Getting payroll done has gotten so much easier than it used to be for small business owners. But there are still some minefields when it comes to state and federal compliance. We’ll take a look at six of them in today’s article.
1- Business or Personal?
A great admin might want to help you in any way they can, including personal errands. But time spent having your admin fetch your dry cleaning and drug store prescriptions is not deductible as a business expense, even if it makes you more productive at work.
Be sure you separate your business payroll from personal payroll to avoid tangling with the IRS on this issue.
2- New Hire Report
It’s not every day that a small business needs to hire additional help, and the New Hire Report is easy to overlook. It’s due to your state within a certain number of days of your new employee’s hire date. Some payroll companies will file it for you, and some won’t, so it’s best to check so that you don’t make the common mistake of forgetting to file this report.
3- Worker’s Compensation
When you have employees, you need worker’s compensation. When you bring on your first employee, you’ll need to overcome this learning curve of figuring out what you need.
Even if you’re a veteran employer, you may have coverage holes in your worker’s compensation coverage. Do you have employees who work at home? Are you sure they are covered? In some states, employees have to be specifically named in the policy before they are covered to work at home.
Be sure you ask the right questions so there’s not a risky gap in this essential protection for employers.
There are both state and federal notices that must be posted for employees to be able to read. California is especially zealous and liberal about issuing fines (up to $17,000 per location) for employers that do not have their posters, well, posted on workplace walls.
5- Employee versus Contractor
The proper classification of a worker as a W-2 employee or a 1099 contractor has long been an area of scrutiny for the IRS. The IRS has rules as well as court cases that have established the guidelines that exist in this area.
If you classify a worker incorrectly as a contractor when they should be an employee, then you can be held liable for paying employment taxes on that contractor.
Bonuses can often be a spur of the moment thing or something that’s done at the very end of the year when we’re occupied with the busy holiday bustle. It can be easy to forget that the bonuses need to be run through payroll like all other wages so that the proper deductions and taxes can be calculated.
Use these six items as a checklist to avoid these common mistakes as well as reduce your business risk in the payroll compliance area.
Summer is a great time of year for most businesses to pause for just a little while to take stock, congratulate yourself on what you’ve accomplished so far this year, and make big plans for your future. Here are five summertime strategies to help you regroup, reassess, and rejuvenate your business.
1- Mid-Year Review
If your business runs by the calendar year, 2014 is already more than half over. This is a perfect time to stop and reflect where you’ve been, what you’ve accomplished, and where you want to go next. You can make this process as informal or formal as you want. Some firms hold complex retreats; you may simply need some quiet time on a weekend where all your family is busy doing something else.
If you’ve never done any planning and feel like you need a guide, consider the book, The One-Page Business Plan written by Jim Horan.
2- Take a Vacation
There’s nothing better to rekindle your creative juices than to get away from the business for a while. Summertime is when most people take vacation, so if your business is not having its busy season, this might be a good time to go away for a while.
If you’re anxious about being away from your business, you’re not alone. In your annual planning process, plan for and block out your vacation time way ahead of time. Book the reservations with no refunds several months in advance so that you won’t chicken out at the last minute. There is life beyond your business, and you will be a better business owner when you take regular breaks away.
Take time to pat yourself on the back and congratulate the people around you for the goals you’ve reached and the efforts your team has made on your behalf. We all could use more praise and more celebrations in our lives. Perhaps you can organize a party, or if you are not the partying type, a quiet word individually with your team can go a long way, maybe more than you know.
4- Prune Your Projects
Is your plate too full? Most of us would say “yes” to that question, so the next step is to ask yourself what you can afford to stop doing that doesn’t make sense. Is there a project or two that can wait? If so, decide to stop stressing about not getting it done and give yourself permission to put it on the back burner for now.
Ask yourself what one thing you could do today that will make all the difference in your profits, revenues, goals, or simply peace of mind. And get that thing done.
Try these five summertime tips to rejuvenate your business.
As an entrepreneur, you are responsible for shaping your business success. Any habits that sabotage your success in your personal life can often carry over to your business. Becoming aware of these is the first step to success.
Here are seven success-boosting habits to double-check against your own.
