Use your firm’s tax organizer to get, well, organized

The organizer provides a step-by-step process to help you collect the source documents your CPA will need to complete your tax return.

Double-check for missing documents or information

Don’t forget to include all required documents – such as 1099s for interest and dividends and basis to establish the purchase price of stocks sold (to determine capital gains). And remember to tell your preparer about estimated tax payments that you already made.

If you make estimated tax payments, provide your preparer any estimated taxes you paid in January – these payments don’t show up on your QuickBooks records from the prior year, but still count toward your tax return.

Other documentation to consider including:

-          A mileage log that includes dates, locations driven and total commuting and personal miles for the year

-          Retirement plan information, including contributions

-          Health insurance premiums paid

-          Mortgage interest, closing statements if you refinanced or documentation relating to any new loans made during the year

-          Charitable donations

-          Payroll tax returns for business tax returns

-          529 college savings plan contributions

If this is your first visit to a CPA, he or she may ask for the previous three years’ tax returns along with business documentation such as partnership agreements, incorporation or limited liability company documents.

Wait until you think you have all of the needed information before bringing it to the preparer

Try to bring all of your information at once. It becomes less efficient – and creates confusion – when you bring in items on multiple visits.

Don’t’ try to put it together in one sitting

If you follow the steps of your CPA’s tax organizer, there’s no rule that says you have to complete it all in one sitting. By breaking up the information into manageable sections, you can make this task less stressful and you’ll feel more productive as you check off the information you gathered.

Remember that your CPA can help you with tax planning, strategic planning and business referrals. Use your time with your CPA to look not only at this year’s return, but discuss your longer term goals too.

Your return will be done much more efficiently when you take a little extra time to organize.

In essence, it protects everyone’s interests by establishing the procedure for setting the value of the business and the terms of a buyout. And even though no one enters a relationship wanting to be jilted, it’s an important protection for all parties.

Once you’ve created a buy-sell agreement for your business, it’s vital that this document is first followed as written and second updated frequently to reflect the current value of the business.

If you don’t update the value of the business, the result can be devastating, especially if the business experiences exponential growth after the agreement is made. The buyout agreement could greatly overvalue the business, which could cause shares in the business to be tendered at prices that are so high that there is no ready market for them. The company may also experience liquidity issues when it must redeem shares at these prices. Conversely, if the business is valued unrealistically low, the terms of the buy-sell agreement could be sold at bargain basement prices and therefore ignored by attorneys and valuation professionals. Similarly, problems can arise if additional shareholders are brought into the business without following the agreement’s methodology to purchase shares.

A business owner is going through a divorce, and co-owns his business with three other individuals. The initial buy-sell agreement was signed in 1990, when only two co-owners were shareholders in the business. Since then, the two additional owners purchased shares. However, the buy-sell agreement was not updated, and it is uncertain if the other owners actually purchased shares in accordance with the methodology specified in the buy-sell agreement. To further complicate matters, the original buy-sell agreement set price parameters at such an outrageous level in an attempt to keep the value low, that attorneys and valuation professionals are essentially ignoring the terms of the buy-sell agreement.  Because the buy-sell agreement wasn’t updated, it did not benefit the shareholders – and the result was a substantial amount of money spent with attorneys and business valuation professionals – far more than if the shareholders had agreed to periodic updates to the agreement.

Unfortunately, not every business relationship ends up happily ever after. By starting out with a business pre-nup, or buy-sell agreement, and keeping it up-to-date, you’ll be better able to ensure an orderly separation on both a professional and personal level.

Many not-for-profit organizations have advertisements on their websites. Just like print or periodical advertising is unrelated business income (UBI), Internet advertising is also taxable income, even when your organization eventually uses the revenues to support its exempt activities. Generally, advertising messages contain qualitative or comparative language, endorsements or other inducements to purchase the sponsor’s products or services.

If agreements are properly structured as qualified sponsorships, payments received in connection with sponsorship contracts would not be subject to UBI, even if the sponsorship is on the organization’s website. In general, sponsorships merely acknowledge the sponsor by displaying its name, logo, or product lines.

