Archive | Accounting RSS feed for this section

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.

Managing your small business finances is an ongoing process. When it comes to your accounting, do you find yourself having to sprint to catch up with your financial goals? Maybe you pull the occasional all-nighter, scrambling to get your records done by the end of the month.

Doing your accounting is not a sprint. It’s a marathon.

If you handle your accounting a little at a time, you can turn small victories into big accomplishments. You need a comprehensive plan to keep your small business finances ahead of the pack.

As a non-accountant, you might think reaching your book balancing goals is unrealistic. But even as a small business owner with no accounting background, you can get your financial skills in shape.

What does it take to achieve your financial fitness goals?

First, get the accounting equipment necessary for financial health. You don’t need to pour money into your accounting program. Just make sure you have some key tools that are essential for staying on track:

  • Online accounting software
  • Invoice tracking system
  • Account statements
  • Financial advisor

Then, you need to get a routine for best accounting practices. Doing each task at a designated time helps you avoid falling behind on your books. Get in the habit of having a regular schedule for:

  • Recording transactions
  • Reconciling accounts
  • Collecting and making payments
  • Managing cash flow

Finding the right combination of accounting strategies can be a huge challenge. Planning your process is almost as tough as actually doing your accounting!

That’s why we created a financial fitness infographic as a roadmap to your small business goals.

Visit Patriot Software’s Accounting Software page to see more expertise in action!

small business financial fitness infographic for small business accounting

Organization is key to success in handling your small business finances. Your accounting process should be detailed enough to keep you on track, but flexible enough to change as your business changes.

See for yourself how easy our accounting software is to use!

Tired of overpaying for accounting software? Save money and don’t sacrifice features you need for your business.

Start My Free Trial