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It’s almost tax time! Tips to Streamline Your Year-End Processes.

It’s December already and we wanted to provide some helpful reminders in order to help you streamline your year-end and tax return processes for 2011.

S-Corp Owners Health Insurance Reportable on W-2 – From the IRS: “Heath and accident insurance premiums paid on behalf of the greater than two percent S corporation shareholder-employee are deductible and reportable by the S corporation as wages for income tax withholding purposes on the shareholder-employee’s Form W-2. These benefits are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. The additional compensation is included in Box 1 (Wages) of the Form W-2, Wage and Tax Statement, issued to the shareholder-employee, but would not be included in Boxes 3 and 5 of Form W-2.”

For more information, including information about sole shareholder/employee situations, please see: http://www.irs.gov/businesses/small/article/0,,id=203100,00.html

NC County Business Property Tax Listings – “Any individual(s) or business(es) owning or possessing personal property used or connected with a business or other income producing purpose must file a county business property listing by January 31, 2012 unless an extension is filed.” For more information on registering for an account and to obtain forms for filing, please visit the following county Triangle, NC County websites as they apply to you.

Wake County – http://www.wakegov.com/tax/forms.htm
Durham County – http://www.co.durham.nc.us/departments/txad/Business_Personal_Property_Taxation.html
Orange County – http://www.co.orange.nc.us/assessor/BusinessPersonalProperty.asp

NC Employment Security Commission Notices – NC ESC will be sending out notices through the end of the year to address any changes in your unemployment insurance rate for 2012. Be sure to provide these to your payroll service provider to update their systems.

1099 Forms Due 01/31/12 – If you have paid or will pay subcontracted vendors more than $600 in non-employee compensation in tax year 2011, you will need to have a W-9 form on file for each of them in order to issue their 1099 form. The W-9 form will allow you to obtain the information needed to determine 1099 eligibility, their taxpayer ID number, and a current address for mailing. The deadline to submit 1099 forms to the taxpayer is January 31st and the deadline to submit to the IRS their copy is February 28th. Failure to file on time can result in penalties.

The W-9 form can be downloaded here: http://www.irs.gov/pub/irs-pdf/fw9.pdf.

Please also see the following IRS Publication http://www.irs.gov/pub/irs-pdf/i1099msc.pdf.

IRS Virtual Tax Workshop – If you would to obtain more information about your tax requirements, the IRS offers a free virtual workshop for small business owners and self-employed individuals at http://www.irsvideos.gov/virtualworkshop/

Three Tips for Employers Outsourcing Their Payroll

November 1, 2011 2 comments

Three Tips for Employers Outsourcing Their Payroll Special Edition Tax Tip 2011-05, September 2, 2011 via IRS.GOV

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities. Recent prosecutions of individuals and companies who – acting under the guise of a payroll service provider – have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:

Employer Responsibility – The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you – the employer – are the responsible party.If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.

Correspondence – If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

EFTPS  – Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.The IRS web site – http://www.irs.gov has more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS.

via Three Tips for Employers Outsourcing Their Payroll.

for more information about online payroll services: www.netWorthPayroll.com

Kilpatrick Townsend & Stockton LLP – North Carolina to Require Employers to Use E-Verify

North Carolina has joined the growing list of states that will require private employers to verify the eligibility of their new hires to work in the United States through E-Verify, a federally administered online system for confirming the identity and employment eligibility of individuals. The new statute, signed by Governor Perdue on June 23, 2011, will phase in its E-Verify requirement over the next two years, eventually applying to all North Carolina employers with twenty-five or more employees.

The New Legislation

The new law will require all North Carolina employers with twenty-five or more employees to enroll in and use E-Verify to check the eligibility of employees to work in the United States. The law applies only to new hires and does not require employers to verify the immigration status of their existing workforce through E-Verify. The law also specifically exempts seasonal temporary employees employed for ninety or fewer days during a consecutive twelve-month period.

The E-Verify requirement will be phased in gradually, depending on the size of the employer. The E-Verify requirement will become effective on October 1, 2012, for employers with 500 or more employees. Employers with 100 to 499 employees will become subject to the requirement on January 1, 2013, and employers with twenty-five to ninety-nine employees will be covered by the law on July 1, 2013.

Once the law takes effect, employers who fail to verify a new hire’s employment eligibility through E-Verify will face civil penalties from the North Carolina Department of Labor, regardless of whether that employee is indeed authorized to work in the United States. The size of potential penalties will vary based on the number of employee verifications the employer failed to make as well as whether the failure constitutes a repeat violation. For any violation, an employer will also be required to submit an affidavit stating that, after consultation with the affected employee, it has requested a verification of the employee’s work authorization through E-Verify.