But other Web activities may have UBI implications, even if it seems like sponsorship income.

For example, placing links or banners could result in taxable advertising income, depending upon the content of the linked website. So if you place a hyperlink to a sponsor’s website on your organization’s website, the arrangement might be considered a qualified sponsorship. However, if you include an endorsement with the hyperlink to the sponsor’s website, it would be considered advertising. To help avoid UBI implications, review the content of any linked websites and consider including language in sponsorship contracts that address the linked content.

In the future, the IRS will probably look closer at a not-for-profit organization’s website to ascertain whether organizations have UBI and to get a better understanding of its other activities. Routinely monitor your organization’s website for potential UBI implications and analyze their facts and circumstances each year.

If you have questions about UBI implications of your organization’s internet activities, please talk to your tax advisor.

When two or more people want to co-own a business, the buy-sell agreement should be one of the first documents that is created. The buy-sell agreement determines what will happen if a co-owner wants to leave the business, retire, sell shares to someone else, dies or goes through a divorce. In essence, it protects everyone’s interests by establishing the procedure for setting the value of the business and the terms of a buyout.

Creating the agreement

Even though it may slightly dampen your enthusiasm of going into business together, you must have the conversation with your business partner or partners about what will happen if things don’t work out. It’s even more important to document these discussions in writing, spelling out how additional partners can be added, what a buyout would look like, and what has been established as the initial value of the business. I can’t stress enough how important it is to create this agreement.

For many business owners, the cost of creating a buy-sell agreement and the initial business valuation is an issue. Let’s look at professional services fees you’re already paying. Chances are, you have a retirement plan or other investments. And you’re probably paying a broker a percentage of your investment to manage those investments. You’re probably also paying premiums on life insurance as well as insurance on your home, business and vehicles. You’re already paying a fee to protect these assets, yet they pale in comparison to your biggest asset of all – the value of your business.

For other business owners, finding time to create a buy-sell agreement is difficult. You’re an entrepreneur. You want to spend your time working on your business. However, failing to take the time to protect your biggest asset can be devastating.

Let me provide a real life illustration of what can happen when a buy-sell agreement is not in place. A business owner’s wife has decided to leave him and is filing for divorce. He had poured most of the earnings back into the company over the past five years, growing the size, assets and viability of his company. He has also likely increased the value of the company – although he doesn’t know what that value is. With all the earnings going back into the company, the business owner has not diversified his wealth. How will he compensate his soon-to-be ex-spouse for her portion of the value of the business – when he does not have access to liquid assets? In general, this business owner should pursue a strategy that impacts the value of his business the least. He might also forego capital expenditures or incur additional debt to free up cash for the settlement.

The buy-sell agreement is definitely a case that proves having an ounce of prevention can be worth a pound of cure. Similar to an insurance policy, you’ll pay for the creation of a buy-sell agreement up front, hoping that you never need it. However, if you do, it will certainly simplify how your business affairs will be determined.

If you don’t have a buy-sell agreement, or you haven’t looked at the one you have in a while, be sure to talk to your accounting professional about it. By working proactively now, you won’t have to be reactive if you are faced with a traumatic situation later.

Business owners must obtain the Taxpayer ID number, typically a social security number, for anyone to whom they’ve paid $600 or more, and record the amount paid in 2011. If the person or company does not provide their tax ID number, they are generally subject to a withholding rate of 28 percent on payments required to be reported.

if more than $600 or more was paid in 2011 include:

-          Professional services fees

-          Rents

-          Fee-splitting or referral  fees

-          Fees paid to independent contractors

-          Director’s fees

-          Fish purchases for cash

-          Prizes

-          Healthcare payments

The 1099s are required to be provided to service providers by January 31, 2012, and copies of the 1099 must be submitted to the IRS by February 28, 2012.

If your business fails to file a required 1099, it could result in a $100 fine per form. However, if the IRS determines there was willful neglect in failure to file the forms, the fine can increase to $250 per form. Taxpayers will notice new questions on Schedule C, E and F which refer to payments made that require the taxpayer to file a Form 1099.

