Are they employees or independent contractors? It is not based on what you call them.

This is an except from the California Employer Daily Newsletter. It is just as applicable to Nevada.

These days, organizations frequently try to increase their workforce flexibility and decrease their benefit costs by hiring independent contractors to do required work.
All well and good … unless a court later determines that while you’re calling such workers independent, you’re really treating them as employees. In that case, and as names as famous as Microsoft have learned the hard way, penalties can be severe.
Often the issue revolves around how much control employers exercise over these workers’ job activities. The more control, the more likely the worker is actually an employee.
Consider this recent case involving cab drivers in Oakland:
Threatened with unionization of his drivers, the cab company owner contended that they were independent contractors and, thus not a collective bargaining entity, because:
• They paid a fixed rental fee for the cabs.
• They didn’t have to account for fees or tips.
• They had no set work hours or minimum work requirements.
• They received no benefits and no tax or social security was withheld from pay.
• Lease agreements openly stated that the drivers were independent contractors.

Independent contractors, right? Not so fast. The court held that while all the above was true, the drivers also suffered a “lack of entrepreneurial freedom” (i.e., the chance to make money on their own). The evidence:
• Drivers could only use cabs to respond to the cab company’s dispatches.
• They were prohibited from distributing private business cards and could not accept calls for service on their cell phones.
• They had to comply with company policy on how they drove and dressed, and they were subject to company discipline.
• They had to carry ads in their cabs that generated revenue for the company, but not for the drivers.
• Drivers were required to take more training than was legally mandated.
Taken together, those facts indicated that the company had a significant amount of control. This led the court to conclude that the cabbies did not have entrepreneurial freedom. And that, said the court, meant they were employees.
What the DOL Says
The U.S. Department of Labor (DOL) states that, under the Fair Labor Standards Act (FLSA), the employer-employee relationship is tested by “economic reality” rather than “technical concepts.” So just words in a leasing agreement or a “little bit of independence” isn’t enough to classify someone as an independent contractor.
Furthermore, the U.S. Supreme Court has, on a number of occasions, indicated that there is no single test for determining whether an individual is an independent contractor under the FLSA. It’s instead the total activity or situation that defines a worker’s status. Besides the control and entrepreneurial freedom issues mentioned above, courts consider:
• The extent to which the services rendered are part of the principal’s business
• The permanency of the relationship
• The amount of the alleged contractor’s investment in facilities and equipment
• The amount of initiative, judgment, or foresight required
• The degree of independent business organization and operation
Bottom line on all of this: Before you seek the advantages of calling your workers independent contractors, consider their total situation carefully. And remember, it’s not what you call them that may count in the end.

Are you a scorekeeper or a coach?

A coach is the person on the sidelines showing the players how to win. A coach is not on the field competing. Very difficult for a business owner to not be on the field and involved with every play. When asked if the problem is a people problem or a process problem most business owners reply it is a people problem. The vast majority of the time it is a process issue. The reality is the people issues are the people are in the wrong seats on the bus. The best salesman in your company is working in the warehouse.

The other issue is what is called "tribal knowledge". A current employee is now training their replacement. Usually the same way they were trained. No processes or procedures are written down. Worst of all is 40% to 60% of the employees time is spent on things that do not generate income for the business.

If you would like more information on this or other ares of your business please call us at KatTax, your QuickBooks, bookkeeping and payroll experts.

Sleeter Group accounting solutions conference in Las Vegas.

Kathy Apfel and I spent the last few days at the Sleeter Group accounting solutions conference in Las Vegas. Lots of interesting information about the ongoing changes to the world of accounting technology. One area is the reliance on one software program for accounting. As the requirements increase no one single program can do everything. The new term is "chunckification". No its not a new ice cream flavor but a way multiple software programs process parts of the whole accounting picture and then combine everything into one neat package. One program that provides the figures, another that does the charts and graphs, another that does the payroll and still another that does the projections. All these combine into a package and download it into a "client portal" on our website. Thet way the client has 24-7 access to financial statements and tax returns. They can be printed or emailed as the client needs them from home, office or mobile device.

One other new area is "cloud computing". It means that a company in Texas for example has a building full of servers, a server farm, and they hold all the data and programs for KatTax. All the data is accessed by the internet. As long as internet access is available you can work or print files from any place in the world.

If you would like more information please feel free to call us at KatTax your QuickBooks, bookkeeping and payroll experts.

Do you pay someone to prepare your income tax return?

Do you pay someone to prepare your income tax return? Here are a few words from Kathy Olsen at the IRS.

