Thursday, October 06, 2011
2011 Trip to Arlington
IRS Fresh Start for Employers
The IRS announced an opportunity for a fresh start for employers on the much debated classification of contract laborers as employees. Procedures outlined in IRS Announcement 2011-64 offer business owners a window of opportunity to voluntarily reclassify contract laborers as employees within certain guidelines. This voluntary reclassification, called the Voluntary Classification Settlement Program (VCSP), allows eligible employers to reclassify contract laborers as employees on a forward looking basis with only minimal federal, social security, and Medicare tax exposure for past liability periods (note, however, that state withholding and workman’s compensation authorities are not bound to this program). The IRS, in previous publications, has announced an expected increase in the number of audits in this area due to non-compliance and wants to give employers a chance to change any misclassifications they may be aware of.
To be eligible, the employer must have treated the workers or group of workers consistently as independent contractors and issued 1099-Misc forms for services performed during the last three years. An employer under IRS or DOL audit is not eligible even if it otherwise would have met the conditions set forth. If an employer has been previously audited and has continued to comply with the conditions of that audit, the employer will be eligible for the program. The application is made on form 8952. On this form, the federal tax and social security withholdings are calculated by taking the 1099-MISC income for the entire group of laborers who are being reclassified as employees, multiplying that number by a pre-determined factor (10.68% for 2010 and 10.28% for 2011 for laborers under the social security wage base threshold amount), the product of which is multiplied by 10%. There are no penalties or interest assessed on the result of this calculation, but the employer agrees to treat the workers as employees on a prospective basis and a six year statute of limitations instead of three.
Please contact Kelly Phillips or Nell Sterling at (501) 753-9700 if you have questions regarding the calculation and how it may benefit you. Bell & Company can help you apply for the program through the IRS.
WARNING: Carefully think through the reclassification process for 2011 and into the future. For instance, consider the impact upon the 50 person employee rule (base measurement used by the health care reform to be effective in 2014), matching payroll taxes, etc. Also, be aware - this fresh start opportunity has not been adopted by the State of Arkansas for unemployment and state withholding purposes. One should carefully consider the implication of these additional taxes when evaluating the reclassification process.
Tuesday, October 04, 2011
When is it Safe to Shred Tax Records?
By George Wong, CPA
Have you ever asked yourself: “When can I delete old bookkeeping files and tax files on my computer?” or “Why can’t I get rid of these old tax records that are cluttering up my house?” These are good questions! In this article, I will discuss when it is and when it is not appropriate to shred or erase (if kept on your computer) your tax records and files according to the Internal Revenue Service (IRS) guidelines.
As you may already know, the main purpose of keeping your prior year tax records is to have documentation if the IRS audits your tax return. Having tax receipts is your main defense in proving your deductions during audit.
Generally, a three year statute of limitations exists after the original date the return is filed or due, whichever is later, for all returns. Basically, the IRS can audit your tax returns filed three years ago. Therefore, you should generally keep your tax records for at least three years.
In special circumstances, the IRS may go back 6 years if the taxpayer omits from gross income an amount in excess of 25% of the amount of gross income reported on the originally filed tax return. This statute of limitations begins from the date the original tax return was filed. In an extreme case where either the taxpayer filed a false or fraudulent tax return, the taxpayer is willfully attempting to evade taxes, or the taxpayer does not file a tax return, the IRS may assess taxes. In addition, if a fraudulent tax return was filed, the IRS can impose additional taxes at any time, without regard to statutes of limitations, although the burden of proof falls on the government to prove fraud by the taxpayer. Hopefully in this case, you kept all of your tax records from the beginning of time.
When in doubt, keep all your tax receipts, records, and tax returns. It is also a good idea to hire a Certified Public Accountant or tax advisor to represent you in an audit by the IRS or state taxing authority.
For more information please send e-mail to george.wong@bellandcompany.net.
Wednesday, September 28, 2011
Medical Expenses
If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct medical expenses. Here are some things to keep in mind:
• You may deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income. Starting in 2013 as part of the new health care law, the threshold will increase to 10%.
• You can only deduct medical expenses you actually paid during the year, minus any reimbursements.
• You can deduct expenses you pay for yourself, spouse, and dependents. If you’re divorced or separated, each parent can deduct the medical expenses he or she actually pays for a child, even if the child is not claimed as a dependent.
• You can deduct transportation and traveling costs to a health care facility. Transportation costs include mileage, tolls, and parking fees.
• Lodging is deductible if the trip is primarily for and essential to medical care. Lodging expenses for a person accompanying the individual seeking medical care is also deductible, but meals are not deductible. The deduction is limited to $50 per night per individual.
• Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses with the proceeds.