1. Being able to say “No.”
Do you say “yes” to too many things that don’t serve your life purpose, help your family, or move your business forward? If so, you’re not alone. Saying “yes” in a weak moment when you feel like you can do it all can be a downfall for many entrepreneurs. It can also distract you from success if you are not working on the right things for you.
You may need to re-evaluate the value of your time and your priorities. Practice making smart decisions by having a structure and a higher purpose that helps you decide what you should and shouldn’t do with your time, money, and life. And if you tend to be one of those who says “yes” to everything, you may need to practice saying “no” in front of the mirror to break your habit.
2. Hiring fast and early.
The best time to hire is just before you need your new team member. It can be easy to put off hiring if you fill with dread when you think about large stacks of resumes and endless phone calls. Not hiring soon enough can cost your business in reduced service and sales. The smartest entrepreneurs stay ahead of the game in this area.
3. Strategizing proactively.
How much time do you spend in reactive mode versus proactive mode in your business? Reactive mode includes answering emails, fighting fires, serving clients, and managing employees. Proactive mode includes developing new products and services, creating and implementing your revenue plan, and training employees.
Sometimes we have to really push ourselves to look beyond the daily fires. One way to do that is to plan time every day for proactive activities and be ruthless about keeping that time slot on the calendar.
4. Setting tight scope and polite boundaries with customers.
Successful entrepreneurs set clear boundaries when it comes to delivering their products and services to customers. Especially in service companies, it’s not always clear to the client what’s included in a fixed fee contract unless it’s clearly spelled out.
If you are asked to do something that’s not included in the contract, you now have a choice. Do you give it away for free, or do you have a change order process where you can easily provide an estimate for that extra work?
5. Measuring results.
Only what can be measured can be improved, and smart entrepreneurs know this. Track — in real time, not a year later — what’s important to you. New customers, new leads, closed sales, revenue per day, sales per day, monthly net income, certain costs, profit margins, profit per customer, profit per job, and profit per location are just a few of the many metrics you can choose to track for your business.
Once you measure it, you can now set goals to improve it.
6. Curbing irrational spending.
Invest in things that will last, such as your own education, great systems, team training, and assets that you really need. Avoid spending on items that are used up quickly, such as elaborate entertainment expenses that don’t generate significant revenue, excessive utilities, and stopgap equipment.
This area can be a tough one to evaluate objectively because there can be emotion and attachment involved in the spending. Let us know if you need help in this area; we can help you look at your spending with fresh eyes and provide a new perspective.
7. Maintaining focus.
Great entrepreneurs have clear focus. If you have too many projects going on at once, you end up delaying all of your project completion dates, and nothing gets finished. Ask yourself, what’s the most important thing I can do today? And work on that until it’s done. Then ask yourself the same question again, and wash, rinse, repeat your way to success.
Which of the seven habits are you best at? Celebrate your natural gifts while keeping an eye on the habits you need to work on. That will move you to the success you deserve.
Most of us spend a lot of time browsing the Internet, and that means using browser software. Google Chrome is the most popular browser with roughly 40 percent market share. Internet Explorer follows with about a 30 percent share and Firefox is third with less than 20 percent.
Since most people use Google Chrome, we’ll use that browser to describe our five productivity tips. If you don’t use Chrome, you can still look for the features we list on your browser of choice.
Better with Bookmarks
Do you have a half dozen or so sites that you like to visit every day? If so, bookmark them on a toolbar so that you have one-click access. In Chrome, click the icon with three horizontal lines that is located on the web address bar at the top of your browser. We’ll call this the Chrome Commands button from now on. Mouse over “Bookmarks,” and make sure “Show Bookmarks Bar” is checked.
Type in your favorite site URL. To add it as a bookmark on your bookmarks bar, click the star on the right side of the web address box. It will turn gold, and then you can name your page as well as select whether you want it more prominently in the bar or simply in your list of bookmarks. Repeat this for each of your most visited sites.
Now that all of your sites are listed on your bookmarks bar, you can visit them in one click.
