the employer’s share of Medicare taxes.

This tax break will not apply to someone hired to replace another worker unless the other worker quit or was fired for cause.  It also does not apply to relatives or dependents.


Retained Worker Credit
Another tax break for employers is the retained worker credit. Pet retailers can get a tax credit of $1,000 or 6.2 percent of a retained worker’s wages (whichever is less) for each worker who qualifies for the payroll tax holiday–provided the worker is retained for at least 52 consecutive weeks.

The details are a bit complicated, so retailers should check with a tax professional to see exactly how this credit might apply to their specific business.


Health Insurance Credit
Beginning in 2010, small employers can claim a tax credit for part of the contributions made to their employees’ health insurance premiums. To qualify for this credit, a business must have no more than 25 employees, and the average annual wages can’t exceed $50,000.

The tax credit can be as much as 35 percent of an employer’s health insurance contributions, depending on the exact number of employees on the store’s payroll, and how much they are paid. Again, this is complicated stuff, so consult a tax advisor for complete details.

This health insurance credit is just the tip of the iceberg created by the 2010 health care legislation. In the coming years, additional healthcare incentives and penalties affecting businesses will be phased in. The costs to small businesses–as well as the paperwork–are likely to multiply to unprecedented levels.

For example, in early 2012 when storeowners prepare a Form W-2 to report an employee’s 2011 earnings, they will need to disclose how much it costs the business to provide group health insurance to the employee.  This additional information won’t affect the employee’s tax liability, but it can be an administrative nuisance for the business.


Fred S. Steingold practices law in Ann Arbor, Michigan.  He is the author of Legal Guide for Starting and Running a Small Business and The Employer’s Legal Handbook, published by Nolo.

[Legal strategies may vary depending on the state in which you live and the specifics of your situation. See your lawyer for legal advice.]