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Increased Withholding May Avoid Estimated Tax Penalty

Posted by Pierre Dion/Padgett Business Services Posted on Nov 29 2012

As the year comes to a close, you may find that the amount of tax withheld from your salary or paid in estimated tax vouchers isn't enough to cover your required estimated tax payments. Increasing your 4th quarter estimated tax payment will not avoid penalties, since these payments are applied in installments. However, you may avoid the penalty by increasing the income tax withheld by your employer. This is because the heavy year-end withholding will be treated as paid equally over the four installment due dates.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

 

Tax Deductible Vacations

Posted by Pierre Dion/Padgett Business Services Posted on Oct 10 2012

Business or Pleasure: The IRS doesn?t specify the determination of whether a trip is for business or pleasure on domestic trips. However, looking to the rules on international travel for guidance, the number of days spent on each type of activity is the key. An important factor in determining if the trip is primarily business or pleasure is the amount of time spent on each, although this isn't the sole factor. In general, the trip is ?primarily for business? if more than half of the days are spent on business activities.

 

The following days count toward your total business days:

·      Travel days;

·      Weekends and holidays, if they fall between days devoted to business and it would be impractical to return home;

·      ?Standby days,? when your physical presence is required, also count as business days ? even if you?re not called upon to work on those days;

·      Any other day principally devoted to business activities during normal business hours; and

·      Days you intended to work but couldn?t due to reasons beyond your control (local transportation difficulties, power failures, etc.).

 

If the trip doesn't involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Be careful to save all material helpful in establishing the business nature of this travel. Meticulous recordkeeping and thorough planning are necessary.

 

Transportation Costs: The cost of traveling within the US is 100% deductible as long as the primary purpose for the trip is business. In contrast, no travel deductions are allowed if the main reason for a trip is personal.

 

Meals and Lodging: Once at your destination, expenses for such items as lodging, hotel tips, local cab fares, and 50% of meals are deductible when related to business days. However, these same types of expenses aren?t deductible for non -business days. Additionally, no deduction will be allowed for meals or lodging to the extent the expense is ?lavish or extravagant.? Although this term isn't defined in the tax rules, it has been interpreted to mean ?unreasonable.?  Personal entertainment costs on the trip aren't deductible (such as a sightseeing tour), regardless of the day on which they fall. But business-related costs such as dry-cleaning, phone calls, and computer rentals are.

 

Taking Your Spouse: The rules on deducting the costs for a spouse accompanying you on a business trip are very restrictive. No deduction is allowed unless your spouse is an employee of yours or your company and his or her travel is also for a business purpose. This means you can't deduct the travel costs of a spouse, even if his or her presence has a bona fide business purpose, unless your spouse is a bona fide employee of your business.

 

If your spouse is your employee, and if his or her presence on the trip serves a bona fide business purpose, then you can deduct his or her travel costs. Merely having your spouse perform some incidental business service - such as typing up notes from a meeting - isn't enough to establish a business purpose. In general, it isn't sufficient for your spouse?s presence to be ?helpful? to your business pursuits?it must be ?necessary.?

 

If your spouse?s travel is not deductible, you can still deduct your own travel and meals; however, a shared cost - as with lodging - is deductible only at the single rate.

Not sure whether your travel expenses will be deductible? Take a few minutes to give our office a call.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

What If I Can't Pay My Taxes?

Posted by Pierre Dion/Padgett Business Services Posted on Oct 04 2012

Don't panic you are not alone! Many taxpayers have found themselves in financial distress. If you cannot pay the full amount of taxes you owe, you should still file your return (or extension) by the deadline and pay as much as you can to avoid penalties and interest.

You also should contact the IRS to discuss your payment options, such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the agency may be able to waive penalties.

But remember, no matter what option you choose, don't ignore your tax obligations.  They won't go away but will likely get worse, resulting in tax liens or garnishment of wages. Keep in mind, the IRS is far more willing to work with you if they believe you are making an effort to resolve the issues on your end!

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Is Cancellation of Debt Income Always Taxable?

Posted by Pierre Dion/Padgett Business Services Posted on Oct 02 2012

Canceled debt is generally taxable to you, but there are exceptions. The most common situations when cancellation of debt income is not taxable involve:

  • Qualified Principal Residence Indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
  • Certain Farm Debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.  

Non-recourse loans: A non-recourse loan is a loan for which the lender?s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Husband and Wife Businesses

Posted by Pierre Dion/Padgett Business Services Posted on Oct 01 2012

One of the advantages of operating your own business is hiring family members. However, the employment tax requirements for family employees may vary from those that apply to other employees.

 

How spouses earn Social Security benefits.  

A spouse is considered an employee if there is an employer/employee type of relationship, i.e., the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse. If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding. However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists and the business's income should be reported on Form 1065, U.S. Return of Partnership Income

 

Both spouses carrying on the business

Generally a qualified joint venture whose only members are a husband and wife filing a joint return are not treated as a partnership for Federal tax purposes. A qualified joint venture is a joint venture involving the conduct of a trade or business if, (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision applies. Under the provision, all items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor, each filing a Schedule C. For purposes of determining net earnings from self -employment, each spouse?s share of income or loss from a qualified joint venture is reported on Form SE. This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based.

 

One spouse employed by another

If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for him or her. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Employers Responsibility for Payroll

Posted by Pierre Dion/Padgett Business Services Posted on Sept 27 2012

Employers are ultimately responsible for the payment of income tax withheld, and both the employer and employee portions of Social Security and Medicare taxes, even if they outsource their payroll responsibilities to a third party. Outsourcing payroll to a third party can help ensure that filing deadlines and deposit requirements are met and greatly streamline business operations. However, it's the employer's ultimate responsibility to pay these taxes, even if the failure to pay is entirely due to the payroll service provider's negligence or fraud.