Enlarge the Page
If a page is too small and you want to enlarge the entire thing, you can do so with your mouse wheel. On your keyboard, hold down the CTRL key and roll your mouse wheel away from you while you’re on a web page. The page will get larger. Roll your mouse wheel toward you to reverse the effect and make a page smaller.
You can also customize your fonts by going into Chrome Commands, Settings, Advanced Setting, and Web Content. You can find your font options there.
Do you need something you downloaded earlier today and forgot where you put it? Access it again here by typing this into the web address box or selecting “Downloads” from the Chrome Commands. Hey, even better, if you need this a lot, make it a bookmark.
If you’re a history buff – that is, if you closed a browser screen and find you want to re-visit that page, then look for the History command under the Chrome Commands button. It’s super-handy and will save lots of time when you need to backtrack.
Tired of filling out forms? Chrome will do it for you by remembering certain fields and matching them up with their form fieldnames. You can have Chrome remember addresses and credit cards; however we can’t really recommend the latter for security reasons. Manage this feature and its settings by clicking the Chrome Commands button and Settings. Scroll to the end and look for Advanced Settings, then look for the Autofill area and Manage Autofill Settings.
While browsing, have you ever come across a word or phrase you don’t know or want to know more about? If so, highlight it right there on the web page and then right-click. Select “Search Google for “the phrase you highlighted” to bring up the information you want.
Most of us have never had a formal class on our browsers, but it’s not a bad idea. Hopefully, until you can get to that class, these tips will help you discover a little more about the browser you use every day.
If the IRS kept all or a portion of your federal refund, it may be because you owe money for certain delinquent debts. If you are in arrears for one or more of these obligations, the IRS or the Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt.
Here are some important facts you should know about tax refund offsets:
If you owe federal or state income taxes, your refund will be offset to pay those tax liabilities. If you had other debt, such as child support or a student loan debt that was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt and send it to the agency authorized to collect it. Any portion of your refund remaining after an offset will be refunded to you.
You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.
You should contact the agency shown on the notice if you believe you do not owe the debt or if you are disputing the amount taken from your refund.
If you filed a joint return and you are the spouse who is not responsible for the debt, but are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. If you know that your spouse has outstanding debts and anticipates an offset, you can attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ. If not, you can file it after you are notified of an offset.
If you file a Form 8379 with your return, write “INJURED SPOUSE” at the top left corner of the Form 1040, 1040A ,or 1040EZ. IRS will process your allocation request before an offset occurs.
If you are filing Form 8379 by itself, it must show both spouses’ Social Security numbers in the same order as they appeared on your income tax return. You, the “injured” spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379, but, to speed up processing, attach a copy of all Forms W-2 and W-2G and any 1099s where federal income tax has been withheld that relate to the Form 1040 you already filed. Send Form 8379 to the Service Center where you filed your original return.
If you reside in a community property state, overpayments (refunds) are considered joint
property and are generally applied (offset) to legally owed past-due obligations of either spouse. There are exceptions; please call for additional details.
The IRS will compute the injured spouse’s share of the joint return for you. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.
Some employees may incur certain work-related expenses. If their employers reimburse them for the expenses, then the employees are not out-of–pocket for the expenses and cannot deduct them on their tax returns. If the employers do not reimburse for the expenses, the employees may deduct the expenses as a miscellaneous itemized deduction on their tax returns.
Seems simple enough, right? Well, maybe not. Let’s look at all the issues associated with deducting employee work-related expenses. We shall begin by defining the employee business expenses that can either be deducted or reimbursed. To qualify, expenses must be ordinary and necessary in performance of the employee’s duties and generally include:
Business travel away from home (does not include commuting from home to work and back).
Business use of the employee’s vehicle.
Business meals and entertainment (special rules apply).
Business use of the employee’s home (difficult to qualify for as an employee).
If an employer does not reimburse the expenses, then the only solution is for the employee to itemize the unreimbursed expenses on IRS Form 2106 and then deduct the expenses on Schedule A as an itemized deduction. But here are several negative aspects associated with deducting the expenses on Schedule A:
A taxpayer who takes the standard deduction cannot deduct the expenses because the expenses can only be deducted as a part of a taxpayer’s itemized deductions.