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.
Here are a few points to keep in mind when someone else prepares your return:
• Check the person's qualifications. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics. New regulations effective in 2011 require all paid tax return preparers including attorneys, CPAs and enrolled agents to have a Preparer Tax Identification Number.
• Check the preparer's history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.
• Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.
• Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.
• Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
• Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.
• Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
• Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

Some good information from Kathy Olsen at the IRS. Kathy deals with those of us who prepare income tax returns for a living. If you have any questions please feel free to call Larry at KatTax 796-1040 ext. 105

Payroll or independent contractor that is the question.

When you own a business and you hire Bob the Builder to do repair work for you at your business he is not an employee right? Maybe yes maybe not. We have had several recent audits by the State of Nevada on the State Unemployment (SUTA). What the Nevada State auditors are looking for is the invoice that goes with the payment. If you made a check out to Bob Jones the individual that owns Bob the Builder you need an invoice that matches exactly to the check. An invoice for $1,000 and a check for $750 don't match up and can create a problem if you don't have another check for $250.

The state auditors have taken the stand that if you write a check to Bob Jones the individual and don't have an invoice or the invoice doesn't match the check then Bob Jones is your employee. As your employee he is required to be covered under your unemployment premium and on your modified business tax. You may consider that payment was to an independent contractor or as casual labor but the state is not accepting that position.

Once the state shares that information with the IRS they will be the next auditors at your door. A number of issues like this were not audited in the past. Now with the state and federal government trying to increase revenues they are looking at every issue.

If you look at the Nevada state laws a person is an employee as soon as they start to work for you. If you hire someone and they don't work out and you pay them as casual labor the State of Nevada says they are an employee, they go on payroll and you pay all the related taxes. The IRS says the same thing. Neither really enforced that rule in the past. Now they both are.

The message in all this is times have changed and it is expensive to not play by the rules.

New from IRS for 2011 tax filing season.

The IRS has changed their processing of tax returns for the 2011 tax returns. The first and most important is the IRS will process tax returns each day. Previously they only processed returns on Thursdays. So if we prepared and e-filed your return on Friday it was on hold at the IRS for a week. When it was processed if there was a correction that was needed we had already lost a week in processing. Now the IRS will process every day and the refunds will be direct deposited in 3 to 5 days.

Second big issue is the Schedule E for rental properties. Anyone paid $600 or more over the year must receive a 1099. That includes the yard maintenance people, the pool people, plumber, painters, home handyman, attorney or tax preparer. If you don't issue a 1099 you don't get the write off on your tax return. Plus you may be subject to 2 penalties. One penalty for not giving the individual their 1099 and a seperate penalty for not sending the copy to the IRS.

Thats like having a question marked wrong on a test for not having the correct answer and marked wrong again for having the wrong answer. If you did not have a 1099 for the individual how would you have a copy to send to the IRS?

If you don't have the name address and social security number of everyone you pay for maintenance, repairs and services be sure to get them now. KatTax can prepare your 1099s.

Surviving spouses benefit from passing along their spouses estate tax exclusion

New from the IRS: Surviving Spouses to Benefit from Portability Election; Estate Tax Return Required to Make this Choice For Some, Form 706 Due as Early as Oct. 3

WASHINGTON — The Internal Revenue Service today reminded estates of married individuals dying after 2010 that they must file an estate tax return to pass along their unused estate & gift tax exclusion amount to their surviving spouse.
Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted last December, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.
The IRS expects that most estates of people who are married will want to make the portability election, including people who are not required to file an estate tax return for some other reason. The only way to make the election is by properly and timely filing an estate tax return on Form 706. There are no special boxes to check or statements needed to make the election.
The first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are due as early as Monday, Oct. 3, 2011. This is because the estate tax return is due nine months after the date of death. Estates unable to meet this deadline can request an automatic six-month filing extension by filing Form 4768. The IRS emphasized that estates of those who died before 2011 are not eligible to make this election.

Schedule C for self employed individuals

Each separate business requires a separate Schedule C. You cannot combine different entities on a single Schedule C. The IRS will assess a 25% accuracy penalty for a combined Schedule C.

If you have one business but both spouses work in the business each can file their own Schedule C. The Schedules C do not have to be a 50-50 split of income and expenses. What the split does is it separates the Social Security taxes and benefits for each spouse.

The split also defines the "legal ownership interest" in the business. Nevada is a community property state and ownership is assumed to be 50-50. By splitting the ownership with two Schedules C the issue may be resolved before it becomes an issue.

The new and revised Schedule C has a new income line to report the credit and debit card income separate from the cash and check income. Your credit card processor will provide you a 1099K in January.

