Dan the CPA

Change in 1099-MISC Reporting Requirments

noreply@blogger.com (Dan Livengood, CPA) — Thu, 26 Jan 2012 14:51:00 +0000

I wanted to be sure to share a recent change in the 1099 reporting requirements. If you are preparing 1099-MISC form for 2011 be sure to exclude payments made using debit cards, credit cards and third parry payment providers like PayPal. These payments will be reported by the entity that processed the payment on the new form 1099-K. If you include such amounts in a 1099-MISC they will be double reported.

Mileage Rates for 2012

noreply@blogger.com (Dan Livengood, CPA) — Sat, 17 Dec 2011 22:01:00 +0000

The IRS has released the standard mileage rates for 2012. For business is the rate is 55.5 cents per mile. Driving for charitable purposes is 14 cents and the rate for medical travel and moving is 23 cents. These rates are set by the Internal Revenue Service each year based on a study of fixed and variable costs of operating an automobile.

What will expiration of the Bush-era tax cuts mean?

noreply@blogger.com (Dan Livengood, CPA) — Thu, 02 Dec 2010 15:32:00 +0000

The extension of the Bush-era tax cuts has been featured in the media recently, but the specifics are rarely mentioned. What does the failure to extend these tax cuts really mean? If the Bush-era tax cuts are not renewed the following will happen for the 2011 tax year:
• The 10% tax bracket will dissolve back into of the 15% bracket. For 2009 the 10% bracket was for the first $8,350/$16,750 taxable to single/married filing joint taxpayers respectively.
• The tax rate brackets overall will narrow, requiring less income to reach the next bracket.
• The marriage penalty will return, further narrowing the tax brackets for married taxpayers.
• The reduced limitation on itemized deductions and personal exemptions will be repealed, meaning both of itemized deductions and personal exemptions will be subject to reduction at pre-cut rates.
• The maximum tax rate for qualified dividends and capital gains will increase from 15% to 20%
• Tax credits will be reduced, including the child tax credit, which will decrease from $1000 to $500 per child.

The Alternative Minimum Tax Is Coming For You, or, How Does It Feel To Be Rich?

noreply@blogger.com (Dan Livengood, CPA) — Thu, 04 Nov 2010 13:15:00 +0000

The Alternative Minimum Tax (AMT) will affect 25 million more Americans for 2010 if action is not taken by congress according to a recent article in the Wall Street Journal online. The AMT was originally designed to keep a handful of the wealthiest Americans paying some amount of tax regardless of deductions. The tax involves throwing out most deductions and the benefits of most credits and taxing income at a flat 26 or 28 percent. It’s the original “flat tax” designed to make sure that the wealthiest Americans pay their fair share. Only now it might apply to you.

Rather than completely updating the tax, congress routinely passes a “patch”. The patch is supposed to keep the AMT in line, but they have failed to keep up with inflation, resulting in the AMT applying to 4 million taxpayers in 2009. This doesn’t bother our government too much, because they have gotten use to collecting the extra revenue from the creeping expansion of this extra tax. The critical issue is that with all of the chaos in congress this year there has been no patch. With no patch to the AMT 25 million more taxpayers will get hit with this tax.

To prevent this, I encourage you to contact your representatives and let them know you support an immediate patch to the 2010 AMT. This legislation will likely be voted upon in the lame duck session of congress later this month. They can be reached as follows:

Senator Jim Demit
http://demint.senate.gov/public/index.cfm?p=CommentOnLegislationIssues
340 Russell
United States Senate
Washington, DC 20510
Phone: 202-224-6121
Fax: 202-228-5143
Office Hours:
9am - 6pm (M-F)

Senator Lindsey Graham
http://lgraham.senate.gov/public/index.cfm?FuseAction=Contact.EmailSenatorGraham
290 Russell Senate Office Building
Washington, DC 20510
(202) 224-5972

Small Business Jobs Act of 2010

noreply@blogger.com (Dan Livengood, CPA) — Thu, 07 Oct 2010 13:41:00 +0000

You have probably heard that the 2010 Small Business Jobs Act was recently enacted, but have no idea if there is anything in it for your business. Because many of these opportunities are available for 2010 you might have a limited time to act. Here is a list of its main provisions.