Even when deducting the expenses as miscellaneous itemized deductions, taxpayers are faced with a limitation. Most miscellaneous itemized deductions, including employee business expenses, are reduced by 2% of the individual’s modified adjusted gross income (MAGI). For example, if the taxpayer’s MAGI is $100,000, he gains no benefit from the first $2,000 of miscellaneous itemized deductions. Thus, if his miscellaneous itemized deduction only consisted of work-related expenses of $3,000, he would only benefit from $1,000 of his work-related expenses ($3,000 less $2,000).
Finally, a taxpayer subject to the alternative minimum tax (AMT) faces still another limitation. When computing the AMT, miscellaneous itemized deductions are not allowed. So to the extent of the AMT, no benefit is derived from deducting miscellaneous itemized deductions.
Because of all the limitations associated with deducting the expenses, it is always better to have the expenses reimbursed by the employer under an accountable plan. Under this type of arrangement, the employee must account for each expense and provide the employer with written documentation (expense report). The reimbursement is not taxable to the employee and not included in the employee’s Form W-2. An accountable plan must meet three requirements; the employee must:
Have paid or incurred expenses that are deductible while performing services as an employee.
Adequately account to the employer for these expenses within a reasonable time period.
Return any excess reimbursement or allowance within a reasonable time period.
If the plan under which the employer reimburses the employee is non-accountable, then the payments the employee receives should be included in the wages shown on his Form W-2. The employee must report the income and itemize deductions to deduct these expenses.
Some employers may not be willing to pick up the additional expense, in which case the employee can try negotiating a pay reduction and corresponding expense reimbursement.
The employee must also keep adequate records of his work-related expenses.
And one last word of advice: if an employee is eligible to be reimbursed for a work-related expense but fails to request reimbursement from his employer, the employee may not claim the expense as a deduction on his tax return.
If you already filed your federal tax return and are due a refund, you can check the status of your refund online.
Where’s My Refund? is an interactive tool on the IRS website. Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day, 7 days a week.
If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will be available within approximately four weeks. When checking the status of your refund, have your federal tax return handy. To access your personalized refund information, you must enter:
Your Social Security Number (or Individual Taxpayer Identification Number);
Your Filing Status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and
The exact refund amount shown on your tax return.
Once your personal information has been entered, one of several responses
may come up, including the following:
Acknowledgement that your return was received and is in processing.
The mailing date or direct deposit date of your refund.
Notice that the IRS could not deliver your refund due to an incorrect address. You can update your address online using the Where’s My Refund? feature.
Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.
Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.
If you do not have Internet access, you can check the status of your refund by calling the IRS TeleTax System at 800-829-4477. When calling, you must provide your Social Security Number (or your spouse’s), your filing status, and the exact refund amount shown on your return.
The IRS provides a series of frequently asked questions that provide additional information.
Beginning with the 2011 tax return, reporting stock transactions has become significantly more complicated because of the new requirement for brokerage firms to track the purchase price of stocks acquired after 2010 and subsequent years and to include that information on the information-reporting document 1099-B.
For several years now, the IRS has required brokerage firms to report the gross proceeds from the sale of stocks and other securities on the Form 1099-B. But just knowing the proceeds from a security sale does not allow the IRS to verify the profit or loss reported by the taxpayer. So beginning with 2011 purchase transactions, brokers are required to track the price paid for the securities and include that information on the 1099-B when that particular security is subsequently sold.
So that the IRS can use the new data to verify taxpayer profit or loss transactions attributable to purchases where the cost information is included with the 1099-B, the year’s transactions must now be broken down into six categories (the last two categories listed do not apply to stock transactions but may apply to sales of other capital assets):
Long-term sales where the broker IS reporting the cost of the security
Short-term sales where the broker IS reporting the cost of the security
Long-term sales where the broker IS NOT reporting the cost of the security
Short-term sales where the broker IS NOT reporting the cost of the security
Long-term sales for which no 1099-B is issued
Short-term sales for which no 1099-B is issued
The IRS has provided a new form 8949 for segregating the transactions within each of these categories. A separate form 8949 must be used for category so the IRS can match what the taxpayer reported as profit/loss for transactions where the broker reported the profit/loss.