• Medical expenses are those that are for the prevention or alleviation of a physical or mental defect or illness. This includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure of the body. The following types do qualify:
o You can deduct the costs of health insurance, dental insurance, long-term care, and long-term care insurance.
o Medicines prescribed by a medical professional. Insulin does not need a prescription, but is deductible.
o Costs for medical devices, equipment, and supplies, such as eyeglasses and wheelchairs, as prescribed by a medical professional.
o Co-pays for doctors, dental visits, and eye exams qualify as medical expenses.
o Weight-loss programs are only deductible if it is prescribed by a physician to treat a specific disease. You can include the cost of special food only if the food does not satisfy normal nutritional needs, the food alleviates or treats an illness, and a physician confirmed the need for the food.
The following types do not qualify:
o Over the counter medicines and treatments, nutritional supplements, vitamins, and first aid supplies do not qualify unless specifically prescribed by a medical professional. Medications obtained from another country cannot be deducted as medical expenses.
o Medical marijuana or other controlled substances are not deductible as medical expenses, even if your state allows it.
o Gym memberships, teeth whitening, and cosmetic surgery that is only cosmetic in nature is not deductible.
• You may deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income. Starting in 2013 as part of the new health care law, the threshold will increase to 10%.
• You can only deduct medical expenses you actually paid during the year, minus any reimbursements.
• You can deduct expenses you pay for yourself, spouse, and dependents. If you’re divorced or separated, each parent can deduct the medical expenses he or she actually pays for a child, even if the child is not claimed as a dependent.
• You can deduct transportation and traveling costs to a health care facility. Transportation costs include mileage, tolls, and parking fees.
• Lodging is deductible if the trip is primarily for and essential to medical care. Lodging expenses for a person accompanying the individual seeking medical care is also deductible, but meals are not deductible. The deduction is limited to $50 per night per individual.
• Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses with the proceeds.
• Medical expenses are those that are for the prevention or alleviation of a physical or mental defect or illness. This includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure of the body. The following types do qualify:
o You can deduct the costs of health insurance, dental insurance, long-term care, and long-term care insurance.
o Medicines prescribed by a medical professional. Insulin does not need a prescription, but is deductible.
o Costs for medical devices, equipment, and supplies, such as eyeglasses and wheelchairs, as prescribed by a medical professional.
o Co-pays for doctors, dental visits, and eye exams qualify as medical expenses.
o Weight-loss programs are only deductible if it is prescribed by a physician to treat a specific disease. You can include the cost of special food only if the food does not satisfy normal nutritional needs, the food alleviates or treats an illness, and a physician confirmed the need for the food.
The following types do not qualify:
o Over the counter medicines and treatments, nutritional supplements, vitamins, and first aid supplies do not qualify unless specifically prescribed by a medical professional. Medications obtained from another country cannot be deducted as medical expenses.
o Medical marijuana or other controlled substances are not deductible as medical expenses, even if your state allows it.
o Gym memberships, teeth whitening, and cosmetic surgery that is only cosmetic in nature is not deductible.
Emergency Preparedness
An ounce of prevention is worth a pound of cure – emergency preparedness for small businesses
Small business owners are some of the busiest people in America, so it’s easy to just look at the most pressing, immediate business concerns. But as natural and man-made disasters seem to be happening with increased regularity, it seems it’s just a matter of time before a disaster comes knocking on your door. FEMA publishes a guide to help businesses prepare for emergencies. For a copy of the full guide, visit http://www.fema.gov/pdf/business/guide/bizindst.pdf. Below is a summary of their approach.
There are four steps in the planning process:
1. Establish a planning team
a. Form the team – the size of the team will depend on the needs, size, and resources of your company
b. Establish authority – demonstrate owner’s commitment and promote an atmosphere of cooperation by giving the planning team authority to take the necessary steps to implement an emergency plan
c. Issue a mission statement – your statement should define the purpose of the plan, indicate it will involve the whole organization, and define the authority and structure of the planning group
d. Establish a schedule and budget – establish a work schedule, planning deadlines, and an initial budget
2. Analyze capabilities and hazards
a. Where do you stand right now?
