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    What Is Your Business Tax Return Due Date?

    posted by Maria Tanski
    Recent Article
  • Ohio’s Estate Tax Repeal Offers Boost to Small Business Payroll

    Lawwmakers boost Ohio payroll with repeal of death taxDying in Ohio won’t be quite as costly for small business owners now that the state’s estate tax — also known as the “death tax” — has been put down by Gov. John Kasich. Maine and Oregon are also making changes to their estate taxes.

    Gov. Kasich’s move, signed into law July 1, helps the state look more attractive to Ohio’s 200,000 small business owners. Ohio’s small business payroll contributes more than $77 billion dollars to Ohio’s economy, according to the Wall Street Journal.

    Although the repeal doesn’t go into effect until Jan. 1, 2013, the elimination of the estate tax will hopefully help end the exodus of Ohio businesses planning to move to more business-friendly climates.

    In Maine, the estate tax exemption will double to $2 million Jan. 1, 2013. Oregon has new graduated rates from 10-16% for estates that exceed $1 million. Oregon’s changes to their estate tax goes into effect later this year.

    According to Forbes, 22 states, including Ohio and the District of Columbia, still impose an estate or inheritance tax on residents. Ohio currently imposes estate taxes on all personal assets which includes business assets, with the lowest exemption amount per estate at $338,333 but also the lowest top rate at 7%. As recently as January, Illinois enacted a state estate tax with an exemption of $2 million and a top tax rate of 16%.

    Don’t Be Fooled by Bogus Email, IRS Warns

    1231735 thumb print 1Don’t fall for the latest scam email claiming to be from the Internal Revenue Service, the IRS is warning on its website. A new scam email is circulating the Internet regarding electronic federal tax payments or the Electronic Federal Tax Payment System (EFTPS).

    The “phishing” email informs recipients that their federal tax payments made through EFTPS have been rejected. It instructs them to click a link which, unfortunately, is bogus, and downloads malware to infect the recipient’s computer. If you fall victim to this scam, the sender can capture your personal and financial information and commit identity theft.

    If you receive a suspicious email claiming to be from the IRS or referencing the EFTPS system or electronic federal tax payments, do not click on any links contained within the email, open any attachments, or reply to the sender. However, you should report unsolicited email claiming to be from the IRS at phishing@irs.gov.

    The IRS does not initiate taxpayer communications through email. This latest scam comes at a time when most employers are now required to use EFTPS to make federal payroll tax payments and other tax payments. It’s another way that scam artists are trying to hoodwink consumers into giving up their personal or financial information. Many phishing emails include seemingly genuine logos and mention specific programs such as EFTPS to appear more credible. Don’t fall for it!

    If you think you may be a victim of identity theft due to this phishing scam, follow the instructions on the IRS website to report the incident.

    Payroll News: President Obama Repeals 1099 Reporting Rules

    payroll newsGood news for small business owners — President Obama has signed the repeal of the controversial new 1099 reporting requirements.
    The proposed reporting requirements were part of the Affordable Care Act, and would have required all businesses to issue 1099-MISC forms to vendors for all services as well as goods over $600. The repeal of this law saves small business owners and payroll administrators from a burdensome amount of added paperwork.

    Here’s how the law stands now: you must issue a 1099 to anyone who is not an employee (excluding most corporations) if you pay them more than $600 for their services only. “With this bipartisan effort, we have removed a requirement that would have been an undue barrier to small business growth,” said Karen Mills, administrator of the Small Business Administration.

    For more information about the current 1099 requirements for independent contractors, visit the IRS website.

    Last-Minute Tax Filing Tips for Procrastinators

    time for taxesIf you’ll be spending your weekend frantically gathering business documents for the April tax deadline, you’re not alone. The IRS is expecting 10 million tax extension requests from super-procrastinators!

    Here are some last-minute tips from the National Association of the Self-Employed (and I’ve added a few of my own):

    Do some digging: Look for hidden business deductions, such as the home office deduction or mileage for business errands. I suggest opening up your personal checkbook and reviewing your monthly credit card statements to see if there are any potential deductions you may have missed.

    Retirement savings: You can deduct retirement savings, such as SEP contributions and IRA deposits, on your return up until the April filing date. (Translation: if you have the means to make a quick deposit in your retirement account, do it!)