Prior to 2011 it was common practice to summarize a taxpayers long-term and short term transactions and make a single long-term and single short-term entry on the old version of Schedule D saying “see attached” in description block and including the broker’s statement of long-term and short-term gains and losses with the return filing. Under this new regimen this is longer possible because brokerage firms are not segregating the transactions into the required categories in reports they provided to their clients.
This has created a reporting nightmare for taxpayers with significant numbers of transactions during the year (typically managed accounts) where the transactions can run in the hundreds. These taxpayers or their tax preparer are faced with entering every transaction on the tax return in order to accomplish the required segregation, which is time consuming and expensive.
Although not a perfect solution, many tax software products will import stock transactions from a spreadsheet and most brokerage firms will provide a spreadsheet of the transactions upon request. Once loaded each transaction coded as to whether the 1099-B included the cost basis or not. Most brokerage accounts use the term “covered” to designate transaction where they report basis and “uncovered” where they didn’t.
If all that is not enough, the reporting process is complicated where the securities traded were acquired by gift or inheritance. Special adjustments are also required for wash sales and when sales can
be attributed to a prior purchase of the same security.
There is little chance the IRS will change the new reporting requirement since they feel a significant number of taxpayers overstate the tax basis of their sales and this this new reporting requirement was designed to counter that practice. So, hopefully, the brokerage firms will come to realize the needs of their clients and adjust their reporting to simplify the process for their clients.
Now that the IRS has profit or loss matching capabilities, it is important to correctly report the transactions as the IRS expects to see them. Failure to do so could lead to correspondence audits or even face-to-face audits.
A regular form of fundraising by charitable organizations consists of sales or auctions of property or services at a price in excess of value. These are referred to as “quid pro quo” contributions or dual payments made that consist partly of a charitable gift and partly of consideration for goods or services provided to the donor.
Quid pro quo contributions typically include the purchase of tickets for sightseeing tours, all-expense-paid trips, theatrical or concert performances, books or subscriptions to magazines, stationery, candy, etc., and are sold with a generous mark-up that is designed to help the charity in performing its functions. In these cases, the charitable deduction is the excess of the payment over the value received by the purchaser-contributor. For instance, when tickets to a show are purchased from a charity at a price in excess of the normal admission charge, the excess over the latter (plus tax) is a charitable contribution.
Determining and documenting the amount of the purchase that represents the charitable portion is the key to being able to take a charitable tax deduction for quid pro quo purchases. Tax law requires charitable organizations that receive a quid pro quo contribution in excess of $75 to provide a written statement, in connection with soliciting or receiving the contribution, that informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the amount of the purchase that is in excess of the value of the property or service purchased and a good-faith estimate of the value of the good or services purchased.
Example #1 – A taxpayer purchases a cookbook from a charity for $100. The charity provides the taxpayer with a good faith estimate of $20 for the value of the book in a written disclosure statement. Thus, the taxpayer’s charitable deduction is $80 ($100 minus the $20 value of the book).
Example #2 – A taxpayer attends a charity auction. The charity provides a catalog of the items for auction and a good-faith estimate of the value of each item. The taxpayer is the successful bidder for a vase valued at $100 in the catalog, for which the taxpayer bid and paid $500. The taxpayer’s charitable deduction is $400 ($500 minus the good-faith valuation of $100).
Example #3 – A taxpayer pays $40 to see a special showing of a movie for the benefit of a qualified charity. The ticket read “Contribution $40”. If the regular price for the movie is $10, the contribution would be $30 ($40 minus the regular $10 ticket price).
**Disclaimer – Informational purposes and may not be appropriate for your situation etc. need to discuss with a CPA before acting on any information in this blog.
The IRS as part of its “Fresh Start” initiative to help struggling taxpayers is making installment agreements available to more people. The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.
Effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.
Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.
Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with financial statements. Taxpayers may also pay down their balance due to $50,000 or less to take advantage of streamlined payment option.
An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.
**Disclaimer – Informational purposes and may not be appropriate for your situation etc. need to discuss with a CPA before acting on any information in this blog.