Beware of Scammers Preying on Your Generous Nature

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Beware of Scammers Preying on Your Generous Nature

The IRS and numerous other nonprofit agencies are warning Americans to be weary of scammers trying to take advantage of their generosity after major catastrophes like Hurricanes Florence and Michael.

 

“We applaud our client’s desires to want to help in times of crisis,” says Steven Feinberg, CPA and owner of Appletree Business Services. “What we want to avoid is unnecessary stress and even criminal charges if that client makes a donation to a criminal organization instead of a truly reputable and worthy cause.”

 

Fraudulent schemes normally start with unsolicited contact by telephone, social media, e-mail or in person using a variety of methods.

  • Pose as representatives acting on behalf of charities or private institutions to solicit cash donations.
  • Bogus websites using names, branding and colors similar to legitimate charities to trick donors to send money or provide personal information such as bank account routing numbers, credit cards or other data.
  • Claim to be members of the IRS working to help victims to file casualty loss claims and get tax refunds. The IRS will never solicit taxpayers for this purpose.

 

What can you do?

If you are a disaster victim and need information on tax relief or other disaster-related tax concerns, call the IRS Special Services Help Line at 866-562-5227. Details on accessing additional information can also be found on the disaster relief page on IRS.gov.

 

Donate wisely.

If you wish to donate, make sure they are real charities. You can verify the prospective charity, by visiting the IRS website at IRS.gov and using the Tax Exempt Organization Search feature. Here you will be able to find or verify qualified charities.

 

How much goes to the charity?

Before you click ‘donate’ take a minute to research the charity online. You can do this by searching on the charity’s name plus key phrases like, “review”, “compliant”, “rating” or “scam”.  The consumer section of the Federal Trade Commission’s website also recommends the following organizations to view reports and ratings for nonprofits:

 

  • BBC Wise Giving Alliance
  • Charity Navigator
  • CharityWatch
  • GuideStar

Know the Scammers M.O.

Scammers and criminals always have a pattern to their schemes. Look out for some of the following tell-tale signs and just say, No!

 

  • Don’t let anyone rush you into making a contribution. No matter what they say, no one will die if you don’t donate $20 right this minute!
  • Thank you. Don’t be tricked by a scammer calling to thank you for a donation you know you’ve never made. Scammers will start by thanking you and then subtly ‘ask’ for additional donations to support the cause you already ‘love’.
  • Listen carefully. Scammers will use charity names that sound oddly similar to real organizations but are not. Ask for specifics, federal tax identification numbers (and verify them) and specifics on how your donation will be used.
  • Never donate gift cards or money transfers. No reputable charity will ask you to go out and purchase gift cards on their behalf or wire money via Western Union or other agency. Always pay by check or credit card so the amounts can be traced and rescinded, if necessary.
  • Sweepstakes. Callers who promise to guarantee sweepstakes winnings in exchange for a donation are SCAMMERS. It is illegal to offer such incentives in order to solicit a donation.

You’ve been scammed, now what?

If you have made a donation to what you now believe is a scam, take action. You can report scams to your local police, the FTC.gov/complaint, and your state charity regulator. Write down any information you can remember about what the organization asked for, their phone number or website address, and details about your conversation.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Excise Tax Basics for Tax-Exempt Highly Compensated Employees

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Due to the Tax Cut and Jobs Act of 2017, many changes to employment taxes and income taxes were made. One of the lesser talked about, but still having a large impact is the excise tax on tax-exempt organizations for their highly compensated ‘covered employees.’
Excise Tax Basics
An excise tax of 21 percent is imposed on the remuneration (other than excess parachute payment) paid by all tax-exempt employees in the following two situations:

1. Amounts in excess of $1 million paid to a covered employee for a tax year.
2. Any separation (parachute) payment paid to a highly compensated employee that is equal to or greater than three times the 5-year average annual earnings of that employee.