You may have heard that certain 1099 requirements have been repealed during the past year. The reporting requirements mentioned above remain in place. However, two requirements that were created as part of an effort to pay for healthcare reform have been repealed. Payments made to corporations are no longer subject to the special 1099 reporting rules.  Also, real property rental businesses are no longer subject to the special 1099 reporting rules.

If you believe you may be required to report payments your business made in 2011 through Form 1099, be sure to discuss them with your tax advisor. Certain types of payments are exempt from reporting, and your advisor can assist you in determining the required reporting.

Joseph Popp, JD, LLM, also contributed to this article.

Moving to a state that does not have a personal income tax was a tactic that was often used by business owners in the past to avoid paying personal income tax on the proceeds from the sale of a closely-held business. Recognizing that this planning opportunity existed, the Ohio Department of Taxation passed legislation many years ago that made this simple planning opportunity null and void. Today, a non-resident owner of a closely-held pass-through entity or C corporation could face Ohio personal income tax on the income from sale. This tax law applies to non-resident owners of closely-held businesses who own at least 20 percent of the equity voting rights and have property, payroll or sales in Ohio.

Personal income taxes owed to the State of Ohio on the seller’s gain are apportioned based on a formula that looks at the percentage of property, payroll and sales that occurred in Ohio during the past three years.

For example, let’s say the closely-held business had the follow apportionment factors over the last three years:

-          $100 of property in Ohio out of $1000 = 20 percent Ohio

-          $200 in payroll in Ohio out of $1000 = 20 percent Ohio

-          $300 in sales occurring in Ohio out of $1000 = 30 percent Ohio

The apportionment formula would then weight the percentages above (20 percent property, 20 percent payroll and 60 percent sales) and conclude that 26 percent of the sale gains would be apportioned to Ohio in an effort to determine the total amount of the Ohio personal income tax due.

If you’ve been considering selling your closely-held business, advanced planning can help you minimize Ohio personal income taxes on the taxable gains you incur.  The impact can vary dramatically depending on your specific situation. Be sure to talk with your tax advisor before you begin the sale process.

The filing deadline extension impacts tax-exempt organizations that have a fiscal year that ended Aug. 31 or Sept. 30, 2011, and would ordinarily have a filing deadline of Jan. 17 or Feb. 15, 2012. The extension also applies to organizations that had already obtained an initial three-month filing extension that pushed their extended filing deadline to Jan. 17 or Feb. 15, 2012.

The deadline extension applies to organizations that file forms 990, 990-EZ, 990-PF or 1120-POL. You don’t need to file any forms to get the March 30 extension.

The e-file system that processes electronically filed returns for tax-exempt organizations will be offline in January and February. If you try to e-file during this period, your organization’s filing may be rejected. The IRS encourages organizations to consider waiting until March to file electronically but didn’t provide a specific date when it will once again begin accepting the tax-exempt returns. We will share the date with you as soon as we know.

If your organization’s annual return is in process, be sure to check with your tax professional regarding the deadline extension. Please note that the remainder of the e-file system will continue to operate normally, so you can continue to e-file all returns other than those for tax-exempt organizations should as usual.

To understand what has occurred, let’s look at how the federal unemployment tax works. A federal tax is levied on employers covered by the unemployment insurance program through the American Federal Unemployment Tax Act, known as FUTA. Employers paid a rate of up to 6.2 percent on wages up to $7,000 per year paid to a worker between January 1 and June 30, 2011, and since July 1, 2011, are paying a rate of up to 6.0 percent on wages up to $7,000 per worker.

Normally, the federal government provides a tax credit of up to 5.4 percent to employers who pay state taxes timely under an approved unemployment insurance program. However, that credit is reduced if a state government has an outstanding balance against a loan from the federal government that was provided to pay unemployment benefits.