• Larger section 179 expensing for capital assets.

• 100% exclusion of gain from the sale of small business stock acquired after the date of enactment and before January 1, 2011.

• General business credits of eligible businesses for 2010 allowed to be carried back five years.

• General business credits of eligible small businesses in 2010 aren’t subject to AMT.

• S corporation holding period to avoid built-in-gains tax on appreciated assets reduced to five years.

• Extension of 50% bonus depreciation to 2010 (and 2011 for certain property).

• Long-term contract accounting will no longer include bonus depreciation in the calculation.

• Deduction for start-up expenditures increased.

• Limitation on the penalty for failure to disclose certain reportable transactions.

• Cost of health insurance now deductible for determining self-employment tax.

• Cell phones are no longer considered listed property.

Of course, any good tax act must include some provisions that have the opposite effect of the act’s title. The 2010 Small Business Act includes the following “revenue raisers”:

• Rental property owners must now file 1099s on any service provider paid more than $600 in any year after December 31, 2010.

• Increased penalties for information returns (1099s for example) filed after December 31, 2010.

• IRS levy prior to a collections due process hearing for Federal contractors.

• Government 457 retirement savings plans can include a Roth account after December 31, 2010.

• Rollovers from 401(k), 403(b) and 457(b) plans to Roth are only taxable to the extent of after-tax contributions being rolled over.

• Crude tall oil is excluded for eligibility for the cellulosic biofuel producer credit.

• Nonqualified annuity contracts can elect to accumulate undistributed earnings on a tax deferred basis.

• Fees paid by U.S. taxpayers to foreign person for guaranteeing indebtedness will generally be subject to U.S. withholding.

I see some potential tax saving for most of my clients in this act. However, I doubt any of them will create new jobs as a result.

Taking Advantage of a Home Office

noreply@blogger.com (Dan Livengood, CPA) — Thu, 30 Sep 2010 13:57:00 +0000

With the growing mobility of the workforce and the increasing number of home-based businesses more people are working from home. Who can take advantage of having an office in the home? To claim expenses for a home office the designated space within the home must be used regularly and exclusively for one of three things: 1) as a principal place of business, 2) as a place to meet customers in the normal course of business, 3) or if it is a separate structure (such as a storage building or barn) in must be used in connection with the business. If an office is provided at a regular place of business, but the individual chooses to work at home then these deductions are not allowed. There are also some special rules that must be considered based on the situation and nature of business.

The expenses that can be claimed include direct and indirect expenses. Direct expenses are those that are incurred strictly for business purposes, such as a separate business phone line. 100% of direct expenses can be claimed in most cases. Indirect expenses are those that are incurred by the whole household, such as rent, mortgage interest, insurance, and power. Indirect expenses are prorated based on the percentage of the square footage used by the office compared to the total square footage of the home.

What’s the best way to claim these expenses? Sole-proprietors and partners can claim these expenses against self-employment income when they file their tax return. Employees (including corporate shareholder employees) get the most benefit by submitting these expenses on a regular basis, such as monthly, on an expense report to their employer. The corporation gets to deduct the expense, while the employee does not recognize it as income because it is a substantiated reimbursement. If reimbursement is not an option, the employee must claim them as unreimbursed employee expenses as an itemized deduction, subject to the 2% of AGI reduction. So, to get any benefit in this case the employee would have to have enough total deductions to itemize and the amount would still be reduced or eliminated based on their income.

Employee or Independent Contractor?

noreply@blogger.com (Dan Livengood, CPA) — Thu, 23 Sep 2010 12:47:00 +0000

So you need someone to perform some services for your business. The allure of saving employer FICA taxes (7.65%), workers compensations (?%), and other employment compliance costs (????%) causes too many businesses to rush to treat those workers as independent contractors when they should actually be treated as employees.

Unfortunately there is no hard and fast rule, but there are three criteria the IRS uses to make this determination. The first is behavioral control: who controls where, when and how the work is performed. The second is financial control: who makes the financial decisions with respect to the work. And third is the relationship: how do the business and the worker perceive their relationship with each other. Control or confusion in any of these areas means you probably have an employee.

