Are NC Unemployment Insurance Policies Preventing New Hiring?

Recently, a client of mine was considering hiring a temporary employee to help out on a big job they had coming up.  They found the right person and were all set to move forward and hire the worker.  Everything was going well… until they realized that the worker was currently collecting unemployment benefits from being previously laid off from their last job.

What does that matter?  In the state of NC, there is a six month period that a person has to be employed in order to qualify for new unemployment benefits.  However, if a worker has an already established or open claim, and they are hired by a new company, there is no minimum time required before they are eligible to receive unemployment benefits from their “last employer” (even if it is a temp job).   That would mean that if my client were to hire this person temporarily, even for a week, when that job ended, that person could reopen their claim and it would be collected on THEIR unemployment insurance fund, not the employer they were originally collecting from before that.

Because my client is a new business, and has a small payroll that they just started, they have little money accrued in their unemployment insurance fund.  This situation would would have raised their rates and they would have had to keep paying that higher rate into the system to pay off the claim from this temporary worker for years.  Instead of being able to put an unemployed person to work, even if just for a few months, they were unable to hire this person, who is now just  still collecting benefits from their original unemployment claim.

This is a very unfortunate policy because there are millions of people that would love an opportunity to work, even a temporary job, which can lead to permanent employment in some situations.  Additionally, there is always the possibility a new employee won’t work out, even if they are hired permanently.  Employers are aware of the burden they take on when they hire someone who is currently collecting unemployment benefits and may be deterred from doing so.  The system that is designed to help unemployed workers is actually hurting their chances of being rehired by small businesses.  No wonder our state unemployment rate remains so high.

An individual who has established a claim, returned to work and become unemployed again during that one year period, may reopen an existing claim. For reopened claim purposes, the last employer is the one for whom the claimant most recently worked prior to reopening an existing claim, regardless of the duration of the job.

via ESC NC Business Services: UI Information – Claims.

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

Categories: 1099, Business, Taxes Tags: , , , ,

Business Entity Types Explained

December 30, 2010 1 comment

Overview of Different Business Entity Types

If you are thinking of starting a new business, or restructuring or incorporating an existing one, you may be somewhat perplexed as to which corporate entity type to choose.  Since each type has its own pros and cons, let’s take a look at those to help provide some insight.

Sole Proprietor: A sole proprietorship is owned and operated by one person. This is the simplest and least expensive business structure to form. Many start-up companies choose this form until it becomes practical to enter into a partnership or to incorporate. As the sole owner, all profits go to you, as do the losses! Your business profit and loss is recorded and is transferred to your personal tax form.

Pros:

  • Easy to form, hardly any restrictions and very few forms to fill out.
  • Control of profits.
  • Control of decision making and flexibility.
  • Less government control and simpler taxation.

Cons:

  • As a sole proprietor, you are responsible for 100 percent of all business debts and obligations.
  • The death, physical impairment, or incapacitation of the owner can result in the termination of the business.
  • It is typically more difficult for sole proprietors to raise operating cash or arrange long-term financing.

General Partnership: General partnerships are formed by two or more legal entities (any kind of legal entity can be partner), and each of those entities are individually responsible for the partnership. Each partner is personally liable for the partnership’s debts and legal liabilities. For tax purposes, all partners are considered self-employed and claim their share of the partnership’s income on their individual tax.

PROS:

  • Combined assets and expertise and flexible decision making.
  • Partners, not partnership, taxed at the individual level.
  • Business expenses deductible.
  • Ease of formation and low startup cost.
  • All the income generated by the business flows through to the owners.

CONS:

  • Partnership terminates on death or withdrawal of any partner.
  • Each partner is individually liable for agreements made by any partner.
  • The partners are held personally liable for business debt or damages.
  • Both income and management is shared among all the partners.

Limited Partnership: A limited partnership is much like a general partnership in structure. The main difference is that in a limited partnership, there are two different kinds of partners: general and limited. A limited partner does not take part in the management of the partnership and is not liable for any more than his individual capital investment.

Pros:

  • Limited partners are not personally liable for the partnership’s debts and obligations.
  • Partnership does not dissolve with death of limited partner.
  • Number of partners/owners unlimited.

Cons:

  • Transfer of interest usually requires general partner approval.
  • Complete and separate paperwork filings.
  • Limited partners have little, if any, control over daily operations.

Limited Liability Company: A limited liability company (LLC) is essentially a hybrid of a corporation and a partnership. An LLC provides the same kind of tax and liability benefits as a corporation, but has the same management structure as a partnership.