The state governments had until November 10, 2011 to repay their loans. Beginning November 11, 2011, the FUTA credit was reduced and will remain reduced until the states pay off their outstanding loan balances. As a result, on November 11, 2011, employers in all 21 states were automatically required to pay extra FUTA taxes – but more importantly, the additional taxes are retroactive to January 1, 2011. Ohio’s FUTA tax rate is .3 percent; however the rates in surrounding states range from .3 percent to .9 percent in Michigan.

So what does this mean to your business? If you own a company based in Ohio with 100 employees who each earned wages of more than $7,000 (the maximum wage amount FUTA tax can be applied to) in 2011, your company would owe an additional $2,100 in FUTA taxes for 2011, which would be due by January 31, 2012.

If you have additional questions about the retroactive FUTA taxes or making adjustments to your payroll tax filing, please contact your Rea advisor.

Robert Ferguson, CPA, of Rea’s Marietta office, also contributed to this article.

Businesses that receive investments must make an investment in Ohio-based equipment, property or wages. Both the investor and the business must hold the investment and the items purchased from the investment for the two-year holding period. If you meet the requirements, ’you’ll receive a 10 percent credit against your personal Ohio income tax. The credits are available for a two-year period ending June 30, 2013. Program officials shared three additional details regarding the program’s guidelines.

Investing in Wages

If your investment is used for wages within a business, the state specifies that the wages do not have to be for a new worker. The provision states that the position must be retained by the business for the two-year period. Employees might change within the position during the two years, but the position itself must still be at the company at the end of the two years. The idea is that the business is “buying” an Ohio based worker for that whole two-year holding period.

Timing and Amount of Your Investment

The InvestOhio application specifies a date that the investment will be given to the company. The state provides a window of 30 days before to 30 days after the date of the investment listed on the application to get the money to the company. The application for InvestOhio will fail for investors who do not make their contribution within this time period.

The state also clarified that taxpayers must contribute at least 50 percent of the investment they stated on their application within the 60-day window. If the investment is less than 50 percent, the investor’s application for InvestOhio will automatically fail. While you are permitted to invest less money than the amount listed on your application, you cannot get credit for an additional amount invested over the application amount unless you file an additional application (assuming funding is still available for that new application).

Investment Documentation

The Ohio Department of Development announced that it isn’t currently accepting investment documentation while it works to construct a tool on the Ohio Business Gateway to allow InvestOhio participants to upload copies of their investment documentation documents. The Department will notify investors when the tool is ready and will begin the “30 day window” mentioned above at that point.

Documents considered acceptable to establish the date and amount of the investment include but are not limited to cancelled checks, wire transfers, journal entries and equity accounts of the small business entity. Documents considered acceptable to establish equity interest include but are not limited to stock certificates, partnership agreements and tables of ownership structure before and after the investment.

The credit is available first-come, first-served to taxpayers. Approximately 20 percent of the credit was claimed on the week of December 5, the first week applications were accepted through the Ohio Business Gateway. The InvestOhio program is being administered by the Ohio Department of Development in collaboration with the Ohio Department of Taxation. It is expected to generate at least $1 billion in new private investment in Ohio small businesses by 2013.

For additional information, please visit http://www.development.ohio.gov/InvestOhio/InvestOhio.htm or view this Frequently Asked Questions PDF http://www.development.ohio.gov/InvestOhio/Documents/InvestOhioFAQ110411.pdf.

When a business has funds that belong to customers, and have made every attempt to find the customers to return their money, the company must report the funds to the Ohio Department of Commerce after the funds have gone a predetermined number of years (typically between three and five) without being claimed.

Unclaimed funds that must be reported to the state include account balances, CDs, securities, deposits on utilities or balances overpaid on bills such as medical claims. The penalties for not reporting unclaimed funds to the State of Ohio can run as high as $100 per day for each day, to as high as $500 per month in criminal penalties or 1 percent of the balance per month.

The Ohio Department of Commerce is actively pursuing taxpayers who have not reported unclaimed income. If you have unclaimed funds on behalf of former customers that you are unable to reach, please contact your accounting professional for assistance in making the report.

If you suspect that you may have unclaimed funds coming to you, visit http://com.ohio.gov/unfd/TreasureHunt.aspx.