Audits of businesses that treat workers as independent contractors are on the rise, so you had better have a good rational if you decide to go this route. In addition, workers often seek reclassification once they realize the tax implications of being treated as an independent contractor, or when loss of work causes them to seek unemployment benefits (which are only available to employees). This can have a snowball effect as it draws the attention of revenue starved state and federal agencies to your relationship with all your workers. And, once their reclassifications are made, interest and penalties pile on too. Did I mention my fees for defending you in one of these situations?

Fortunately, when adding workers, we can work with you to be sure you make a good well thought out determination. The IRS also offers a form (SS-8) that you can submit with all the facts to get them to make the decision for you. The resources are available to make a reasonable determination and pay the additional costs if necessary form the beginning to avoid crushing costs of a rash decision.

The IRS offers a little more detail here:

http://www.irs.gov/newsroom/article/0,,id=173423,00.html

And a publication giving the detailed rules can be found here:

http://www.irs.gov/pub/irs-pdf/p1779.pdf

IRS Has Put Paper Coupons on the Chopping Block

noreply@blogger.com (Dan Livengood, CPA) — Thu, 26 Aug 2010 14:57:00 +0000

If you pay your estimated taxes, payroll taxes or other tax payments using paper coupons, prepare to be forced into the information age. A new proposed regulation (REG 155340-09) will do away with the paper coupon system effective December 31, 2010. This is part of a larger IRS initiative to reduce errors and improve efficiency. Starting next year all payments will need to be made through the Electronic Federal Tax Payment System (EFTPS).

If this applies to you, you cannot wait until the last minute to enroll as the process involves both internet registration and delivery of confirmation by mail and can take 15 days. IRS Publication 4132 (found here: http://www.irs.gov/pub/irs-pdf/p4132.pdf) summarizes the EFTPS enrollment process.

Good luck! And, as always, don't hesitate to seek help from a qualified professional.

Take Advantage of the Health Care Small Business Tax Credit

noreply@blogger.com (Dan Livengood, CPA) — Mon, 23 Aug 2010 13:23:00 +0000

If you pay part of the premiums for your employee health insurance, be prepared to supply payroll and insurance records to your tax preparer this tax season so they can determine if you qualify and, if so, the amount of credit for your business. The ease the burden of the recent health care legislation congress is offering an income tax credit to small businesses that provide health insurance to their employees. To qualify the business must have: not more than 25 full time employees, and an average annual wage of no more than $50,000, and the employer must pay at least 50% or the premiums for single (employee only) coverage. The maximum credit is 35% the premiums paid by the employer, subject to a list of caveats and reductions.

Beware When You Get a Notice by Email or Fax

noreply@blogger.com (Dan Livengood, CPA) — Mon, 23 Aug 2010 13:06:00 +0000

Getting a threatening email or fax from the IRS often takes an individual off guard and they would do anything to keep the tax man off their back. Or, maybe an email about a lost refund inspires hope of a needed windfall. Unfortunately, bogus email, fax and phishing scams continue to confuse and trap taxpayers. The IRS will never contact you by email, nor will they ever make initial contact regarding an issue via fax. The same generally goes for state and local tax authorities.

These phony notifications are often part of a fraud or identity theft scam and are becoming more frequent. Any response to them could put you at risk. And supplying your information out of fear or optimism could cost you a fortune to fix.

Anytime you receive a notification from a tax authority requesting confidential information beware, they should already have most of your information. If your get any communication you are skeptical about notify your tax preparer. Or, contact the agency directly using their number in the blue pages to be sure you are calling the real agency.

You Might Miss Vital Tax Saving Information

noreply@blogger.com (Dan Livengood, CPA) — Thu, 15 Jul 2010 13:26:00 +0000

When I make a major post to my blog, I usually send an email blast. However, due to the crazy magic of the internet, my email won’t always make it to your inbox. And you could miss an update that could save you thousands in taxes or penalties. To be sure your get my updates I recommend subscribing to my RSS feed. The link is at the bottom of the right column on this blog.
If you are unfamiliar with RSS feeds here are some helpful instructions.