    Tax Extensions: If you just can’t get your act together in time, you can get an extension.

    • For individuals and sole proprietors, file Form 4868.
    • For partnerships and corporations, see form 7004.

    One caveat: If you think you may owe, send in an estimated tax payment along with your extension, lest you be saddled with interest and late fees later on.

     

    Plan ahead: Remember — we’re in the 2011 tax year now. What can you do this year to reduce your tax liability next time around? If you use an accountant, ask what tax breaks are available for this year. Making equipment purchases or adding to your payroll may help you in the year ahead. A good accountant can advise you on some of the best moves for your business.

    Do yourself a big favor, and start a tax file for receipts and paid invoices to simplify next year’s tax filing process.

    Get help: If you’re going solo on your taxes, there’s help available. Visit the IRS website, or call their helpline at 1-800-829-1040.

    Don’t shoulder all of the accounting burden on your own. Try Patriot Software’s accounting software to help reduce the time you spend bookkeeping so you can get back to your business.

    Closing a Business Checklist

    1182890 closing a business checklistAre you closing the doors of your business this year? In your mind, you’ve probably been ready to move on for some time now. But there may be some loose ends you need to tie up first. Of course, the simpler your business structure, the simpler it will be to close up shop. While this is not an exhaustive list of closing procedures, here are some very general steps you’ll take.

    The Internal Revenue Service needs to hear about your closing business

    • Review the Business Closing Checklist from the IRS.
    • File an annual return for the year you go out of business. The type of return you file depends on the structure of your business (corporation, sole proprietorship, etc.)
    • Mark the check-box at the top of each return indicating that it’s a final return for your business.
    • File final employment payroll tax returns if you have employees.
    • Attach a statement to the final return showing the name of the person keeping the payroll records and where they’ll be kept for safekeeping.
    • Don’t forget to make your final deposits for your payroll taxes (941 deposits, etc.)
    • Decide what to do about your federal Employer Identification Number (EIN). While you can’t cancel the EIN assigned to you, you can close the business account. The IRS won’t reassign the EIN number, but actually reserves this number if you re-establish your business. Write to the Internal Revenue Service, Cincinnati, Ohio 45999, stating your reason for closing the account. Include the EIN Assignment Notice you received when you started your business, if you have it. Otherwise, include the complete legal name of the business entity, the EIN, and the business address.

    Your state would like to hear that you’re closing a business too

    Your particular state will likely require some action on your part. I can’t speak to everything that every state or territory would require (that would make a very long article), but I will say you should file a final business tax return with your state as soon as possible. Don’t wait until your normal filing date to file the final return, because the due date for final tax returns is often based on the date your business terminates — it might be due before the tax year even ends! Here are some additional to-dos:

    • Contact your state’s Secretary of State office for details on properly administering the closing of your business, or at minimum check out their website.
    • If your business is a corporation, you’ll most likely have additional work in the form of a Notification of Dissolution or Surrender.
    • Find out about state requirements specific to your type of business. (For example, if you own a restaurant, you may need to transfer or dispose of a liquor license if you have one.) Contact your state to find out more information.

    Other things to mark off your closing a business checklist

    • Of course, settle your accounts payable and accounts receivable.
    • Review your business closing procedures with your business lawyer.
    • Notify your accountant as soon as you decide your business is closing and allow them to direct you.
    • Close your business bank accounts, but wait until all checks and payments have cleared and there’s no activity on all accounts before you give your banker the go-ahead!

    Some of these details may be available in your accounting software to help speed up the process.

    10 Ways to Avoid Charity Scams (And Get Smart About Giving)

    businesses give to charityThe holidays are upon us…time for all charitable people to open their hearts and wallets to charity. Unfortunately, some “charities” aren’t so worthy, preying on kind people and businesses everywhere.

    The New York Daily News reports nearly 72% of Americans plan to donate the same amount or more to charity as last year. But the sad fact is — swindlers are afoot. In fact, the Federal Trade Commission says complaints about charity scams are up 8.6% this year. What’s more, scam artists are becoming sophisticated, taking advantage of technology to take advantage of us. If this continues, I wonder if scams might have a chilling effect on our goodhearted giving. (I’m less likely to listen to a spiel from an unknown charity because I just don’t want to be scammed. I’ve been hoodwinked before.) But how can you tell the good from the bad?