The one issue that has not changed is the activity a Business or is it a Hobby. Business losses are deducted on the tax return. Hobby losses are used only to offset Hobby income. If you have losses 3 out of the past 5 years then it is up to the business owner to prove to the IRS that this is a business. You prove it is a business by showing that you maintain a separate business account, you maintain all the books and records of the business or hire KatTax to do them for you, you belong to the Chamber of Commerce and you take continuing education classes. You want a business not a hobby.

Update for 2012 for investment gains and losses.

The IRS has come up with a new tax form. Imagine that! The new form is 8949 and it will accompany the Schedule D for reporting gains and losses on investments like stocks and bonds.

The newly revised 1099B from your stock broker will now include the acquisition date, cost, short and long term gains and losses and will include any wash sales. Sounds great! The bad news is the information is only available for investments purchased in 2011 and after. Don't throw out those old broker statements yet.

Also new for 2011 is the basis for inheritated assets will now be the fair market value as of the date of the decedients death. That means if Uncle Bill dies and leaves you shares of Ford, your value of the shares is the value on the day Uncle Bill died. If Uncle Bill paid $2 per share and they are now worth $40 you only pay tax on the profit over $40. If Uncle Bill paid $40 and the stock now sells at $2 no one gets to take the loss.

Protect your small business from an IRS audit.

Kathy and Larry are both members of the Professional Association of Small Business Accountants (PASBA)  The following is a re-print of their article. 

You can access more of their articles at smallbizaccountants.com

 

Protect Your Small Business from an IRS Audit

Published on : Sep 01 2011

Small businesses often find themselves being targeted for audit by the Internal Revenue Service (IRS) for a variety of reasons. For all small businesses, proper record keeping and tax preparation is imperative to not raising the concerns of the IRS. While hiring qualified accounting and bookkeeping services to assist you in passing under the auditing radar can save you time and headaches, there are certain measures you as a small business owner should keep in mind when tax season rears its head.

If you have decided to do your own bookkeeping you should be prepared to preserve meticulous records of all of your financial dealings. This includes retaining all receipts, ledgers of income and expenditures, and donations among others. Not only does this attention to detail help you fill out your tax forms with accurate information, it also provides you with hard copies to confirm the correctness of your data in case the IRS should find issue with your original tax filing.

Go over your bookkeeping and taxes multiple times when filling out your tax forms. Simple mathematical mistakes and wrong entries are a common cause of peaked interest at the IRS. Anything that does not add up correctly will could draw the attention of the IRS and potentially cause an audit. When you hire a professional accounting person from PASBA, you won’t have to worry about troublesome issues like taxes.

Your small business may also be part of a target group for which the IRS would like to take a closer look. These target groups can vary over time, but currently the IRS has been keeping a closer eye on the financials of the small business crowd with annual incomes of 1 million to 25 million. If you are a company within these parameters, it would be wise to hire a bookkeeping firm to assist you in keeping your fiscal matters in order so you can be fully prepared for potentially being targeted for an audit.

Hiring an inexperienced person to do your taxes can lead to an audit of your small business. Recently the IRS has announced that they will crack down on poor tax preparation. They intend to make certification and continued education the norm in tax preparation. This means that the IRS has its eyes on tax preparers to give close scrutiny to any that seem unfit. Expect your taxes to be more closely watched if your tax preparer has made mistakes in the past. At PASBA, we help you carefully select reputable small business accounting services to prepare your tax return to avoid any negative issues.

While only about one percent of tax filers receive an audit each year, it can be a scary and unpleasant experience. Your chances of being audited can be lowered or even all together avoided if you hire a certified small business accountant to handle all your business financials. To locate a Certified Public Accountant (CPA), you can enter your business address zip code on the Professional Association of Small Business Accountants (PASBA) website and narrow down qualified accountants within a specified radius. That makes it easy to locate the best accountant or tax preparer for your business.

Is a short sale better than a foreclosure?

That all depends on your point of view.  A short sale is selling your house for less than is owed on the mortgage.  You must get the approval of the lender to do a short sale.  The house is sold and after the commissions, fees, repairs etc. are paid the lender gets the remaining proceeds. 

If you have a security clearance required for your employment then a short sale is best.  Usually you cannot maintain your security clearance with a foreclosure on your credit report.  Short sales do not impact your credit rating nearly as bad as a foreclosure.  A short sale will lower your credit score by 50 to 100 points while a foreclosure will drop your credit score 200 to 300 points and remain on your credit report for 7 years.  A short sale is usually reported on your credit report as a past due loan that was paid.  The time required for a short sale is about 7 months before it is complete. 