How to add RSS feeds to outlook:
http://office.microsoft.com/client/redir/HA010355679.aspx
How to add RSS feeds using a news reader:
http://rss-tutorial.com/rss-how-to-subscribe-to-feeds.htm
Or, if you are less verbally and more visually oriented check out this YouTube video:
http://www.youtube.com/watch?v=JQCdW0NXRBo

Please forward this information to anyone who could possibly use it. They will appreciate it!

Hiring? You May Qualify For Tax Savings!

noreply@blogger.com (Dan Livengood, CPA) — Thu, 08 Jul 2010 14:07:00 +0000

The economy seems to be turning around and many of my clients are considering hiring new employees. Here are some tax breaks from the HIRE Act you need to be aware of when making hiring decisions this year.

First, there is the payroll tax exemption. The employer is exempted from paying their share of the social security tax (6.2%) on qualifying employees. The employee must: be hired between February 3, 2010 and December 31, 2010; not have been employer more than 40 hour in the last 60 days; not replace another employee unless that employee was terminated for cause or left employment voluntarily. The exemption applies to wages paid between March 19 and December 31, 2010. There is no limit on this savings, other than the maximum employer cost of $6,621.60 for social security matching. As always there are some special caveats. Most payroll software has incorporated this exemption as a option as of this posting. Verify that the employee qualifies by having them complete a W-11, which can be found here: http://www.irs.gov/pub/irs-pdf/fw11.pdf.

Second, there is the Work Opportunity Tax Credit. The employer must choose between this credit and the above exemption. They can’t do both. This credit is available when employing members of nine targeted groups, including unemployed veterans and disconnected youth, with qualification varying by group. The credit is 40% of the first year wages up to $6000 (that’s a $2400 tax credit) for most applicable employees. The 40% credit applies to the first $12,000 of wages for qualified disabled veterans. This is the most technical of the available advantages and you should consult with your tax advisor if you think you might be eligible.

Third, is the credit for retaining qualifying new workers. Now that you hired them, the government is giving you a reason to keep them. This credit applies to any tax year ending after March 18, 2010. This income tax credit applies to any employee that meets the criteria for the payroll tax exemption (see two paragraphs above). This is the lesser of 6.2% of wages or $1000 (so the credit maxes out on wages of $16,129.03). The employee must be employed for 52 consecutive weeks and their wages in the second 26 weeks must be at least 80% of those for the first 26 weeks; to prevent front loading the wages to get the credit.

Keep in mind, each incentive only applies when hiring someone who has been unemployed for some period of time. And, while these incentives alone are no reason to hire, they certainly make it more agreeable. Even if you aren’t hiring, I bet you know someone who is and can use this information.

Hidden Tax Hike For Small Businesses Being Decided - ACT NOW!

noreply@blogger.com (Dan Livengood, CPA) — Thu, 24 Jun 2010 13:18:00 +0000

Today the U.S. Senate will resume consideration of bill H.R. 4213, which has already passed the House. Hidden within the bill, receiving almost no attention from the media, is an $11 billion dollar tax increase for many small businesses. They are calling it “The American Jobs and Closing Tax Loopholes Act of 2010” and in it is a provision that would subject professional service s corporation profits to self-employment tax, even if they are retained by the company. That’s an extra 15% tax for those corporations. Adding to the problem is that “professional services” are broadly defined in the code, including doctors, lawyers, accountants and consultants, with consultants being anyone who earns most of their money through providing knowledge and expertise and not tangible goods. If this passes many small business will see over 15% of their profits that could be reinvested in growing the business and the economy vaporized by the government.

The AICPA, proving that not all lobbyists are bad, has encouraged the Senate to rethink this position. An amendment has been introduced, AMDT 4342, which would strike this section from the bill.