Potential Legal Questions

Opponents of the North Carolina statute could potentially argue that it is preempted by federal law. Federal immigration law prohibits states from “imposing civil or criminal sanctions” upon those that employ unauthorized aliens, except through “licensing or similar laws.” Although the United States Supreme Court recently upheld Arizona’s E-Verify law in Chamber of Commerce v. Whiting, the Court emphasized that the Arizona law is enforced through suspension of business licenses, rather than through civil or criminal penalties.

The North Carolina law presents a substantially different question from that resolved by the Supreme Court in Whiting. On the one hand, North Carolina’s new statute arguably runs afoul of federal law because it is enforced through civil penalties. On the other hand, the North Carolina law does not directly penalize the employment of unauthorized aliens; rather, it penalizes employers for failing to use the E-Verify system, even if those employers employ no unauthorized aliens. As North Carolina’s law departs from the model of the Arizona E-Verify law that survived a Supreme Court challenge, the new law could face its own legal challenges.

Practical Implications

Employers in North Carolina that have twenty-five or more employees should prepare to enroll in and use the E-Verify system, if they are not already participating in that system. E-Verify compares information provided by a new hire on Form I-9 with information in the federal government’s databases to verify the individual’s identity and eligibility to work in the United States. Although E-Verify is a free service, participating employers will incur costs in using it as a result of the time it takes the employer’s personnel to be trained in the use of E-Verify, to enter data into the E-Verify system, and to respond to E-Verify determinations that information supplied on a new hire’s Form I-9 does not match government records.

via Kilpatrick Townsend & Stockton LLP – North Carolina to Require Employers to Use E-Verify.

Steps For Adding Payroll Services To Your Business

If your small business is growing, and it’s time to add an employee, you may be wondering just where to start to begin this process (our focus for this blog is NC because that’s where we are located, your state requirements may differ). Most of the time, your payroll service provider will give you a checklist and packet of forms to complete in order to add employees to your payroll. There are three major components that will be needed to set your company up for payroll services.

First, you will need a Federal EIN, otherwise known as an Employer Identification Number. You may have already received this when you started your business but if you are a sole proprietor, you may need to apply for a new number:

http://www.irs.gov/businesses/small/article/0,,id=97860,00.html

Secondly, you will need a State Withholding Tax Id Number. If you already collect and file Sales and Use Tax, the number will be the same and you just need to call the state and add withholding tax to that existing number.  To apply for a new NC withholding account number, you can apply online here:

http://www.dornc.com/electronic/registration/index.html

Third, you will need a new NC Unemployment Security Commission account number to collect and remit state unemployment insurance withholding:

https://www.ncesc1.com/business/web604/web604Main.asp

Now that the main peices for the employer portion are out of the way, let’s take a look at what forms the employees will need to provide in order to receive payroll wages. The employer must retain these documents for their records for each employee:

W-4 Form (Withholding Allowance)

I-9 (Employment Eligibility Verification)

NC-4 (State Employee’s Withholding Allowance Certificate)

In NC, employers must also provide New Hire Information to the state. A form can be mailed or you can report your new hires online at www.NCNewHires.com.

For more information about whether a worker is an Employee or Independent Contractor, see: Employee or Independent Contractor?

Contact netWorth Bookkeeping Services for more information about our  easy, affordable, online payroll services

President Obama Signs 1099 Repeal

via President Obama Signs 1099 Repeal | PropertyCasualty360

President Obama late Thursday signed into law legislation repealing the 1099 reporting provision enacted as part of the healthcare reform bill.

Several insurance industry trade groups issued statements lauding the president’s decision.

The bill is H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.”

The repealed provision would have required all business entities to file a 1099 form with the Internal Revenue Service for each vendor for whom they have cumulative transactions of $600 or more. It would have gone into effect in January 2012.

The legislation also repeals an additional Form 1099 reporting requirement imposed on owners of rental real estate.

The 1099 provision was expected to contribute $19 billion toward paying for healthcare reform. The repeal legislation makes up the shortfall by making consumers repay all of their insurance subsidies under the healthcare law once their income rises beyond 400 percent of the federal poverty line.

House Democrats called that a tax increase on the middle class.

In signing the bill, President Obama said he looks forward to continuing to work with Congress to improve the tax credit policy in the legislation and is “eager to work with anyone with ideas about how we can make healthcare better or more affordable.”

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC), says, “With the repeal of this provision, small businesses can now worry a little less about Washington red tape and continue to focus on creating jobs and rebuilding our economy.