Downside of the short sale is the lender usually has 6 years to come back to you to collect the short payment on the loan.  Since a lot of real estate loans are recourse you stay liable for the repayment even after the property is gone. 

If you have some type of mortgage insurance on your loan the lender will not agree to a short sale.  Insurance is like a guarantee to the lender by VA or FHA or private mortgage insurance (PMI).  In the case of insurance on the loan the lender can only collect if they foreclose on the property.

Call KatTax and we can refer you to an attorney that can help you with your decision.

Do you have unclaimed or uncashed payroll checks?

Rules for unclaimed and uncashed payroll checks are set by the State of Nevada for abandoned property.  Employers are not allowed to keep the money from uncashed payroll checks.  Nevada requires unclaimed and uncashed payroll checks be turned over to the state.  The State of Nevada will cash the checks and hold the money for the employee.

Doing nothing with the checks is the worst mistake an employer can make.  If these checks are found during a SUTA or Workers Comp audit the penalties can be more than the check and you still have to surrender the check to the State. 

If you cash the employee's check in your office deposit the check to the business account.  If you as the owner are also an employee of the business you need to process your checks as well.  If you don't run the checks through your personal account, then deposit them back into the business checking account.

In Nevada any paycheck check over $50 that is uncashed or unclaimed must be sent to the State on form UP-1 by November 1st of each year.  The report covers the year from July 1st to June 30th.

As an employer any payroll check that you write must clear your bank account.  If the check does not clear it is considered unclaimed or uncashed.  You may have given the employee cash for the wages but if the check does not clear your account the employee will get paid twice.

IRS Tax Forums in Las Vegas

We attended the IRS Tax Forum in Las Vegas August 16 - 17 - 18.  Like all meetings some good info, some bad and some so-so.  One area the IRS has been working on is the document requests for audits now includes a copy of QuickBooks on DVD, CD or flash drive.  They want the Admin and password to access the entire program. 

Our concern is not the clients that we do their work in QuickBooks but the clients that do their own QuickBooks input.  With the Admin copy the IRS can open and review every entry in accounting and payroll.  They can match checks written to the W2s in payroll to make sure they balance.  Which can lead to referrals for audits on your employees.

The IRS was trying to assure us tax preparers that they would not look at anything other than the years being audited.  We all know that no one from the government would ever lie to us.

If you don't hire KatTax you should hire someone to review and clean up your QuickBooks files.  If you think your QuickBooks are in great shape check the account for Undeposited Funds or does your bank balance match your bank statement.

IRS Notices don't panic call KatTax

Internal Revenue Service sends millions of letters and notices to taxpayers, but don't panic.  KatTax can help ease your worries.

Here are some simple steps to take.  Call KatTax and make an appointment to bring us the letter.

Don’t panic.  There are number of reasons the IRS sends notices including payment of taxes, changes to your account or a request for additional information.

What we do is review the letter and compare it with the information on your return.  Sometimes the IRS is right.  Many times they are not.  It is important to respond as to why we disagree with their letter.

Most correspondence can be corrected without calling or visiting an IRS office.  However, if we have to call the IRS we need a copy of your tax return, the correspondence and a power of attorney to allow the IRS to talk to us about your tax return.  Even though we prepared the return the IRS still wants a power of attorney.  

Remember the IRS will not go away.  Ignoring letters from the IRS can result in IRS taking money from your wages or your bank account. 

If you receive a letter from the IRS do not delay call KatTax today.

Getting married? Some tax ideas that may help.

If you recently got married the last thing on your mind is taxes.  Here are some tips you need for tax time.

Notify the Social Security Administration of any name change.  Notify the IRS of your new address.  Notify the U.S. Postal Service of your new address.  Notify your employer of your name and address change.  Check your withholding since your combined income may put you in a higher tax bracket.     

Now that you are married you can file jointly or separately.  Usually joint filers receive bigger refunds.  Ask KatTax when we do your return and we can tell you what filing status works best for you.   

Back to School Tax Tips

Back-to-School Tax Tips 

If you are going to college payment deadlines for tuition and other fees are coming up fast. If you want to deduct the expenses or apply for credits keep your receipts.  The following four items may benefit you at tax time.

1. American Opportunity Credit       The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.  Can include graduate school as well.
2. Lifetime Learning Credit       Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.
3. Tuition and Fees Deduction  This deduction can reduce the amount of your income subject to tax by up to $4,000 even if you do not itemize your deductions.
4. Student loan interest deduction       You may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your daughter and the Lifetime Learning Credit for your son.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Income limits also apply to these credits so please check with KatTax at 702-796-1040 to determine your eligibility.