I encourage you to contact your senators and let them know you support Amendment 4342 for bill HR 4213. Act now, this legislation will be voted upon soon. They can be reached as follows:

Senator Jim Demit
http://demint.senate.gov/public/index.cfm?p=CommentOnLegislationIssues
340 Russell
United States Senate
Washington, DC 20510
Phone: 202-224-6121
Fax: 202-228-5143
Office Hours:
9am - 6pm (M-F)

Senator Lindsey Graham
http://lgraham.senate.gov/public/index.cfm?FuseAction=Contact.EmailSenatorGraham
290 Russell Senate Office Building
Washington, DC 20510
(202) 224-5972

For more information on this hidden tax increase check out:

http://www.forbes.com/2010/06/09/tax-increase-congress-hedge-funds-personal-finance-s-corp-payoll-taxes.html?boxes=Homepagelighttop

And what the AICPA proposes:

http://www.aicpa.org/InterestAreas/Tax/Resources/SCorporations/Pages/AmendToHR4213SECT413-EMPLOYMENTTAXTREATMENTPROFESSIONALSERVICEBUSINESSES-SAMDT4342.aspx

1099s All the Time, Everywhere, Without Remorse

noreply@blogger.com (Dan Livengood, CPA) — Thu, 03 Jun 2010 12:31:00 +0000

Beginning in 2012 businesses (including individuals engaged in rental activities) will have to issue 1099s to ALL providers of products and services who are paid more than $600 each that year. Do you have phone, cell phone, insurance or electricity in your businesses name? You’ll have to send those companies and many more a 1099. Have a rental property? You’ll probably need to send 1099s to the mortgage and insurance companies.
This broad requirement was written into the healthcare bill in hopes of closing the tax gap; the billions of dollars people fail to report and pay taxes on each year. That’s how the bill came out relatively cheap with only a few additional taxes. The government expects most of the funds to come from increased tax compliance.

My biggest problem with this is that the IRS matching program is already notorious for causing problems. Simple errors on the part of the issuer or government, such as a mistyped social security number, or a 1099 issued in an individual’s name, instead of their business, can cost hundreds of dollars to convince the IRS that there was an error.

Millions of 1099s going every-which-way, for every imaginable reason hard to believe? See more from money.cnn.com here:

http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/index.htm

IRS Threats to Your Financial Health

noreply@blogger.com (Dan Livengood, CPA) — Thu, 07 Jan 2010 16:07:00 +0000

According to a recent report by the National Taxpayer Advocate the IRS has several practices that may harm you financially while generating little revenue for our treasury.

The IRS has set a target to answer 71 percent of phone calls. That mean 29 percent will go unanswered. Good luck preparing a correct return if you have a question and your call is one of those that goes unanswered.

Their collection practices aren’t going to help either. The IRS uses an automated system to file a lien against you if you have a tax debt, whether there are assets to collect against or not. This damages your credit, which makes is next to impossible to borrow money to pay your tax debt, which is actually what the IRS would rather you do. So, they want you to borrow the funds to pay them off and prevent the lengthy collections assessment process, but then file a lien against you which makes that next to impossible to achieve.

And speaking of the assessment process, to determine the amount you can reasonably against your debt requires hours of gathering paperwork. That time would be better spent allowing taxpayers to earn the funds to repay the debt. The process itself is also wasteful in its results. You have to document all f your debt payments, but the IRS will not consider unsecured debt payments, such as credit cards. How long can they expect someone to comply with a payment plan that is blind to many their other debts?

It’s not all bad news. The IRS is also working to create regulations for “unenrolled preparers”. CPAs, attorneys, and enrolled agents must all meet strict ongoing requirements. Until now, other preparers have had no requirements, and in some cases have little more expertise than the people who come to them to have their taxes prepared. In other cases, unregulated individuals have stressed bigger refunds over correct returns to their detriment of their customers. This has resulted in some of the scandals and lawsuits regarding some of the tax preparation chains. With registration and regulation, taxpayers will have greater assurance that the individual preparing their returns has their best interest in mind and knows what they are doing.

The Tax Payer Advocate Service is a national service, an independent branch within the IRS, that assists taxpayers with problems that have not or cannot be resolved through normal IRS channels and result in economic harm to the taxpayer.