The excise tax applies to all tax-exempt entities including political organizations and farmers’ cooperatives. Employees whose compensation will trigger the tax-exempt entity to have to pay the 21 percent excise tax, making them ‘covered employees’ for the purposes of the excise tax. These individuals include:
• The five most highly paid employees earning more than $1 million per year for the current year or any prior year, starting December 31, 2016. The tax-exempt entity must determine the five individuals annually, which means that the list could change or revolve each year. Additionally, once a covered employee has been named, that individual remains a covered employee.
• Any highly compensated employee (defined as receiving compensation equal to or greater than $120,000 in 2018) receiving a separation from service payment equal to or greater than three times the 5-year average final annual compensation.
Depending on the tax-exempt entity examining the excise tax, the tax-exempt employer might have a tendency to despair to dismiss the excise tax as being no applicable. It is always better to take action rather than do nothing, so let’s look at our options and opportunities.
Exceptions:
The excise tax does not apply to:
• Remuneration paid to licensed physicians, nurses, or veterinarians, to the extent that the remuneration is for the performance of medical or veterinary services rendered by such professionals.
• Payments received from qualified retirement plans, such as 401(k), 403(b), simplified employer pension plans (SEPs) and 457(b) plans.
• Separation payments to highly-compensated employees if the payment is limited to 2.99 times their five-year average annual earnings.

Not exceptions:
Many tax-exempt entities are likely to be quick to dismiss the excise tax as not applicable to their employees because of the $1 million threshold. Those employers need to be careful that they don’t also ignore the fact that any single 457(f) payment that exceeds the threshold is subject to the tax made at the time of separation from service.

Most formal compensation arrangements and plans used by tax-exempt organizations are subject to Employee Retirement Income Security Act (ERISA), IRC 457 and 409A regulations. As a matter of good practice and to protect your organization, it is always advisable to have your arrangements reviewed by legal counsel to ensure proper compliance with applicable provisions.

There’s good news, too.
While it may seem that providing compensation to those employees who are crucial to the tax-exempt entity’s continued success is impossible without paying a hefty excise tax, that’s not necessarily the case. A knowledgeable financial and tax advisor can work with the tax-exempt entity to create a compensation plan coupled with life insurance to build a meaningful remuneration package for highly compensated employees without negative tax consequences. Before making any decisions, take the time to fully investigate your options for a solutions that will be in the best interest of your business and your employees.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Getting Your Small Business Year-End Reporting Financials in Order

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It is not uncommon for small businesses to put aspects of their accounting on the backburner, until the end of the year rears its head. At this time, businesses begin to feel the squeeze for having  – all their financial papers and bookkeeping in order.  On top of all that, as an employer, you also have the responsibility for preparing and distributing required federal forms such as W-2 and 1095s for wage and health care reporting respectively.

Before you panic, let’s review the list of required reporting, forms and documents and prioritize them by deadlines.

Remember that there are two parts to providing employees or independent contractors with data required to complete their individual tax returns – the employee reporting and employer required reporting to the IRS.

January 31:

  • W-2 – Form W-2 provides employees with a summarization of all their payroll wages, earnings, pre-ad post-tax healthcare, cafeteria plans, retirement accounts, loans, or other legally required payments.
  • W3 – is the summary document that must be filed to the IRS to report the total number of W-2 forms distributed to employees.
  • 1099-MISC – Form 1099-MISC provides earnings information to independent contractors who are not ’employees’ of an organization, but have been paid to perform work.
  • 1096- summary document that must be filed to the IRS.
  • 1095-C – If the business is an Applicable Large Employer (ALE) with more than 50 full time employees, the Form 1095 must be provided to employees to provide information on the business’s health care offer of minimal essential coverage (MEC) and affordability.
  • 941, 943, 940  –
    • Form 941 – an employer’s way of reporting IRS withholdings taken from an employee’s pay.
    • Form 943 – This form works the same as the Form 941 except it is used for agricultural employers.
    • Form 940 – Annual Federal Unemployment Tax Return – This form is coupled with an employer’s last quarterly FUTA payment and outlines how much of the tax was paid each quarter.

Februrary 28:

  • 1095-C  and 1094 . If you are paper filing these forms, you have until this date to send them to the IRS. If you are efiling, you have until April 1.