Extension of the due date for over the road Highway Tax

If you have a big rig or a bus and are required to file Form 2290 for highway taxes you got a reprieve.  Tax returns that would normally be due on August 31, 2011 will now be due November 30, 2011.  The current law is set to expire on September 30, 2011.  Although everyone expects that congress will renew the law there may be changes to the new law. 

In government speak changes to the law usually means an increase in the tax.  Those changes may be retroactive.  To prevent the need for amended filings the due date of the returns was extended. 

Do you have a backup plan in case of a disaster.

With all the news reports of floods, tornadoes and fires it brings to mind a friend who has a tax and bookkeeping business outside New Orleans.  After hurricane Katrina he asked what type of back up plan do you have for your business or your personal things.  The next day after the hurricane he went to check on his business.  The entire building was gone.  Nothing left but a concrete slab.  What kind of a back up plan do you have when the desks, computers, file cabinets and all the paper is gone.  Over the years I have had several clients that had fires that started next door but spread to their business.  Among the fire, smoke and water damages they were out of business for months.

Best approach is to make a back up of all your computer work and store it off site.  A bank safe deposit box would be ideal but it can also be at you accountants office.  If you do daily, weekly or monthly back up you can install the back up and only be missing a small amount of information.

Most businesses have computers setting on the floor under the desks.  Not a good place to try to protect against water damage. 

Another person commented the hardest thing was the loss of all the family pictures.  Items that can be scanned to a CD or a flash drive should be.  Everyone knows what needs to be done this is just a reminder that there is never a good time to do it.

IRS audits looking for unreported income

The primary focus on IRS audits is looking for unreported income. 

The cash disbursement method analyzes all the deposits to the accounts and compares the total of the deposits to the amount reported as gross income on the tax return.  The IRS will also analyze the changes to the taxpayers net worth.  The third area is the taxpayer's lifestyle.  The IRS will reconstruct the taxpayer's monthly payments and compare them to the claimed income. 

If you report income of $60,000 why did your saving account increase by $100,000?

If you report income of $30,000 per year how do you afford a house with $3,000 per month payments and a car with $1,000 a month payments?  How do you make up the short fall each month?

If you pay your bills in cash do you have corresponding cash withdrawals from your bank?  If not where did the cash come from?

If you have a small business that has losses year after year why are you still doing it?  Cut your losses and close the business. 

If they don't match the IRS assumes you are hiding income.

What are the odds of being audited?  Average wage earner about 1 in 100.  Have a Schedule C for a small business about 1 in 25.  Have a Form 2106 for unreimbursed business expenses about 1 in 25.  Have a Schedule E for rental properties about 1 in 25.

Have a S Corporation or Partnership about 1 in 250.  May want to consider converting your Schedule C business or Schedule E rental to a corporation or partnership.

Call us at 702-796-1040 for more information.

QuickBooks has a new item called Wasp Barcode

QuickBooks has a new item out that they call Wasp Barcode.  A handy product that has multiple uses.  You can use it for a time clock where all employees can clock in and out.  No they don't need a barcode tattooed on their foreheads they use a thumb print.  That way you don't have someone leaving early and having their friend clock out for them.  You use the barcode to track the time everyone spends on a project.  For example if I am working on a tax project for a client, I can track my time spent on the project, the bookkeeper's time and the payroll clerk's time.  They all scan the barcode when they start and stop their work time on each project and the computer will total the hours for each project.

Do you do point of sale transactions or need to track inventory?  If so this is a great system.  For example you assign a barcode to each inventory item.  Each item sold is scanned and you are able to keep a running total of how many are still in stock.  Ever been to a store and the person says yes the computer shows we have 2 of those items?  But no one can find them.  With Wasp Barcode you know how many are left in inventory and when to reorder.  Can't guarantee you can find the items but the system will help you keep a better control of the inventory.

If this sounds like something you might like or want more info on call Kathy and she will meet with you to go over it in more detail.

IRS auditors are requesting a backup copy of taxpayer's QuickBooks file

The IRS has purchased QuickBooks licenses and installed the program on computers at various sites where they do income tax return audits.  The IRS is requesting a back up copy of the firm's QuickBooks along with the other typical information like bank statements and copies of expense receipts.  The IRS uses the extracted information from the QuickBooks to calculate sales and expenses.  For example is the amount reported as sales on the state sales tax return consistent with the amount of sales reported on the income tax return.  One area that the IRS is looking at is the Undeposited Funds account in the QuickBooks.  Several IRS auditors have looked at the undeposited funds as unreported sales that the business owner is trying to hide.  Most of our QuickBooks clients don't clear the undeposited funds account when they make their bank deposits.  The second part of the entry for the bank deposit is to clear the undeposited funds account so it doesn't appear that the business is not depositing all their sales.  Might be a good time to have KatTax review your QuickBooks on a monthly basis to make sure all the accounting entries are going through properly.   