Help with your employees and who’s responsible

noreply@blogger.com (Dan Livengood, CPA) — Mon, 14 Dec 2009 14:55:00 +0000

Do you currently or are you considering using a PEO, employee leasing company, temporary staffing agency, administrative services organization or payroll service provider? I have worked with a number of these companies over the years and know how they operate. I also just finished a continuing education course on these types of arrangements to cement what I have learned in the past decade. I highly recommend having a third party, such as a CPA, check behind them at least once every six months.
Too often, small businesses signup with one of these organizations without realizing how much control they are giving up while still retaining most or possibly all of the liability for tax and labor compliance issues. Unless your business relinquishes all control of wage payments, you can still be held 100% accountable for any problem with your payroll taxes and reports, including penalties and interest. Only if the employer has no control over the actual wage and salary amounts, raises, timing of the payment to employees, etc. does the liability stop with the service organization.

If you think “I hired them to do that so if there if a problem it’s on them” then you are living in a fantasy world that can quickly come crashing down around you. Of course, federal and state tax agencies will pursue anyone involved who they think they can collect from. And, unless your situation meets the above criteria, they can cut right though the service company (who might be broke by the time you discover a problem) to your business. This risk is fortunately very manageable. First, carefully document what risks you might be exposed to. Second, on a regular basis ask for proof that you are in compliance and hire a knowledgeable third party to make sure everything is in balance. Too many small business do not do this small amount of due diligence and it can cost them everything.

2010 Standard Mileage Rate

noreply@blogger.com (Dan Livengood, CPA) — Thu, 10 Dec 2009 13:07:00 +0000

The standard mileage rate for 2010 for business is 50 cents per mile. Driving for charitable puroposes is 14 cents and the rate for medical travel and moving is 16.5 cents. These rates are set by the Internal Revenue Service each year based on a study of fixed and variable costs of operating an automobile.

Their budget deficits – our problem

noreply@blogger.com (Dan Livengood, CPA) — Thu, 19 Nov 2009 14:30:00 +0000

State and local governments are facing record budget deficits due to the recession. How are they making up the difference? Not with new taxes, that would be political suicide. Instead they are attempting to enforce and collect every tax imaginable. Expect to see everything from notices to audits on any tax that might apply to your business – even if you are out of business.

Current tactics include audits for additional sales tax with a focus on freight, labor and rentals. If you didn’t file sales tax returns for a few months because you didn’t have any taxable sales an estimate will be imputed for you and a notice of deficiency issued. Notices for business personal property taxes on closed locations, closed businesses, or issued in the owner’s name (if the company was originally a sole-proprietorship and then changed to a partnership, LLC or co-poration) are being issued indiscriminately. Motor carrier and excise taxes are also seeing more notices and fewer leniencies. And, should you owe back taxes, and have not already made arrangement to settle them, expect to hear for the tax authorities soon.

My experience has been that most of these issues are administrative in nature and can be quickly resolved by filing missing returns (often with $0 due), submitting the proper account closing forms, and providing a well-worded explanation for what you did and why. So, don’t feel singled out if you get a letter demanding additional taxes. This is the equivalent of tax carpet bombing and the bombs are duds.

Introduction

noreply@blogger.com (Dan Livengood, CPA) — Thu, 19 Nov 2009 14:07:00 +0000

Welcome to the Dan the CPA Blog! This really should have been my first post. My name is Dan Livengood and I am a CPA with my own firm in the upstate of South Carolina. There have been so many changes in recent years, with more every week, that we simply cannot keep everyone informed individually. I started this blog to keep my clients informed of the latest developments in accounting and taxes.

New laws, regulations, and court rulings constantly create new opportunities for small businesses and their owners. At the same time federal, state and local governments are becoming more aggressive in their enforcement and collection activities creating new risks. I help my clients take advantage of those opportunities while protecting them from the risks. It’s definitely a balancing act and this blog will keep our clients up-to-date on both.

S Corporations - Losses and Stock and Debt Basis

noreply@blogger.com (Dan Livengood, CPA) — Sun, 25 Oct 2009 15:08:00 +0000

S corporation losses pass through to the shareholder, potentially reducing or even eliminating the shareholder’s tax liability. However, these losses are limited to the stock and debt basis that shareholder has in the corporations. Losses in excess of basis become suspended until basis is increased. In additional, distributions taken in excess of basis are taxed as a return or capital and are subject to tax at capital gains rates (basically subjecting them to double taxation).