    Here’s some good news: you can be a smart giver and root out the posers! Here are tips to protect you and your business from charity scams:

    1. Do some old-fashioned sleuthing. What’s the address of the not-for-profit or nonprofit organization? Phone number? Website? What will they do with your donation? What percentage benefits the needy? Do they have a brochure or literature — something in writing? Most states require registration for charities. Ask for this info, and pursue the answers.

    2. Fake charities often try to appear legitimate with a name or logo that sounds or looks similar to a well-respected organization. Research the name of the not-for-profit or nonprofit organization online and see what comes up. Is it really the same organization you were thinking of supporting?

    3. Watch out for scam artists using email and fake websites to ask for donations, wreaking havoc through identity theft or malicious viruses. Be on guard for phishing schemes, and don’t click on embedded links or attachments in emails. (Most legitimate charities won’t make initial contact with you by email.)

    4. Don’t give cash. It’s smarter to write out a check in the organization’s name and ask for a receipt, especially if you’re planning to claim it as a charitable deduction for your business.

    5. Be on your guard against a popular scheme — charities claiming to raise money for local police or firefighter organizations. To support your local emergency services, contact them directly.

    6. Be wary of charities raising money following a natural disaster.

    7. Be concerned if the organization thanks you for a donation you don’t recall making.

    8. Find out how the not-for-profit or nonprofit organization is rated — even some well-known charities aren’t as efficient as they could be. Charity Navigator gives charities a star rating, and the Better Business Bureau’s National Charity Report reviews hundreds of charities.

    9. Why wait for a phone solicitation or letter? The Roman philosopher Marcus Anneus Seneca said, “He who gives when he is asked has waited too long.” Decide in advance which charities you’ll support, factor your giving into your budget and approach your favorite charities first. They’ll be grateful for your donation and continuing support.

    10. Trust your instincts. If something doesn’t feel right about an organization, it probably isn’t. For more tips on avoiding holiday scams, visit theFederal Trade Commission.

    Are you keeping your small business records accurately so you can properly deduct what has been given in the name of charity? Try Patriot’s online accounting software for small business. Free 30-day trial, and then only $12.50 a month!

    The New Health Care Credit for Small Businesses

    The Patient Protection and Affordable Care Act instituted a new income tax credit for small businesses that provide health care coverage for their employees. Small businesses are those who employ 25 or fewer full time employees with average annual wages of less than $50,000. The employer must pay at least 50% of the premium cost of the health care coverage for its employees. The credit is effective for tax years beginning after December 31, 2009.

    The credit is calculated as a percentage (generally 35% through 2013) of the nonelective employer contributions made toward the employees’ health insurance premiums. The contribution base is capped at the amount of “the average premium for the small group market in the State” in which the employer offers the health coverage. This average premium is determined annually by the Secretary of Health and Human Services.

    The IRS recently published these HHS determined premium rates in Revenue Ruling 2010-13.

    With this new information, you are now able to more accurately project the impact of the credit on your business. For some, it enables you to consider the cost benefit of increasing your contributions toward your employees’ coverage in order to meet the required threshold.  Remember to consider the potential effect of the HIRE Act on your employee headcount and therefore your eligibility as a small business for this credit.

    IRS Explains New Healthcare Tax Credit for Small Businesses

    The recently passed Health Care Reform Act included a “Credit for Small Business Employee Health Coverage Expenses.” This credit falls under one of the subtitles in the Act that will go into effect immediately. For tax years beginning in 2010, eligible small businesses may be able to claim an income tax credit for expenditures for qualifying health care coverage for their employees.

    An eligible small business is (1) an employer who employs fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement.”   A qualifying arrangement includes plans whereby the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage.

    In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium.  The average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services and published by the IRS.  Publication of the average premium for the small group market on a state-by-state basis is expected to be posted on the IRS website by the end of April.

    You can read more on the IRS website where they have posted a FAQ list.

    The first two questions address eligibility, questions #3  – 8 address calculation of the credit, #9 – 15 explain how to determine FTE’s and average annual wages for eligibility purposes, #16 – #21 tell how to claim the credit.  Be sure to read the last question (#22) on the transition rules for 2010.