Pros:

  • Lacks the formalized requirements of a C-Corp but has the same liability protection.
  • Taxed on your personal income only.
  • No limit on the number of LLC members, and anyone can be an owner.
  • Under IRS “check-the-box” rules a limited liability company may choose whether to be taxed like a partnership or a corporation.
  • Members are compensated using either distributions of profit or guaranteed payments.
  • Possible to convert an LLC into a corporation.

Cons:

  • LLCs cannot go public or issue stock.
  • Active members are subject to self-employment tax for Social Security and Medicare.
  • It cannot raise money through the sale of stock.
  • Each member’s pro-rata share of profits represents taxable income–whether or not a member’s share of profits is distributed to him or her.
  • As a member of an LLC, you are not allowed to pay yourself wages.
  • Some states do not allow the organization of LLCs for certain professional vocations.

S-Corporation: An “S” corporation is much like a “C” corporation in that it is also its own legal entity, protects its shareholders from legal liability, and requires a significant amount of effort and money to start and maintain. However, an “S” corporation allows shareholders to claim their share of the corporation’s income directly on their personal tax return.

Pros:

  • The profits and losses of the business pass through to the corporation owner’s personal income tax. Like a Limited Liability Company, the tax “pass through” allows you to avoid “double taxation”.
  • Reduce Taxable Gains: Selling your business can be part of your retirement strategy. An S corporation could have reduced taxable gains when the business is sold.
  • S corporations offer protection against liabilities. However, liability protection is not complete protection.

Cons:

  • One Class of Stock: Not having the ability to issue different classes of stock affords a business less control over the company and limitations on the stock value.
  • Passing income through to shareholders can be a disadvantage in some instances. If the business is profitable, shareholders will be required to pay income tax on their share of the profits, even when not distributed to them.
  • Even though losses pass through to shareholders in an S-Corporation, those losses aren’t deductible by shareholders who don’t materially participate in the business.
  • May not own subsidiaries, which can make expansion difficult.

C-Corporation: A “C” corporation is a standard state-formed corporation. It is a legal entity once it is formed, so it files its own taxes and is responsible for its own dealings. A “C” corporation can have unlimited numbers of shareholders, and those shareholders can be any kind of legal entity. Corporations are the most expensive kind of business to begin and maintain.

Pros:

  • Ideal for a business trying to attract public acquisition and venture capital.
  • Can have an unlimited number of shareholders.
  • Shareholders are protected from the corporation’s liabilities.
  • Health insurance premiums and group life insurance up to $50,000 in benefits are fully deductible by the corporation and not taxable to the employees.

Cons:

  • C-corps have to abide by many requirements, such as holding meetings of a board of directors and keeping minutes, maintaining bylaws, and filing formal paperwork.
  • Taxed as a separate corporate entity, so in addition to your personal income taxes, you will have to pay corporate taxes.
  • Double taxation-the corporation pays taxes on its income and the shareholder pays taxes on dividends.
  • Shareholders cannot deduct the losses of the corporation.

If you are unsure which type is right for you, speak to a qualified accountant, consultant, or tax professional to help you make the right decision for you and your business.

Paying Bills vs. Writing Checks in QuickBooks

December 26, 2010 1 comment

One common mistake I see business owners making is not knowing when to use the Enter/Pay Bills (Accounts Payable) feature and when to use the “Write a Check” feature and what the difference is. When properly recorded, the end result of each method is the same on the General Ledger and your Financial Statements (Increased Expense/Reduced Cash). I have created this model to show the flow of each method for training purposes.

 

 

 

 

 

 

 

 

Use the “Write check” feature for expenses that are to be paid immediately. This will simply record the amount spent to an expense account (i.e., office supplies) and reduce your bank account by that same amount.

“Enter a bill” and use the Accounts Payable system for vendor bills that will be paid at a future date. This will increase your A/P balance to show the liability for the amount owed.
Think of Accounts Payable as a holding bucket for money you owe and will need to pay at a future date. Once you “Enter a Bill”, you must use the “Pay Vendor Bills” function to properly record the payment of that bill.
THE PROBLEM: If you have “entered a bill” and then mistakenly “Write a check” to pay it, you will have recorded the expense twice and your A/P balance will stay falsely inflated.
This is also true on the Income/Revenue side: “Create Invoice/Receive payment” vs “Enter Sales Receipt”
The key is to be consistent and to properly use one function or the other but never both at the same time!
Happy Accounting!