Intuit raises prices on Quickbooks Payroll services

Intuit Quickbooks is increasing their prices for their payroll services.  That increase affects client's payroll subscriptions for both new and renewing effective September 1, 2011.  If you use the assisted payroll services those fee increases are effective  August 8, 2011. 

Most clients started using QuickBooks payroll to save money.  With these rate increases the savings has largely disappeared.  Our fees for standard payroll are about the same or lower than QuickBooks fees.  Plus we calculate and print payroll checks, prepare all the quarterly reports and deliver the payroll the next day.  Why would you want to risk doing it yourself? 

Call KatTax today at 702-796-1040

Health care reform act is still in place and it will be here soon

The Patient Protection and Affordable Care Act and the amendment Health Care and Education Reconciliation Act of 2010 will require most of the 32 million uninsured individuals to acquire health coverage.  Who pays for all this? 

Starting in 2016 anyone not covered by health insurance will have a penalty of $695.  In government speak that is a "Shared responsibility payment" not a penalty.

Starting in 2013 employee Medicare tax will increase .09% to 2.35% for married couples earning more than $250,000 or single people earning more than $200,000.

A new Medicare tax of 3.8% on net investment income for married couples with an AGI over $250,000 and for single people with an AGI over $200,000 will go into effect in 2013.

Also starting in 2013 medical expenses will have to exceed 10% of AGI to be deductible instead of the 7.5% now.

Starting in 2011 employers will now report the cost of your health coverage on your year end W2.  No tax as yet on your medical coverage expenses.  Starting in 2018 the tax will be 40% on premiums in excess of $10,200 for individual coverage and $27,500 for family coverage.

Children under 27 can stay on their parents insurance policy even though the child is not a dependent.

Want more info go to www.healthcare.gov for all the latest.

Powers of attorney for financial matters and health care decisions.

I am not an attorney nor is KatTax.  This is not intended to provide legal advice.

Every person needs two powers of attorney.  One relates to transacting financial business.  The second relates to health care decisions.

An agent under a power of attorney for financial affairs has the ability to sign income tax returns or transact financial business including access to the principal's assets like their bank and investment accounts.

An agent under a power of attorney for health care decisions has the ability to direct medical care or to make the decision to "pull the plug."  Without anyone to make the medical decisions it is left up to the doctors to keep you alive.

Copies of these powers of attorney should be available to anyone at the time of need.  Post them on your refrigerator door, put them in your night stand, or give a copy to the person who is the responsible party.  A power of attorney that is locked in your safe deposit box does not help anyone.

A power of attorney lapses when the principal dies!

Many types of powers of attorney exist.  Get you attorney involved early.  Besides the powers of attorney you may need a will or a trust.  These are all hard issues to deal with.  Everyone thinks they will liver forever.  So far no one has.

IRS just made an Iphone/Itouch/Andriod Application! You can check your refund status and get tax updates! The App is called IRS2GO!Check out the IRS website for more details: http://ping.fm/ajTum

Debt cancellation or forgiveness may be exempt from tax.

Canceled or forgiven debt usually creates taxable income.  When your mortgage lender cancels or forgives your debt, the Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude up to $2 million of debt forgiven on your personal residence.

The $2 million includes debt reduced through mortgage restructuring, foreclosure or through short sale.

The debt must have been used to purchase, build or substantially improve your property.  If you refinanced the property to pay off credit cards, vehicles or other uses it does not qualify for the exclusion.

Debt cancelled for credit cards, car loans, rental properties or second homes does not qualify for this act.  You may be able to exclude the amount under other areas including insolvency.  Insolvency is when you owe more than the value of your assets.  Assets also include your 401(k) and retirement account balances.

Your lender is required to issue a 1099 C for the amount of debt cancelled.  The lender is supposed to issue the 1099 by January 31st.  Unfortunately the lender usually mails it to your last address which is the house you just did the short sale on or the lender foreclosed on.  As long as the lender can show they mailed the form they have met their legal requirements.

More questions call KatTax at 702-796-1040 and we can help you determine if you will owe any taxes.

Don't forget to report your F-BAR (Foreign Bank Account Report) to the IRS! They are due June 30th, and if you miss the deadline they are subject to a 25% penalty!  There are no extensions for this form.  You can download the form from www.irs.gov and the form number is TD F 90-22.1 or type FBAR in the search window.  The form is your name and address, the bank name and address, the account number and the maximum amount in the account for the year. The penalty for late filing is based on the highest amount in the account.