    One Thing That Can Trigger an IRS Audit for Your Company

    The Internal Revenue Service estimates it has lost $34.7 billion in unpaid taxes because contractors have been misclassified as 1099 independent contractors (IC) instead of W-2 employees.  In one year, the Government Accountability Office estimated that misclassification cost the federal government $4.7 billion in income taxes.  Worker misclassification is one of the major IRS audit red flags, and could be one of the employment laws you might be breaking. Understandably, the IRS has made it a priority to investigate the issue of worker misclassification and has ramped up their audit staff.

    The IRS is sharing information with Federal agencies like the U.S. Department of Labor, to determine if overtime laws, minimum wage laws or prevailing wage laws are being followed.

    The IRS is also communicating with state agencies that administer taxes.  Employers who are found to have violated state labor laws will be required to pay back taxes, back wages, unpaid workers’ compensation premiums and unemployment premiums.  Depending on which law was violated, there is a potential for additional liability.  Several states have made worker misclassification a priority and the penalties are getting more severe.

    The topic of proper worker classification has quite a history.  In 1987, the IRS published a 20-factor test to help determine whether or not a worker was a common law employee.  However, in 1996 the IRS restructured the test into three main categories — behavioral control, financial control and type of relationshipThis is discussed in an IRS article . The degree of control the business has over its workers is a key factor. Generally, the more control a business has over a worker, the more likely it is that the worker is an employee rather than an independent contractor.

    An IRS audit can be triggered by any number of things, but some common occurrences that may flag your company for an audit includes:

    • The 1099 IC files a claim for unemployment benefits.  (They are not eligible for unemployment.)
    • The 1099 IC files a claim for workers’ compensation or disability benefits. (They should carry workers’ compensation on themselves because they are not eligible through an employer.)
    • A worker receives a W-2 and a 1099 Form from the same employer in one year because they converted from a 1099 IC to a direct hire of the company.  (If they are performing the same task as a 1099 IC and W-2 employee, they are normally classified as W-2 employees.)
    • The worker feels they are being improperly treated as a 1099 IC and files a complaint with the Department of Labor’s Wage and Hour Division.
    • The worker feels they are being improperly treated as a 1099 IC and files a Form SS-8 with the IRS for their own classification determination, or files a Form 8919, Uncollected Social Security Tax and Medicare Tax on Wages, with their personal income tax return.
    • The IRS is anonymously alerted about the worker or the employer not paying taxes.
    • Additional Initiatives

    A further illustration of the growing relationship between the IRS and other initiatives include:

    • Questionable Employment Tax Practices (QETP) Initiative
    • IRS National Research Program (NRP)
    • The 1099 Matching Program
    • The Employment Tax Examination Program

    avoid IRS audit

    [ Debbie Fledderjohann of Top Echelon contributed to this article. ]

    Classify as a W2 Employee or a 1099 Independent Contractor?

    When a person is paid on the Form W-2, the employer automatically withholds from the payroll and pays all of the necessary employee income taxes as required by the IRS.  These taxes include: Federal Income Tax, State Income Tax, and FICA (Social Security and Medicare).  In addition, the employer will pay all of the necessary employer taxes. These taxes include: FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).

    When a person is paid on the form 1099-Misc, all money earned by the individual is paid on an untaxed basis. It is then the responsibility of the individual to file and pay the appropriate taxes. The IRS has found that when an individual is responsible for paying his/her own taxes, etc., many times it is not as much as it would be when the employer is paying the correct tax amount. This is primarily due to workers taking full advantage of any potential business deductions so that they pay less in taxes. Hence, the IRS is cracking down on misclassifications and imposing some hefty penalties.

    Be forewarned, the IRS places strict qualification guidelines on the types of jobs that are truly performed by independent contractors and the types of people (sole proprietors) who are true independent contractors. Unfortunately, not only is the IRS strict, but their guidelines are sometimes vague. Therefore, you must evaluate the project and the proposed independent contractor in accordance with IRS guidelines to ensure that the arrangement is a true “independent contractor” relationship.  For more information relative to the IRS’ guidelines for independent contractors, consult IRS Form SS-8.

    In today’s business environment, it is imperative that workers are properly classified and that proper taxes are paid to the correct government entities.  [Julie Majors of Top Echelon contributed to this article]

    For more information, download our  Independent Contractor vs. Employee Classification Whitepaper.