He adds that NAMIC hopes Congress and the president “will continue to look for ways to improve government regulation by removing needless burdens on American businesses.”

Robert Rusbuldt, president and CEO of the Independent Insurance Agents  Brokers of America (IIABA), says, “In a strong show of bipartisan cooperation, the president and Congress have done the right thing by standing up for small businesses and repealing the 1099 reporting mandate.

“Our thousands of small business members and their clients will breathe easier knowing this ill-advised provision will not take effect.”

Some taxpayers must wait until mid-February to file

WASHINGTON — Some taxpayers will have to wait to file until mid- to late February to file their returns because of late changes to the 2010 tax law passed by Congress in December.

The IRS said it needs more time to re-program its processing systems to take into account the new law. The agency plans to announce a more definitive filing date before then.

The IRS said taxpayers who will need to wait to file fit into three categories:

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For taxpayers who must wait before filing, the delay will affect paper and electronic filers.

The IRS said people in the affected categories should start working on their tax returns, but not submit their returns until systems are ready to process the new tax law changes. A specific date of when systems are ready will be announced in the near future.

via Late tax breaks mean some must wait until mid-February to file :: WRAL.com.

1099-Misc Forms Explained

1099-Misc is a type of information return required by the IRS for income reporting purposes to track payments made to independent contractors. These are usually people who provide services to your business such as accounting, general construction contractors, service technicians, attorneys, landlords, etc. who are NOT employees of your business.   These payments may also include mileage reimbursements and materials provided.

According the IRS:

What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

  • You made the payment to someone who is not your employee;
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
  • You made payments to the payee of at least $600 during the year.

The biggest challenge is making sure you know how to properly classify independent contractors and employees.   This will help avoid penalties for not withholding income tax from these payments if they are deemed to have been employees.

In order to determine tax payer status, ID information, and 1099 eligibility, you must obtain a FORM W-9 from each of your subcontract vendors.  It is a good policy to adopt that you do not issue payments to new vendors until you have their W-9 form on file.  That way, you will not be scrambling at year-end to get information such as their tax ID and address in order to process their 1099 forms or to know if they are exempt as a corporation.  1099 Forms are due to each recipient by January 31st and to the IRS (form 1096) by February 28th.

New Changes to the 1099-Misc Rules :

Few people are aware of new changes to the 1099 Rules that were passed with the Healthcare Reform Bill. Under the old rule, non-employee compensation for services that totaled more than $600 per year required having a 1099 form issued. Also, under the old rule Corporations were exempt so you wouldn’t have to issue a 1099 to PCs-R-Us, INC.  if they fixed your computer, for example.

The new rule states that beginning in 2012 payments that total $600 or more (at once or cumulative) made to ANYONE for ANYTHING, including corporations for services AND GOODS must be issued a 1099-misc form. You read that right! If you are a business, and you purchase more than $600 worth of supplies at Staples or Walmart, you will be required to issue them a 1099 form at year end.  There are currently attempts at repealing this provision which have so far, (as of this writing) have been unsuccessful.

The IRS has also created a new 1099-K form requirement which is already in effect for 2011.

There are actually many various 1099 forms for different types of payments and you should always consult with a qualified accountant or tax professional for specific help in this area for your business.  Feel free to contact us for more information.

Are You Ready to Turn Your Skill into a New Business?

Are you GREAT at what you do?  Do you have years of experience in a particular trade or field and are now an expert?  Maybe now you are thinking “Hey, I might start a business and make a living out of this.”  Your expertise and hard work are only half the battle.  Now comes the hard part.

Entrepreneurship can be a great source of income, pride and accomplishment.  It can also be quite challenging to run and maintain “the business side” of a business.  This is a common source of confusion and frustration for many new business owners, even for small, single owner operations and they often become sad statistics of startup failure.   It’s important to take steps to make sure you set yourself up to succeed from the beginning.

Here are some common snafu areas for many business owners which can make or break your new venture:

1.  The Business Plan – I know, I know.  You’ve heard it a million times but it’s all written down in your head.  Not only do you need one, you need to revisit it once a year and make sure that is consistent with helping you meet your objectives and goals.  I also recommend writing a “Vision Statement”, which is where you see yourself in 5 years, written in present tense.  For example:  We are the largest supplier of buttons in our metro area of _____ with revenues of_____ per year.  You get the idea. Only a concrete, well thought out goal can be obtained and be able to withstand any challenges.