IRS Repeals 1099 rules

In April, the IRS repealed the changes to the 1099 rules.  Originally the new Health Care Act required business owners and taxpayers to issue 1099s to anyone providing $600 or more of labor on any project.  When the Health Care Law was first passed it impacted Schedule E filers (those people with rental real estate).

In 2011, the IRS was going to be required taxpayers to issue 1099s to anyone who worked on their rental properties and billed for repairs in an amount of $600 or more for the year for labor.  That would include the lawn maintenance people, plumbers, carpenters and painters.  You did not have to issue a 1099 if you paid by debit or credit card only payments by check or cash counted.  If the bill included materials, the amount of the materials were not included.  The plumber that billed you $1,200 but $1,000 was for a new water heater and $200 in labor to install it would not get a 1099.

Starting in 2012 any business would have been required to issue a 1099 to anyone they paid more than $600 to for anything.  That would include the power company, the gas company, Home Depot and Lowe's and Office Depot.  That would also include me if I charged more than $600 for your tax return.  Again except if you paid by debit or credit card. 

These two items were expected to raise $19 billion in additional taxes to pay for the Health Care Act.  By eliminating these items I expect new tax issues to come up as congress works to increase taxes to cover the short fall.

Debt Cancellation or Debt Forgiveness Creates Income

If your credit card company forgives or cancells your debt partly or in full that results in taxable income.  However, mortgage debt has a different set of rules.  If mortgage debt is forgiven partly or entirely for tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.   Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.  The limit is $1 million for a married person filing a separate return.

To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.  Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.  Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

Be sure to bring your 1099C with you when you come to do your taxes.

Tax Fraud

Now is the time for tax fraud.   This is the time that everyone is preparing their tax returns or at least thinking about it.  A number of people are out there trying to take advantage of you.  The very first thing you must remember is the IRS does NOT send email.  The IRS only sends mail the old fashion way, through the post office. 

Scam artists will send an email asking for your personal information date of birth, social security number, bank account numbers, mother's maiden name and other similar requests.  The real IRS already has all that information.

The official IRS web site is http://www.irs.gov/  All official government web sites end in .gov  Don't ever click on the web site shown in the email.  It is usually routed to a different site designed to capture your info and steal your identity or your money.

Bartering Is Income

Bartering is trading goods or services for another person's goods or services.  For example I do the tax return for the auto repair shop and they repair my car.  No money changes hands.  This is income to both sides.  I need to show income in the amount I would have charged for the tax return.  The auto repair shop shows income an amount equal to what the repairs would normally cost.  Since we both report the income, tax will be due on the sale but no money changes hands and now neither person is able to pay the tax due.

People also belong to Bartering clubs or groups.  Like with the above transaction I do the tax return for the auto repair shop.  Since I don't need my car repaired I get credits at the Bartering club.  The Bartering club moves the credits from the auto repair shop's account to my account.  I can pay my yard service person with credits in my account at the Bartering club. 

The IRS treats all bartering transactions as though actual cash was transferred between the parties.  All transactions need to be reported as income and the tax paid.  If you have large amounts of credits at the bartering club that could create a tax problem.  Money earned but no cash to pay the IRS is not what they want to hear.  Give KatTax a call before you get involved.

Are my Social Security Checks Taxable

Not many hard and fast rules for Social Security income.  If you only have social security income then it is not taxable.  The more income you have the more of your social security is included in your taxable income.  Gaming income is one of the items that forces more of your social security to be included in taxable income.  Even though you can write off the losses against the win the taxable income portion of the social security stays as taxable income.  The best approach if you have questions is give us a call at 796-1040 and we can help your figure out if any tax is due.

Good News Tax Breaks for Parents

If you have children you can take them as dependents and if they are under 17 at the end of the year you can get up to $1,000 per child in tax credits to off set taxes or be refunded to you.  Depending on your income level you may qualify for Earned Income Tax Credits (EITC).  If you have a child in day care or safe key you can qualify for child care credits.  Thinking of adopting a child.  Adoption credits will offset some of the expenses.  If you child has earned income they may need to file a return.  If they have investment income they may be taxed at your tax rate.  That is called a "kiddie tax".  That is one way the IRS tries to stop parents from putting the investments in the children's name to reduce the tax rate.  Children in college then education credits to cover some of the school costs.  Student loan interest deductions let you reduce you income by the amount of interest paid.  Health insurance through work or as a self employed person allows for coverage of your children up to age 27.  Lots of new and different things going on.  Call us and we can help.