March 15 :

  • 1120S and1065 – These are forms a company must file for reporting S Corporation and Partnership taxes.

April 15 (or date specific to a company’s tax year):

  • 1120 – These are forms a company must file for reporting C Corporation taxes, due 3 1/2 months after their fiscal yearend.

 

Why You Should Hire a Small Business Accountant Rather Than Go It Alone

While waiting until the last minute to get yourself organized and informed about your small business taxes is not recommended, hiring a small business tax professional can help you get on track and stay there. Organization is the key element to making your tax preparation and filing a smooth process. If organization of receipts and financial papers is not your strong suit, hiring a bookkeeper or accountant can do you good as they will solely focus on this essential small business record keeping.

Moreover, your professional small business accountant may be able to locate other money saving loopholes that you may not have been able to discover yourself or through a run of the mill tax preparation agency.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants,  Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice.  Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 201894 Professional Association of Small Business Accountants

 

Buiness Structure Pro and Cons

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Hang a shingle outside your back door and you’re in business, right? Well, maybe, but knowing your responsibilities as a business owner is truly another beast entirely. Your business structure defines the legal status of your business. Each business structure comes with its own advantages and disadvantages as well as consequences for tax. It is important that you choose the arrangement that is best for both your business and personal goals.

Sole Proprietorship – This is the simplest business structure that typically entails one individual who owns and runs the business. Owners can also more freely mix personal and business assets and don’t need to pay unemployment insurance tax on their own wages (but do need to pay it on any employees).

Advantages: You make all the decisions and control every aspect of the business and you report the profits and losses on your own tax return, preventing double-taxation on both business and individual.

Disadvantages: You are considered personally liable for your business, meaning if your business incurs a debt, then your own personal assets could become at risk in a legal dispute. Sole proprietorships also rarely survive the death of loss of the owner and therefore, retain little or no value.

General Partnership – This structure is formed by two or more individuals, is managed by all partners and each partner takes responsibility for the debts and obligations of the business.

Advantages: Profits and losses of the business are passed through to the individual partners. When tax time comes around, the partnership is obligated to report profits and losses. At the same time, each partner reports their portion of income and loss from the business on their individual tax returns, using Schedule K-1 of Form 1065.

Disadvantages: The owners are personally liable for the business’ debts.

Limited partnership – This structure consists of both general and limited partners, which means that there are partners that own and run the business and are responsible for business liability, as well as partners that only invest in the business but nothing more.

Advantages: This structure is beneficial for limited partners because they have limited personal liability in the partnership – they will not be responsible for the debts and obligations amassed by the business.

Disadvantages: A limited partnership may not be the best choice for a new business because it can be quite complex in terms of administrative responsibilities and involves a lot of paperwork. A general partnership may be just fine for two or more owners who will be very involved with the business.

Regular Corporation – A corporation can be owned by one individual or many individuals, and is recognized as one separate entity.

Advantages: Owners are not personally liable for business obligations and debts, so an owner’s personal assets are not at risk within a corporate structure. A corporation also has the benefit of keeping some of its acquired profit without paying taxes on those profits. Corporations also have greater potential to save money – they can sell stocks, for example. Corporations additionally can exist eternally – it does not matter if a shareholder dies, or sells the shares. Also, in a corporate structure, certain fringe benefits are eligible for deductions as business expenses.

Disadvantages: It is considered a separate entity, apart from its owners, and requires a lot more rules, regulations, and tax requirements. Because of this, it can also prove to be much more expensive and complex, requiring the assistance of an attorney, and corporate accountants. Owners of the corporation are also susceptible to double taxation. The corporation is taxed a corporate income tax at both the federal and state level, and then shareholders are individually taxed on the dividends they’ve received from corporate earnings.

S Corporation – This is basically a regular corporation with a special tax status and certain limitations.

Advantages: Owners possess limited liability, which means that they may not be held personally liable for business-related debts. They are also enabled to report their share of corporate profit or loss on personal tax returns, which avoid the regular corporation double-tax status. Additionally, the profit can be split amongst owners so that they endure a lower tax rate overall.