    Ohio’s Estate Tax Repeal Offers Boost to Small Business Payroll

    Lawwmakers boost Ohio payroll with repeal of death taxDying in Ohio won’t be quite as costly for small business owners now that the state’s estate tax — also known as the “death tax” — has been put down by Gov. John Kasich. Maine and Oregon are also making changes to their estate taxes.

    Gov. Kasich’s move, signed into law July 1, helps the state look more attractive to Ohio’s 200,000 small business owners. Ohio’s small business payroll contributes more than $77 billion dollars to Ohio’s economy, according to the Wall Street Journal.

    Although the repeal doesn’t go into effect until Jan. 1, 2013, the elimination of the estate tax will hopefully help end the exodus of Ohio businesses planning to move to more business-friendly climates.

    In Maine, the estate tax exemption will double to $2 million Jan. 1, 2013. Oregon has new graduated rates from 10-16% for estates that exceed $1 million. Oregon’s changes to their estate tax goes into effect later this year.

    According to Forbes, 22 states, including Ohio and the District of Columbia, still impose an estate or inheritance tax on residents. Ohio currently imposes estate taxes on all personal assets which includes business assets, with the lowest exemption amount per estate at $338,333 but also the lowest top rate at 7%. As recently as January, Illinois enacted a state estate tax with an exemption of $2 million and a top tax rate of 16%.

    Don’t Be Fooled by Bogus Email, IRS Warns

    1231735 thumb print 1Don’t fall for the latest scam email claiming to be from the Internal Revenue Service, the IRS is warning on its website. A new scam email is circulating the Internet regarding electronic federal tax payments or the Electronic Federal Tax Payment System (EFTPS).

    The “phishing” email informs recipients that their federal tax payments made through EFTPS have been rejected. It instructs them to click a link which, unfortunately, is bogus, and downloads malware to infect the recipient’s computer. If you fall victim to this scam, the sender can capture your personal and financial information and commit identity theft.

    If you receive a suspicious email claiming to be from the IRS or referencing the EFTPS system or electronic federal tax payments, do not click on any links contained within the email, open any attachments, or reply to the sender. However, you should report unsolicited email claiming to be from the IRS at phishing@irs.gov.

    The IRS does not initiate taxpayer communications through email. This latest scam comes at a time when most employers are now required to use EFTPS to make federal payroll tax payments and other tax payments. It’s another way that scam artists are trying to hoodwink consumers into giving up their personal or financial information. Many phishing emails include seemingly genuine logos and mention specific programs such as EFTPS to appear more credible. Don’t fall for it!

    If you think you may be a victim of identity theft due to this phishing scam, follow the instructions on the IRS website to report the incident.

    Payroll News: President Obama Repeals 1099 Reporting Rules

    payroll newsGood news for small business owners — President Obama has signed the repeal of the controversial new 1099 reporting requirements.
    The proposed reporting requirements were part of the Affordable Care Act, and would have required all businesses to issue 1099-MISC forms to vendors for all services as well as goods over $600. The repeal of this law saves small business owners and payroll administrators from a burdensome amount of added paperwork.

    Here’s how the law stands now: you must issue a 1099 to anyone who is not an employee (excluding most corporations) if you pay them more than $600 for their services only. “With this bipartisan effort, we have removed a requirement that would have been an undue barrier to small business growth,” said Karen Mills, administrator of the Small Business Administration.

    For more information about the current 1099 requirements for independent contractors, visit the IRS website.

    Last-Minute Tax Filing Tips for Procrastinators

    time for taxesIf you’ll be spending your weekend frantically gathering business documents for the April tax deadline, you’re not alone. The IRS is expecting 10 million tax extension requests from super-procrastinators!

    Here are some last-minute tips from the National Association of the Self-Employed (and I’ve added a few of my own):

    Do some digging: Look for hidden business deductions, such as the home office deduction or mileage for business errands. I suggest opening up your personal checkbook and reviewing your monthly credit card statements to see if there are any potential deductions you may have missed.

    Retirement savings: You can deduct retirement savings, such as SEP contributions and IRA deposits, on your return up until the April filing date. (Translation: if you have the means to make a quick deposit in your retirement account, do it!)

    Tax Extensions: If you just can’t get your act together in time, you can get an extension.