i. Review internal plans and policies
ii. Meet with outside groups, such as a community emergency management office, the fire or police department, and telephone and utility companies
iii. Identify codes and regulations, such as occupational safety and health regulations, environmental regulations, fire codes, seismic safety codes, and zoning regulations
iv. Identify critical products, services, and operations to assess the impact of potential emergencies and to determine the need for backup systems
v. Identify internal resources and capabilities that could be needed in an emergency, including personnel, equipment, facilities, and backup systems
vi. Identify external resources that could be needed in an emergency, such as the fire department, local and state police, utilities, insurance carriers, and community service organizations
vii. Meet with your insurance carriers to review all policies
b. Conduct a vulnerability analysis
i. List potential emergencies
ii. Estimate the probability of each emergency’s occurrence
iii. Analyze the potential human impact of each emergency – the possibility of death or injury
iv. Assess the potential property impact, including cost to replace, cost to set up temporary replacement, and cost to repair
v. Assess the potential business impact, or the potential loss of market share, including business interruption, employees unable to report to work, customer unable to reach facility, and interruption of product distribution
vi. Assess internal and external resources and your ability to respond
3. Develop the plan
a. Your plan should include the following components
i. An executive summary that gives a brief overview of the purpose of the plan, the facility’s emergency management policy, authorities and responsibilities of key personnel, the types of emergencies that could occur, and where response operations will be managed
ii. Briefly describe the plan’s approach to the core elements of emergency management
iii. Spell out how the company will respond to emergencies
iv. Include documents that could be included in an emergency, like call lists, maps, etc.
b. The development process
i. Identify challenges and prioritize activities
ii. Write the plan
iii. Establish a training schedule
iv. Meet periodically with local government agencies and community organizations
v. Review the plan, conduct training, and revise the plan as necessary
vi. Get final approval from senior management
vii. Distribute the plan to key personnel
4. Implement the plan
a. Integrate the plan into company operations – test how completely the plan has been integrated
b. Conduct training – training activities can include:
i. Orientation and education sessions
ii. Tabletop exercises
iii. Walk-through drill
iv. Functional drills
v. Evacuation drill
vi. Full-scale exercise
c. Evaluate and modify the plan – conduct a formal audit of the plan at least once a year
Small business owners are some of the busiest people in America, so it’s easy to just look at the most pressing, immediate business concerns. But as natural and man-made disasters seem to be happening with increased regularity, it seems it’s just a matter of time before a disaster comes knocking on your door. FEMA publishes a guide to help businesses prepare for emergencies. For a copy of the full guide, visit http://www.fema.gov/pdf/business/guide/bizindst.pdf. Below is a summary of their approach.
There are four steps in the planning process:
1. Establish a planning team
a. Form the team – the size of the team will depend on the needs, size, and resources of your company
b. Establish authority – demonstrate owner’s commitment and promote an atmosphere of cooperation by giving the planning team authority to take the necessary steps to implement an emergency plan
c. Issue a mission statement – your statement should define the purpose of the plan, indicate it will involve the whole organization, and define the authority and structure of the planning group
d. Establish a schedule and budget – establish a work schedule, planning deadlines, and an initial budget
2. Analyze capabilities and hazards
a. Where do you stand right now?
i. Review internal plans and policies
ii. Meet with outside groups, such as a community emergency management office, the fire or police department, and telephone and utility companies
iii. Identify codes and regulations, such as occupational safety and health regulations, environmental regulations, fire codes, seismic safety codes, and zoning regulations
iv. Identify critical products, services, and operations to assess the impact of potential emergencies and to determine the need for backup systems
v. Identify internal resources and capabilities that could be needed in an emergency, including personnel, equipment, facilities, and backup systems
vi. Identify external resources that could be needed in an emergency, such as the fire department, local and state police, utilities, insurance carriers, and community service organizations
vii. Meet with your insurance carriers to review all policies
b. Conduct a vulnerability analysis
i. List potential emergencies
ii. Estimate the probability of each emergency’s occurrence
iii. Analyze the potential human impact of each emergency – the possibility of death or injury
iv. Assess the potential property impact, including cost to replace, cost to set up temporary replacement, and cost to repair
v. Assess the potential business impact, or the potential loss of market share, including business interruption, employees unable to report to work, customer unable to reach facility, and interruption of product distribution
vi. Assess internal and external resources and your ability to respond
3. Develop the plan
a. Your plan should include the following components
i. An executive summary that gives a brief overview of the purpose of the plan, the facility’s emergency management policy, authorities and responsibilities of key personnel, the types of emergencies that could occur, and where response operations will be managed
ii. Briefly describe the plan’s approach to the core elements of emergency management
iii. Spell out how the company will respond to emergencies
iv. Include documents that could be included in an emergency, like call lists, maps, etc.
b. The development process
i. Identify challenges and prioritize activities
ii. Write the plan
iii. Establish a training schedule
iv. Meet periodically with local government agencies and community organizations
v. Review the plan, conduct training, and revise the plan as necessary
vi. Get final approval from senior management
vii. Distribute the plan to key personnel
4. Implement the plan
a. Integrate the plan into company operations – test how completely the plan has been integrated
b. Conduct training – training activities can include:
i. Orientation and education sessions
ii. Tabletop exercises
iii. Walk-through drill
iv. Functional drills
v. Evacuation drill
vi. Full-scale exercise
c. Evaluate and modify the plan – conduct a formal audit of the plan at least once a year
Subscribe to:
Posts (Atom)