Disadvantages: This type of business structure requires more paperwork and more expenses to form and maintain. Additionally fringe benefits are limited for those owners owning more than 2% of shares.

Professional Corporation: This is a kind of corporation owned by those of particular professions.

Advantages: There is no liability if other owners are implicated in malpractice.

Disadvantages: This is a generally expensive form of business, requires plenty of paperwork, and all the owners have to belong to the same profession

Nonprofit Corporation: This is essentially a nonprofit that chooses to incorporate.

Advantage: One of the biggest advantages is that the corporation does not have to pay income taxes. Also, donations to a charitable corporation are tax-deductible. Furthermore, the corporation is eligible for fringe benefits regarded as business expenses.

Disadvantages: Only certain organizations can receive full tax benefits (charities, or educational, scientific, literary, and religious organizations). If the corporation dissolves, its assets must be transferred to another nonprofit.

Limited Liability Company –This business structure is allowed by some states and can possess variable traits. A professional limited liability company (PLLC) is the same kind of company but limited to certain professions such as medical, legal and engineering firms. In addition, state licensing boards may need to review the professional licensing of every member and approve of the company’s formation.

Advantages: This structure gives limited liability to business partners. LLCs are now allowed to make a choice whether they want to be taxed as a partnership or a corporation. PLLCs can also create retirement plans that allow for higher contribution limits than partnerships. PLLCs also enjoy perpetual existence, meaning that even if one of the partners retires or dies, the firm will continue to exist.

Disadvantages: This business type tends to be more expensive to form and maintain. The latest changes in federal tax laws may not be reflected by state laws.

While making your initial business structure decision may seem overwhelming, know that you can always shift the structure from one form to another over time. It is always wise to see guidance from both a business advisor and a tax professional prior to any decision so that you understand fully the responsibilities and tax obligations for each business structure type.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 2018 Professional Association of Small Business Accountants

IRS Belatedly Announces Increase to 2019 FSA Contribution Limits

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The Internal Revenue Service (IRS) announced a cost of living increase to the flexible spending account maximum amounts to $2,700 for FSA for the 2019 plan year beginning on January 1, 2019.  The new maximum of $2,700 is up $50 from $2,650 in 2018.  The maximum also applies to the limited purpose FSA, which can be used for dental and vision expenses until the medical plan deductible is met, at which time the plan converts to a health care FSA. The Limited purpose FSA also works in tandem with health savings accounts (HSAs). This change applies only to salary reduction contributions under a health care FSA. It does not apply to employer-provided contributions, also known as flex credits.

 

Other tax exclusion changes:

  • Transit and parking employee benefits: The monthly limit on fringe benefit exclusion for transit and parking was increased to $265 from the 2018 limit of $260.
  • Retirement plans: The maximum contribution limit for employees contributing to a 401(k), 403(b), or 457plan has been adjusted to $19,000, a $500 increase from the 2018 limit.
  • Adoption assistance programs: The maximum yearly exclusion for qualified adoption expenses in taxable year 2019 will be $14,080, up from 413,840 for 2018.
  • QSEHRA: The maximum reimbursement for a qualified small employer health reimbursement arrangement (QSEHRA) for 2019 is now $5,150 for individual coverage (previously $5,050 in 2018) and $10,450 for family coverage (previously $10,250 in 2018).

Typically the changes in limits are issued in October, just prior to the start of a majority of employee benefit open enrollments. This year, similar to the past few years, the announcement came after many employees had already selected their annual contribution amounts. The timing will cause employers to either leave the maximum at last year’s amounts or force them to re-open the election period for the FSAs in order to allow employees to elect the additional $50.

An important feature of FSAs is that contributions are not subject to taxes (pre-tax dollars) including social Security and Medicare payroll (FICA) taxes.