    • For individuals and sole proprietors, file Form 4868.
    • For partnerships and corporations, see form 7004.

    One caveat: If you think you may owe, send in an estimated tax payment along with your extension, lest you be saddled with interest and late fees later on.

     

    Plan ahead: Remember — we’re in the 2011 tax year now. What can you do this year to reduce your tax liability next time around? If you use an accountant, ask what tax breaks are available for this year. Making equipment purchases or adding to your payroll may help you in the year ahead. A good accountant can advise you on some of the best moves for your business.

    Do yourself a big favor, and start a tax file for receipts and paid invoices to simplify next year’s tax filing process.

    Get help: If you’re going solo on your taxes, there’s help available. Visit the IRS website, or call their helpline at 1-800-829-1040.

    Don’t shoulder all of the accounting burden on your own. Try Patriot Software’s accounting software to help reduce the time you spend bookkeeping so you can get back to your business.

    Closing a Business Checklist

    1182890 closing a business checklistAre you closing the doors of your business this year? In your mind, you’ve probably been ready to move on for some time now. But there may be some loose ends you need to tie up first. Of course, the simpler your business structure, the simpler it will be to close up shop. While this is not an exhaustive list of closing procedures, here are some very general steps you’ll take.

    The Internal Revenue Service needs to hear about your closing business

    • Review the Business Closing Checklist from the IRS.
    • File an annual return for the year you go out of business. The type of return you file depends on the structure of your business (corporation, sole proprietorship, etc.)
    • Mark the check-box at the top of each return indicating that it’s a final return for your business.
    • File final employment payroll tax returns if you have employees.
    • Attach a statement to the final return showing the name of the person keeping the payroll records and where they’ll be kept for safekeeping.
    • Don’t forget to make your final deposits for your payroll taxes (941 deposits, etc.)
    • Decide what to do about your federal Employer Identification Number (EIN). While you can’t cancel the EIN assigned to you, you can close the business account. The IRS won’t reassign the EIN number, but actually reserves this number if you re-establish your business. Write to the Internal Revenue Service, Cincinnati, Ohio 45999, stating your reason for closing the account. Include the EIN Assignment Notice you received when you started your business, if you have it. Otherwise, include the complete legal name of the business entity, the EIN, and the business address.

    Your state would like to hear that you’re closing a business too

    Your particular state will likely require some action on your part. I can’t speak to everything that every state or territory would require (that would make a very long article), but I will say you should file a final business tax return with your state as soon as possible. Don’t wait until your normal filing date to file the final return, because the due date for final tax returns is often based on the date your business terminates — it might be due before the tax year even ends! Here are some additional to-dos:

    • Contact your state’s Secretary of State office for details on properly administering the closing of your business, or at minimum check out their website.
    • If your business is a corporation, you’ll most likely have additional work in the form of a Notification of Dissolution or Surrender.
    • Find out about state requirements specific to your type of business. (For example, if you own a restaurant, you may need to transfer or dispose of a liquor license if you have one.) Contact your state to find out more information.

    Other things to mark off your closing a business checklist

    • Of course, settle your accounts payable and accounts receivable.
    • Review your business closing procedures with your business lawyer.
    • Notify your accountant as soon as you decide your business is closing and allow them to direct you.
    • Close your business bank accounts, but wait until all checks and payments have cleared and there’s no activity on all accounts before you give your banker the go-ahead!

    Some of these details may be available in your accounting software to help speed up the process.

    10 Ways to Avoid Charity Scams (And Get Smart About Giving)

    businesses give to charityThe holidays are upon us…time for all charitable people to open their hearts and wallets to charity. Unfortunately, some “charities” aren’t so worthy, preying on kind people and businesses everywhere.

    The New York Daily News reports nearly 72% of Americans plan to donate the same amount or more to charity as last year. But the sad fact is — swindlers are afoot. In fact, the Federal Trade Commission says complaints about charity scams are up 8.6% this year. What’s more, scam artists are becoming sophisticated, taking advantage of technology to take advantage of us. If this continues, I wonder if scams might have a chilling effect on our goodhearted giving. (I’m less likely to listen to a spiel from an unknown charity because I just don’t want to be scammed. I’ve been hoodwinked before.) But how can you tell the good from the bad?