Plain Writing Act

President Obama signed the Plain Writing Act of 2010 earlier this year.  Can you believe government agencies, including the IRS, will be required to communicate in plain english.  No more government speak.  I have received letters from IRS and after reading the letter 5 times I had to call because I could not understand the letter.  The following is a link to the IRS web site that talks in more detail about the changes. 
http://www.irs.gov/individuals/article/0,,id=96199,00.html

If you receive a letter or notice from the IRS, this website will explain the reason for the correspondence and provide detailed instructions of what to do.  It provides helpful forms and publications you may want to review, frequently asked questions, and tips for next year.   

The IRS is redesigning and revising its correspondence for clarity, effectiveness, and efficiency. The new format includes a plain language explanation of the nature of the correspondence, clearly stating actions the taxpayer must take and the letters must present a clear, clean design.

IRA Charity Deduction

In 2011 if you have an IRA and you are over age 70 1/2 you can do a direct charitable transfer up to $100,000 and exclude it from your income.  If you take a $100,000 distribution personally and then donate the money, the income makes your social security fully taxable and limits your ability to take your full Schedule A deductions.  Schedule A is where you deduct your charitable donations.  If you make the transfer in January 2011 you can treat it as made in 2010. 

Estate Tax Exemption

The estate tax exemption for 2011 and 2012 will be $5,000,000.  The tax rate on any amount over that is at 35%.  In 2010 there were no estate taxes.  The issues now is beneficiaries receive a step up in basis on assets they receive.  Another issue is the transfer of of the unused portion of one spouse's estate tax exemption to the other spouse.  This transfer is not automatic.  Most estate tax issues are too complex to go into in this blog.  Please call us if you have any questions at 796-1040.

E Filing Mandate

In 2011 the IRS has mandated that any tax preparer that prepares more than 100 tax returns is required to file all their tax returns electronically.  That will include tax returns that have a balance due.  If you owe on your taxes you will receive a 1040 V voucher to mail and pay by the tax due date, April 18, 2011 this year.  Only in rare cases will the IRS grant an exception. 

Landlord Reporting on 1099s

Landlords will be required to issue 1099s to all service providers in 2011.  We brought this up earlier in another blog.  Any service provider paid $600 or more for services such as plumbers, yard maintenance people and yes, even tax preparers must receive a 1099.  If you pay by credit card then you do not need to issue a 1099.  If you use a management company you as the landlord, still need to issue 1099s.  The management company can issue 1099s for you but the 1099s need to show you as the issuer.   If you hire an electrician to install a new A/C unit and the cost is $1,500 the bill needs to break down the equipment from the labor.  The 1099 is only for the labor portion of the bill.  If you think you may pay someone $600 or more you need to have them complete a W9.  If you don't have a 1099 you cannot write off the expense on your tax return.  If the service provider doesn't have a valid or fails to provide a social security number or employer identification number (EIN) then they are subject to 25% backup withholding tax.  The landlord can be required to pay the withholding even if they did not withhold the money.  If you have any questions please call us at 796-1040.

1099 K reporting by credit card companies

In 2011 all credit card companies and third party processors will report to the IRS any taxpayer receiving payments greater than $20,000 or more than 200 transactions per year.  This includes credit cards, debit cards, gift cards, prepaid phone cards and Paypal.  The form is issued annually in January and has boxes for the payments received each month.  No adjustments for credits, discounts, fees, chargebacks or refunded amounts are made on the form.  One of the biggest targets will be small businesses where the IRS will develop a formula for the cash to credit card ratio.  IRS will use that ratio for future tax audits to estimate gross income.

Filing Delayed and Deadline Extended

Due to the late passage of the tax bill the IRS is still working on their computer system to accept tax returns.  Three areas are causing delays in the acceptance of the returns.  First is returns with itemized deductions, second is the educator credit and third is the education credits.  The IRS hopes to have their issues corrected by the middle of February and will start accepting tax returns for processing.  KatTax will be able to complete the returns on our software but will not be able to file the return until the IRS gives us the go ahead.  This year April 15th is on a Friday, but because that Friday is a holiday in Washington DC the filing deadline has been extended until Monday April 18th. 

Payroll tax decrease

Effective January 1, 2011 the withholding for social security from employees checks decreased from 6.2% to 4.2%.  The employers portion of the social security tax stays the same at 6.2%.  If you get paid $1,000 per week your take home pay increases by $20.  Remember the Making Work Pay Credit of $400 if you are single and $800 if married?  That goes away in 2011 and is replaced by the 2% decrease in social security taxes.  No word yet on what this change will do to your social security retirement pay.