Health FSAs can also be funded by both pretax dollars by employees, employers or both. Additionally, employer contributions don’t apply to the annual limit ($2,700 for 2019). However, if the employer contribution is a result of employees’ use of cafeteria plan flex credits that employees could have elected to receive as taxable wages, then the contribution would count toward the $2,700 limit, notes Janet Stebbins, a benefits analyst with Marsh Consulting Group in a recent Society of Human Resources Managers (SHRM) article.

How funding works:

  • Employee A contributes $1,000 can receive up to a $1,000 match from his or her employer.
  • Employee B contributes $350 could receive up to $500 from his employer.

Why the difference?

“For the FSA to remain an “excepted benefit” not subject to Affordable Care Act reporting requirements, employer contributions to the health FSA cannot be more than an employee’s salary-reduction contribution,” says Harrison Stone, general counsel and compliance officer at ConnectYourCare, a benefits administration firm in Baltimore, MD. If the employee’s contribution is less than $500 annually, the employer can still contribute up to $500.

Employers, while they can contribute more, will typically limit their contributions to no more than $500 as it makes it easier for the FSA to meet certain requirements in the Affordable Care Act and easier for plan administration.

For 2019, since the new maximum is now $2,700, the total funding maximum is now $3,200 with the employer contributing up to $500.

Employers are not required to adopt the new FSA maximums, but if they decide to, they will need to update Section 125 cafeteria plan documents and inform any third-party administrators of the change.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

IRS Clarifies Procedure for Annual Filers to Claim Payroll Tax Credit for Increasing Research Activities

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The IRS issued guidance for small business annual tax filers that want to claim a research credit against their payroll tax liability. The IRS stated that computing the tax credit for annual employment tax filers if the income tax return electing the credit is filed during the first three quarters of the calendar year because the information on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, is compiled on an annual basis.

 

Here’s the back story.

After December 31, 2015, then-President Obama signed into law the Protecting Americans from Tax Hikes (PATH Act of 2015, which included changes for qualified small businesses to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit against the employer’s share of social security tax. Prior to 2016, small businesses could only take the research tax credit against income tax liability.

What type of business is eligible?

The business must be a sole proprietorship, a partnership or a corporation whose stock isn’t publicly traded. The average annual gross receipts of the business for the 3-tax-year period preceding the tax year of the credit cannot exceed $50 million.  If the entity was not in existence for the entire three-year period, then the gross receipts requirement is based on the period during which the entity was in existence.

 

As a qualified business with qualifying research expenses, you can apply up to $250,000 of your research credit against your payroll tax liability by using the following steps:

 

  1. Complete Form 6765, Credit for Increasing Research Activities, make the election, and attach the completed form to your timely filed business income return.
  2. Claim the payroll tax credit by completing Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. You must attach this form to your payroll tax return.

 

Note: The amount reported on form 8974, Line 10 is the total amount of social security tax (both employer and employee shares) for the whole year, but employers can only apply the credit against the employer share of the social security tax paid in calendar quarters that began after the date on which the business files it income tax return making the election. Since you can’t apply for the credit during a time when you filed your tax return, you can take a partial credit adjustment on Form 8974, line 11 to be 50% of the total social security tax that you paid in the quarters after the income tax return making the election was filed. If you don’t consult with a small business tax expert, this would be a great time to have a chat with one.

If your small business uses research and development as part of your business, there are many ways that you can take advantage of tax opportunities. The small business advisors with PASBA can help. Find an Accountant by clicking the link at the top of this page to learn more.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Small Business Budget Savvy

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As a small business owner, you know how imperative it is for your business to save money. Entrepreneurs need to be nimble, resourceful,  and creative to keep the business robust enough to survive the ever-changing tides of a changing global economy.

With gross receipts of less than $1 million annually, small businesses often live with very tight margins, cash flow fluctuations and more dramatic ebbs and flows in sales volumes. Having money to fall back on during the rainy seasons can really help a business remain steady while the storm passes, or bounce back after a challenging period. There are a number of strategies to help save money and increase cash flow to grow your business.