The calculations are complex and should be made annually by the tax preparer. Stock basis is roughly the investments made by the shareholder, plus cumulative net income, less cumulative net losses, less distributions made. Debt basis is roughly the debt loaned by the shareholder, less any losses deducted against the debt basis.

The IRS is also giving this matter special attention. To many S corporations have been ignoring these rules or even abusing them to reduce the tax debt of their shareholders. Audits focusing or S corporations with losses, and their shareholders, are on the rise.

For more information on this and other S corporation issues, see what the IRS has to say here: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html

S Corporations - Compensation of Owner Employees

noreply@blogger.com (Dan Livengood, CPA) — Sun, 25 Oct 2009 14:42:00 +0000

I have encountered many S corporations that, due to poorly informed peers or accountants, believe S corporations can avoid payroll taxes on the owners by making all payment to owner “distributions”. This is a myth.

The first area that is being strictly enforced is compensation of shareholder-employees. Shareholders who provided who work for the corporation MUST receive reasonable compensation for the services they provide. Only after they have received this compensation, can they take distributions.

Failure to pay this compensation first can result in reclassification of the distributions as wages and additional taxes, as well as penalties and interest may apply. Other forms of remuneration may be subject to this reclassification as well.

The authority of the IRS to make these reclassifications is well established and unassailable. Establishing and paying what is reasonable can avoid the IRS determining and reclassifying this on the corporation’s behalf along with interest and penalties. Good research and documentation are key to setting compensation that won’t cost you more in the future.

For more information on this and other S corporation issues, see what the IRS has to say here: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html

Retirement plan tools coutesy of the IRS

noreply@blogger.com (Dan Livengood, CPA) — Fri, 23 Oct 2009 15:41:00 +0000

Whether you already have a plan or are considering getting one, you are probably wondering which retirement plan is right for your small business. The IRS has something for you: http://www.retirementplans.irs.gov/ This site can help your choose a plan, keep your plan in compliance, and fix you plan with as little pain as possible if it has gotten out of compliance. Of course, this is only intended for general guidance. For help making a decision specific to your business you should contact your CPA.

What accounting records do I need?

noreply@blogger.com (Dan Livengood, CPA) — Fri, 23 Oct 2009 15:20:00 +0000

I get this question often, even from clients who have been with me for years. It's hard to remember all of the various documents needed. Whether you are taking them to your accountant for bookkeeping services, doing your own with QuickBooks, preparing your tax return, or gathering them for an IRS audit, it is important to have, organize and keep all of the right information.

The IRS has a handy listing of all the documents they expect you to keep, and having these items available will help your accountant as well. See the article here:
http://www.irs.gov/businesses/small/article/0,,id=98551,00.html

And don't be fooled by online resources. Most banking and other online records are rarely available for more than a year. So, if you don't store a copy yourself, you will have to pay research fees for older items, if they are available at all.

Keep these items for at least seven years to be sure you have everything in your accounting and tax arsenal when you need it.

IRS Updates 2008 Mileage Rate

noreply@blogger.com (Dan Livengood, CPA) — Tue, 23 Sep 2008 17:05:00 +0000

Effective July 1, 2008 the IRS increased the standard business mileage rate to 58.5 cent per mile. Barring any changes, this rate will remain in effect until December 31, 2008. The original rate of 50.5 cents per mile remains in effect for all mileage for January 1 to June 30, 2008.

IRS Audits Are On the Rise

noreply@blogger.com (Nichole Livengood) — Fri, 02 May 2008 18:36:00 +0000

Would your books hold up if you were audited? Are you prepared? IRS business audits are on the rise, especially for Partnerships and S-Corporations, which means the likelihood that you’ll be audited during the lifetime of your business is greater than ever before. A solid accounting system and good financial documentation not only help your business run smoothly, they’ll keep you out of trouble if that dreaded letter comes in the mail. If you are faced with an audit, give us a call. We’d be glad to represent you and make the audit as stress free as possible.