    Here’s some good news: you can be a smart giver and root out the posers! Here are tips to protect you and your business from charity scams:

    1. Do some old-fashioned sleuthing. What’s the address of the not-for-profit or nonprofit organization? Phone number? Website? What will they do with your donation? What percentage benefits the needy? Do they have a brochure or literature — something in writing? Most states require registration for charities. Ask for this info, and pursue the answers.

    2. Fake charities often try to appear legitimate with a name or logo that sounds or looks similar to a well-respected organization. Research the name of the not-for-profit or nonprofit organization online and see what comes up. Is it really the same organization you were thinking of supporting?

    3. Watch out for scam artists using email and fake websites to ask for donations, wreaking havoc through identity theft or malicious viruses. Be on guard for phishing schemes, and don’t click on embedded links or attachments in emails. (Most legitimate charities won’t make initial contact with you by email.)

    4. Don’t give cash. It’s smarter to write out a check in the organization’s name and ask for a receipt, especially if you’re planning to claim it as a charitable deduction for your business.

    5. Be on your guard against a popular scheme — charities claiming to raise money for local police or firefighter organizations. To support your local emergency services, contact them directly.

    6. Be wary of charities raising money following a natural disaster.

    7. Be concerned if the organization thanks you for a donation you don’t recall making.

    8. Find out how the not-for-profit or nonprofit organization is rated — even some well-known charities aren’t as efficient as they could be. Charity Navigator gives charities a star rating, and the Better Business Bureau’s National Charity Report reviews hundreds of charities.

    9. Why wait for a phone solicitation or letter? The Roman philosopher Marcus Anneus Seneca said, “He who gives when he is asked has waited too long.” Decide in advance which charities you’ll support, factor your giving into your budget and approach your favorite charities first. They’ll be grateful for your donation and continuing support.

    10. Trust your instincts. If something doesn’t feel right about an organization, it probably isn’t. For more tips on avoiding holiday scams, visit theFederal Trade Commission.

    Are you keeping your small business records accurately so you can properly deduct what has been given in the name of charity? Try Patriot’s online accounting software for small business. Free 30-day trial, and then only $12.50 a month!

    The New Health Care Credit for Small Businesses

    The Patient Protection and Affordable Care Act instituted a new income tax credit for small businesses that provide health care coverage for their employees. Small businesses are those who employ 25 or fewer full time employees with average annual wages of less than $50,000. The employer must pay at least 50% of the premium cost of the health care coverage for its employees. The credit is effective for tax years beginning after December 31, 2009.

    The credit is calculated as a percentage (generally 35% through 2013) of the nonelective employer contributions made toward the employees’ health insurance premiums. The contribution base is capped at the amount of “the average premium for the small group market in the State” in which the employer offers the health coverage. This average premium is determined annually by the Secretary of Health and Human Services.

    The IRS recently published these HHS determined premium rates in Revenue Ruling 2010-13.

    With this new information, you are now able to more accurately project the impact of the credit on your business. For some, it enables you to consider the cost benefit of increasing your contributions toward your employees’ coverage in order to meet the required threshold.  Remember to consider the potential effect of the HIRE Act on your employee headcount and therefore your eligibility as a small business for this credit.

    IRS Explains New Healthcare Tax Credit for Small Businesses

    The recently passed Health Care Reform Act included a “Credit for Small Business Employee Health Coverage Expenses.” This credit falls under one of the subtitles in the Act that will go into effect immediately. For tax years beginning in 2010, eligible small businesses may be able to claim an income tax credit for expenditures for qualifying health care coverage for their employees.

    An eligible small business is (1) an employer who employs fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement.”   A qualifying arrangement includes plans whereby the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage.

    In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the State (or an area within the State) in which the employer offers coverage were substituted for the actual premium.  The average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services and published by the IRS.  Publication of the average premium for the small group market on a state-by-state basis is expected to be posted on the IRS website by the end of April.

    You can read more on the IRS website where they have posted a FAQ list.

    The first two questions address eligibility, questions #3  – 8 address calculation of the credit, #9 – 15 explain how to determine FTE’s and average annual wages for eligibility purposes, #16 – #21 tell how to claim the credit.  Be sure to read the last question (#22) on the transition rules for 2010.