  • Turn out the lights.  Seriously. Electronic waste is one of the more obvious and costly ways a business can lose money without really noticing. Lights, computers, and machines kept running for long periods when they are not in use can quickly increase costs on your monthly electric bills.  Wherever possible, invest in motion lights and energy-saving bulbs and talk seriously with your employees about shutting down computers and other machinery at the end of a day. Local electric companies have business savings programs that include on-site evaluations and rebates for switching older fluorescent lighting to energy-saving dimmable LED lights that are not only more cost-efficient, but can help with harsh lighting and even reduce eye strain and migraines in employees.
  • Shop around and negotiate. Before you dish out money on supplies, equipment, or services, shop around. Check out other companies selling similar products or services and compare their quality, prices, and offers. Many people spend more on products or services that they could have purchased for less elsewhere. Ask about discounts and don’t be afraid to negotiate with your suppliers.
  • Lease equipment. Depending on your business needs and how your write off your purchases, it may make sense to lease equipment versus buying it outright.  Leasing allows you to pay less than full market price for the item(s), the ability to turn it in for upgrades sooner with less costs, include maintenance costs into the lease,  and if you wish to purchase the item at the end of the lease, negotiate the value upon purchase. Conversely, leasing may add up to higher end costs for the item and if it is a long-term lease, you may end up owning the item for longer than your originally intended, so be sure you buy quality items that will outlast their lease agreement.
  • Use recycled or used supplies or equipment whenever possible.
  • Know your tax deductions. Your business may qualify for several tax deductions each year. Make sure you understand your tax situation and plan for purchases, rebates and other tax incentives in advance of any new initiatives.
  • Watch your spending. It is easy to get carried away with your spending – you may not need an expensive piece of abstract art for your waiting area when there are many less expensive, just as lovely options available. On the other hand, that piece may translate to added value and customer appeal, depending on the kind of business you’re running. You know what you need and what you don’t – don’t spend money on items that are really unnecessary and that won’t redeem their worth.
  • Use electronic communication methods such as e-mail, GoTo Meetings, and Video conferences whenever possible.  Not only can to reduce travel expenses to clients, but you can save countless hours of lost travel time out of the office by working virtually. Sometimes you do need to make those face-to-face meetings with clients, so make those meeting opportunities really count. Send a set agenda, so clients can budget their time accordingly and you can add additional client visits on your journey.  For other times, a video conference will do the trick saving you and your client the additional time out of work. Take advantage of the technology available to you – it will save you the cost of manhours, travel, and lost productivity.
  • Use bulk shipping and mailing. By scheduling your shipments for certain times or days, you can take advantage of lower delivery expenses as well as special post office rates.

A small business accountant can help you identify where in your budget you may be spending too much and pinpoint areas you might be able to save more. PASBA lists their small business accounts in an online directory. There are Charlotte Accountants, El Dorado Accountants and Eugene Accountants plus many more in other cities.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 2011 Professional Association of Small Business Accountants

Distinguishing between Independent Contractors or Employees; Don’t Let Mislabeling Cost You

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Employers have several tax obligations related to their employees. They are expected to withhold income taxes and social security and Medicare taxes from their employees’ pay in addition to paying unemployment tax on their wages. On the other hand, employers have no tax obligations on payments they make to independent contractors. Whether or not you use the services of independent contractors or employees depends entirely upon your business needs, but it is critical that you know the difference between these two very different types of workers.

Employers have several tax obligations related to their employees. They are expected to withhold income taxes and social security and Medicare taxes from their employees’ pay in addition to paying unemployment tax on their wages. On the other hand, employers have no tax obligations on payments they make to independent contractors. Whether or not you use the services of independent contractors or employees depends entirely upon your business needs, but it is critical that you know the difference between these two very different types of workers.

Basically, under common law rule, an independent contractor is someone who provides service to your business and whose method of working you cannot control. You only have the right to control or direct the result of his or her work. According to the IRS, you are working with an independent contractor when you cannot control “what will be done and how it will be done.” Anyone who performs a service for your business is an employee, if you can control what will be done and how it will be done.

With the many different kinds of trades, services, and business arrangements available across the many industries in our market, there are some workers who just do not seem to fit perfectly into any one category of either employee or independent contractor.