2.  Taxes and Legal Compliance – Understanding your tax obligations and making sure you are in legal compliance is crucial.   From Federal to State level, there are income taxes, annual filings and reports (if you are incorporated), state Sales and Use Taxes, and Payroll Taxes just to name a few.  Even simple mistakes in any of these areas can lead to stiff penalties and fines, in some cases enough to force you to close your doors.  Even something seemingly as innocent as misclassifying an employee or contractor can have expensive consequences. Don’t get caught off-guard!  Consult an Accountant and/or an Attorney to plan your business, pick the right legal structure and get off to a good start.  You can also start with this FREE Virtual IRS Small business tax workshop available online, anytime.  Oh, and don’t forget about protecting yourself with good insurance!

2.  Accounting and Record Keeping – Not knowing where you stand financially is not only a common cause of business failure but frustration in general.   Having your data organized and keeping track of income and expenses can give you the tools you need to make decisions to steer your business in the right direction.  This will also help save you money at tax time by making sure you don’t miss any allowable deductions.  A good bookkeeping system can also help you with fraud detection and monitoring for theft (if you carry inventory).  This is definitely an area that you will want to hire a professional to help you with from the beginning.  If you weren’t an accountant before you started your business, you won’t be one after.  “Flying blind” will cost you far more in the long run than you’ll pay your bookkeeper.

4.  Marketing – Okay, so you’re awesome at what you do but who else knows it?  How will you reach new customers and let them know how awesome you are?  Have you taken into consideration an advertising budget to get your brand off the ground?  This is also an area where you may need to hire a marketing expert to help you.  With so many new online media streams to promote yourself, it’s important to have a brand or “image” and a consistent marketing message.  This could include everything from your business cards to your website (don’t even THINK about not having one), your social media campaigns on Twitter and Facebook, etc.,  and your blog (like this one I am writing).  There are also many free and inexpensive ways to get customers which are time consuming but necessary.  Word of mouth referrals and good old face-to-face networking are tried and true methods to meet potential clients and build relationships.  Remember, business is personal and these contacts will be key to your long-term growth and success in surprising and unexpected ways.

5.  Pricing Services or Products Correctly – This is a tricky one because so many variables come into play.  Your costs, your volume, and your competition should all be considered when trying to get to that “sweet spot.”  A break-even analysis will be an invaluable tool in helping you understand what you need to charge for each item or service and how many you need to sell just to cover your costs.  You need to know if your pricing structure is both viable and sustainable.

6.  Don’t Reinvent the Wheel – Chances are that whatever your business model is, someone else is already out there doing it and doing it well.  Take some time to talk to some folks who are already in the field and learn from them.  If their business is successful, it’s because they are doing something right.  You can always add your own uniqueness or improve upon “tried and true” formulas to make it your own.  It’s also equally important to use this learning opportunity to figure out what NOT to do and avoid costly mistakes.

Hopefully, you  have been doing research about starting your own business and haven’t been scared off or deterred so far.  Don’t be afraid to ask for help! If you are willing to accept that your dream of business ownership may come with some serious (but manageable) responsibilities, then you are on your way to having a successful future filled with unlimited possibilities.

IRS Urges Nonprofits to Continue to File e-Postcards

IRS Urges Nonprofits to Continue to File e-Postcards

Beginning in 2010, nonprofits that don’t file Form 990, Form 990-EZ, or Form 990-N with the IRS for three consecutive years automatically lose their tax-exempt status. These filings are due 5 ½ months after the end of nonprofits’ fiscal years (for example, May 17, 2010 for nonprofits with fiscal years ending December 31 and November 15, 2010 for those whose fiscal years end June 30). The IRS Commissioner issued a statement this week encouraging small nonprofits that missed the May 17 deadline to still file a Form 990-N (e-Postcard) as soon as possible. The IRS will try to work with nonprofits that file their e-Postcards late.

via N.C. Center for Nonprofits | Homepage.

New 1099-K Form Requirements start in 2011

December 31, 2010 1 comment

Starting in 2011, if your business processes credit cards as a form of payment, your credit card processor must issue you a form 1099-K for the gross amount received if you processed more than 200 payments AND for more than $20,000. This is also true for all online retailers including Ebay and Amazon sellers who use PayPal to process their transactions.

If you are an online seller and meet these thresholds, you are more than a “casual seller” and you may consider starting a business entity to protect your identity and for tracking your expenses to offset the revenue that will be reported on your 1099-K. It will be for the gross amount and will not include a reduction for their fees. 

If you feel this affects you, please get advice from your trusted accountant or qualified tax professional.

IRS Article: http://www.irs.gov/govt/fslg/article/0,,id=226894,00.html

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