    One Thing That Can Trigger an IRS Audit for Your Company

    The Internal Revenue Service estimates it has lost $34.7 billion in unpaid taxes because contractors have been misclassified as 1099 independent contractors (IC) instead of W-2 employees.  In one year, the Government Accountability Office estimated that misclassification cost the federal government $4.7 billion in income taxes.  Worker misclassification is one of the major IRS audit red flags, and could be one of the employment laws you might be breaking. Understandably, the IRS has made it a priority to investigate the issue of worker misclassification and has ramped up their audit staff.

    The IRS is sharing information with Federal agencies like the U.S. Department of Labor, to determine if overtime laws, minimum wage laws or prevailing wage laws are being followed.

    The IRS is also communicating with state agencies that administer taxes.  Employers who are found to have violated state labor laws will be required to pay back taxes, back wages, unpaid workers’ compensation premiums and unemployment premiums.  Depending on which law was violated, there is a potential for additional liability.  Several states have made worker misclassification a priority and the penalties are getting more severe.

    The topic of proper worker classification has quite a history.  In 1987, the IRS published a 20-factor test to help determine whether or not a worker was a common law employee.  However, in 1996 the IRS restructured the test into three main categories — behavioral control, financial control and type of relationshipThis is discussed in an IRS article . The degree of control the business has over its workers is a key factor. Generally, the more control a business has over a worker, the more likely it is that the worker is an employee rather than an independent contractor.

    An IRS audit can be triggered by any number of things, but some common occurrences that may flag your company for an audit includes:

    • The 1099 IC files a claim for unemployment benefits.  (They are not eligible for unemployment.)
    • The 1099 IC files a claim for workers’ compensation or disability benefits. (They should carry workers’ compensation on themselves because they are not eligible through an employer.)
    • A worker receives a W-2 and a 1099 Form from the same employer in one year because they converted from a 1099 IC to a direct hire of the company.  (If they are performing the same task as a 1099 IC and W-2 employee, they are normally classified as W-2 employees.)
    • The worker feels they are being improperly treated as a 1099 IC and files a complaint with the Department of Labor’s Wage and Hour Division.
    • The worker feels they are being improperly treated as a 1099 IC and files a Form SS-8 with the IRS for their own classification determination, or files a Form 8919, Uncollected Social Security Tax and Medicare Tax on Wages, with their personal income tax return.
    • The IRS is anonymously alerted about the worker or the employer not paying taxes.
    • Additional Initiatives

    A further illustration of the growing relationship between the IRS and other initiatives include:

    • Questionable Employment Tax Practices (QETP) Initiative
    • IRS National Research Program (NRP)
    • The 1099 Matching Program
    • The Employment Tax Examination Program

    avoid IRS audit

    [ Debbie Fledderjohann of Top Echelon contributed to this article. ]

    Classify as a W2 Employee or a 1099 Independent Contractor?

    When a person is paid on the Form W-2, the employer automatically withholds from the payroll and pays all of the necessary employee income taxes as required by the IRS.  These taxes include: Federal Income Tax, State Income Tax, and FICA (Social Security and Medicare).  In addition, the employer will pay all of the necessary employer taxes. These taxes include: FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).

    When a person is paid on the form 1099-Misc, all money earned by the individual is paid on an untaxed basis. It is then the responsibility of the individual to file and pay the appropriate taxes. The IRS has found that when an individual is responsible for paying his/her own taxes, etc., many times it is not as much as it would be when the employer is paying the correct tax amount. This is primarily due to workers taking full advantage of any potential business deductions so that they pay less in taxes. Hence, the IRS is cracking down on misclassifications and imposing some hefty penalties.

    Be forewarned, the IRS places strict qualification guidelines on the types of jobs that are truly performed by independent contractors and the types of people (sole proprietors) who are true independent contractors. Unfortunately, not only is the IRS strict, but their guidelines are sometimes vague. Therefore, you must evaluate the project and the proposed independent contractor in accordance with IRS guidelines to ensure that the arrangement is a true “independent contractor” relationship.  For more information relative to the IRS’ guidelines for independent contractors, consult IRS Form SS-8.

    In today’s business environment, it is imperative that workers are properly classified and that proper taxes are paid to the correct government entities.  [Julie Majors of Top Echelon contributed to this article]

    For more information, download our  Independent Contractor vs. Employee Classification Whitepaper.