To complicate the matter even further, certain kinds of independent contractors may also be considered statutory employees for tax purposes. An example of this kind of service provider is a life insurance sales agent who works full-time and who chooses to sell life insurance or annuity contracts for one particular life insurance company. In the same vein, certain workers may be considered statutory non-employees.

 

Determining the Type of Individuals Performing Services:

Independent Contractor – A self-employed individual who performs a service or creates a product for a business, but the business cannot control or direct how the work is done is an independent contractor. Typically doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers and auctioneers fall into this category.

 

Employee (common-law employee) –Anyone who performs services for a business by controlling what will be done and how it will be done.

 

Statutory Employee – Even if workers are independent contractors under the common law rules, such workers may still be treated as employees by statute for certain employment tax purposes.  If they fall under one of four scenarios and meet three conditions under the Social Security and Medicare taxes, then you may still need to treat them as an employee for tax purposes.

  • Drivers distributing beverages (other than milk) or meat, vegetables, fruit, or bakery products; or who pick up or deliver laundry or dry cleaning, if the driver is your agent or is paid on commission.
  • A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
  • An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
  • A full-time traveling or city salesperson that works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the byer’s business operation. The work performed for you must be the salesperson’s principal business activity.

 

Social Security and Medicare Taxes

Employers should withhold Social Security and Medicare taxes from the wages of a statutory employee if all three of the following conditions apply:

  1. The service contract states or implies that substantially all the services are to be performed personally by them.
  2. They do not have a substantial investment in the equipment and property used to perform the services.
  3. The services are performed on a continuing basis for the same payer.

 

Statutory Nonemployee: Believe it or not, there are three categories of statutory nonemployees, too: direct sellers, licensed real estate agents and certain companion sitters.  The first two categories, direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes including income and employment taxes, if:

  • Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and
  • Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.

 

Conversely, companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes.

 

Government Worker: In most cases, individuals who serve as public officials are government employees.  In this situation, the individual is an employee of the government and the government entity is responsible for withholding and paying Federal income tax, social security, and Medicare taxes.

 

Still confused?

There are generally three common law categories that can be used to help you distinguish the type of business relationship you have with your worker and whether or not he or she is an independent contractor or an employee. They are behavioral, financial, and type of relationship – and they highlight the levels of control and independence in the business relationship.

Behavioral – Consider whether you have the right to control what your worker does and how he or she gets the job done.

Financial – Do you control all the business aspects of the job, such as supplying tools and materials, or deciding how the worker is paid, and whether or not expenses are reimbursed?

Type of relationship – Are there written contracts or benefits established, such as a pension plan, leave pay, or insurance? Is it an ongoing relationship that facilitates a key service to the business?

While the IRS provides extensive guidance on determining a worker’s status, there is no strict black and white, easy-delineation; you are encouraged to look at the entire business relationship to come to an understanding. If after you have looked into the situation thoroughly and you still have doubts, you can get help from the IRS by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The IRS will look over the data and officially identify the worker’s status for you.

If you’re still unsure, it may be time to solicit the assistance of a small business advisor. Visit the Find an Accountant tab to locate a small business accountant, enrolled agent or tax advisor near you.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Choosing Accounting Software for your Small Business

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There are many different types of accounting software available for small businesses such as industry leader, QuickBooks, and online resources like Freshbooks, GoDaddy Bookkeeping, and Xero all enable small businesses to keep track of expenses, accounts receivable, bank reconciliation, checkbook registers and even create profit and loss statements. Deciding which software is right for your growing enterprise can be complicated. Here’s a brief list of some of the best features and how these programs can fit into your business’ needs.

Quickbooks –  One of the most popular accounting programs in the small business world for a very good reason, Quickbooks has evolved over the past several years into a user-friendly software package that includes almost any feature a small business owner might need. On top of that, the technical customer support offered is top notch. It offers time tracking, payroll, customer and vendor portals, and inventory tracking. New versions even offer mobile access.

Freshbooks – newly redesigned from the ground up in 2017, Freshbooks provides an exceptional user experience with improved collaboration. This software is great for independent contractors and freelancers who need to track multiple clients and maintain strict control of their finances. Time tracking is available allowing the user to track hours or even partial hours worked so they can be billed at a later time. The recent updates did provide new insights and functionality, but did miss the mark with some of the reporting and customer records missing from the upgrade. Hopefully, future releases will bring back some of those loved features.

GoDaddy Bookkeeping – Another solid program for freelancers and independent contractors, GoDaddy Bookkeeping provides all major A/R and A/P transaction forms, time tracking, and live support.  With one of the lowest pricing structures, this software can fill an immediate need for accounting controls to get your freelance business up and operational. The software integrates with Amazon, eBay and Etsy making it easy to link sale directly to your bookkeeping. Bear in mind, that if you are looking for an expandable, scalable software, this one may need to be replaced with a more robust option down the line.

Xero – This double-entry accounting app excels at many of the small business basics such as records and transactions that support sales, purchases, and even payroll.  If you are a little more software savvy, you won’t miss the phone or tech support that other programs provide, but the lower cost may offset that pain.  Be advised that payroll tax management is not available for all states, so do your research before you buy.

 

Even if you don’t have an accountant or small business advisor, it may be worth your time to talk with one near you. Small business advisors can help to better understand your needs so that the software you choose will be flexible and grow with your business over subsequent years.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

DOL to Focus on Proposed Rules for Overtime, Tips

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The Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs posted its Agency Rule List for spring including two rules affecting overtime calculations under the Fair Labor Standard Act (FLSA) and one aligning the tip credit regulations.

Overtime

Standard salary level for “white collar” exemption. The DOL intends to issue a Notice of Proposed Rulemaking (NPRM) in January 2019 to determine the salary level and other areas of the FLSA exemption for executive, administrative and professional employees.  The DOL will be reviewing comments and interested parties can submit a request for information

Regular Rate of Pay.

Under the FLSA, employers must pay covered employees at least one-and-one-half times their regular rate of pay for hours worked in excess of 40 hours per workweek. This rule has been much discussed for decades, but hasn’t yet reached full clarity as to what the ‘regular rate of pay’ should be in a changing work environment. There is much speculation and discussion that one possible solution would be to create several levels of pay structure and exemptions for different classes of workers.

Tips.

The tip provisions in the Consolidated Appropriations Act prohibit employers from keeping employees’  tips.  This rule is under review because the 217 proposed rule did not define which non-tipped employees could participate in a tip pool.

Who is a Tipped Employee?

The FLSA defines a tipped employee as an employee who customarily and regularly receives more than $30 per month in tips. Typically, this includes employees like servers, bartenders, and bussers.

For the Tip Credit to apply, the employer must pay a cash wage of at least $2.13 per hour and the employee must be allowed to retain all tips received except for those tips subject to a valid tip pool.  The tip pool involves sharing a portion of tips received during the course of a shift between all tipped employees. Additionally, the tip pool where sharing a portion of the tips to non-tipped employees – such as cooks and line dishwashers, will not qualify as a valid tip pool.

The new Tip Income Protection Act of 2018 signed by President Trump on March 23, 2018 provides much needed clarity by prohibiting managers and supervisors from retaining employee tips, thereby excluding them from a tip pool. Employers will be subject to liquidated damages for keeping tips, along with a $1,000 civil penalty per violation. The law also repeals portions of the regulation, issued by the DOL in 2011, which prohibited employers from requiring tipped employees to participate in a tip pool with non-tipped employees, if the employer did not take a tip credit and the employees were paid at least the applicable minimum wage. This leaves the door open for the DOL to propose a rule allowing employers to require tipped employees receiving the full minimum wage to share their tips with non-tipped employees who are not managers or supervisors.

 

These are only two of the 49 key actions that the DOL put into its agenda for the year.  Some of the reason for the backlog is that the DOL is still waiting for its head position to be filled by President Trump. In the meantime, there will be more review and discussion until a final verdict can be made by a newly seated Director.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.