 

Best Business Practices:

1) DO NOT change the address on file with the IRS to that of the payroll service provider so the IRS will contact the employer. Changing the address may significantly limit the employer's ability to be timely informed of tax matters involving its business.

 

2) DO ensure the payroll service provider is using the Electronic Federal Tax Payment System (EFTPS), which maintains a business's payment history for 16 months and can be viewed on-line, allowing the employer to confirm payments electronically. Employers should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments. A red flag should go up the first time a payroll service provider misses or makes a late payment. Employers with an EFTPS account will also be able to make additional tax payments that their payroll service provider isn't making on their behalf (e.g., estimated tax payments).  The IRS cautions that there have been instances of individuals and companies acting under the guise of payroll service providers who have stolen funds intended for payment of employment taxes.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

FBAR Filing Requirement FAQ?s

Posted by Pierre Dion/Padgett Business Services Posted on Sept 25 2012

Q. What is an FBAR?
A. An FBAR is a Report of Foreign Bank and Financial Accounts. The form number is TD F 90-22.1. FBAR rules were established to protect against international terrorism. The reports filed as a result of this regulation provide leads to investigators that facilitate the identification and tracking of illicit funds or unreported income, as well as providing additional prosecutorial tools to combat money laundering and other crimes.

Q. Who must file an FBAR?

A. Any US person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

Q. What constitutes signature or other authority over an account?

A. A person has signature authority over an account if such person can control the disposition of money by delivery of a document containing his or her signature.

Q. When is the FBAR due?

A. The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. An extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR.

Q. What happens if an account holder is required to file an FBAR and fails to do so?

A. Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties or both.

Failure to File Penalty ? up to $250,000 and/or up to 5 years in prison for any person "willfully violating" the requirements to file.

Fraud Penalty ? up to $500,000 and/or up to 10 years in prison for any person "willfully violating" the requirements to file "as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period."

False Information Penalty ? fine or up to 5 years in prison for any person providing false, misleading, fictitious, or fraudulent statements on TD F 90-22.1; or up to 8 years in prison if the false information involves domestic or foreign terrorism.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog. PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Should I Panic if I Receive an IRS Notice?

Posted by Pierre Dion/Padgett Business Services Posted on Aug 30 2012

NO!!! Each year, the IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many can be dealt with simply and painlessly. Here are some tips:

 

1. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice will likely cover a specific issue about your account or tax return and provide specific instructions on what you are asked to do to satisfy the inquiry.

2. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

3. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

4. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help them respond to your inquiry.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Nondeductible Expenses

Posted by Pierre Dion/Padgett Business Services Posted on Aug 29 2012

As a small business owner, you have the opportunity to deduct certain expenses from your taxes. Don't let yourself get carried away though; there are some expenses that are not deductible, regardless of the situation.  Just as a reminder, below are some common expenses that CANNOT be deducted as a business expense.

 

·         Clothing: Unless it is protective gear, or a uniform not to be worn during non-working hours, clothing cannot be deducted.

 

·         Commuting Expenses: The cost of transportation from your home to your main/regular place of work.

 

·         Life Insurance Premiums: If the business or the business owner is a direct or indirect beneficiary, the expense cannot be deducted.

 

·         Lunches With Co-Workers: Meals with co-workers are nondeductible, unless traveling away from home on business.

 

·         Personal Legal Expenses: For example, legal fees relating to custody of children, divorce, preparation of a will, and personal injury claims are nondeductible.

 

·         Political Contributions: Political donations and lobbying expenses to influence voters are not deductible.

 

·         Residential Telephone Service: The first telephone line to your residence is non-deductible even if used in a trade or business.

 

·         Health Club, Social Club or Country Club Dues: In general, club fees and weight loss programs are nondeductible, even if your job requires you to stay in shape. (Note: If certain conditions are met, the expense may qualify as a medical expense.)

 

·         Fines and Penalties: Traffic tickets, tax penalty payments, and violations of law are not deductible expenses.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Determining Reasonable Compensation

Posted by Pierre Dion/Padgett Business Services Posted on Aug 28 2012

The IRS has the authority to reclassify dividends, distributions, or payments to the shareholder-employee as compensation if it deems compensation inadequate or unreasonable. The courts have held that the question of reasonable compensation is one of fact, determined on a case-by-case basis. The IRS lists the following factors in determining reasonable compensation: training and experience, duties and responsibilities, time and effort devoted to the business, dividend history, payments to non-shareholder employees, timing and manner of paying bonuses to key people, what comparable businesses pay for similar services, compensation agreements, and the use of a formula to determine compensation. Sources of information on comparable compensation for services include the U.S. Department of Labor's Bureau of Labor Statistics, employment agencies, and a market analysis. The key in defending a claimed compensation amount is to document all research to support the amount of salary. To discuss reasonable salary in more detail, please contact our office today.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

 

More Taxpayers Can Use Cash Method of Accounting

Posted by Pierre Dion/Padgett Business Services Posted on Aug 27 2012

Generally, if you engaged in a trade or business in which the production, purchase, or sale of merchandise was an income-producing factor, you must take inventories into account at the beginning and end of your tax year.  However, if your average annual gross receipts for the 3 prior tax years are $1 million or less and you are an eligible taxpayer who adopts or changes to the cash method of accounting, you will not be required to account for inventories. If your business has been in existence for less than three years, average gross receipts are determined over the tax years it has been in existence (including annualized amounts for short years). For this purpose, gross receipts are defined as all amounts from the trade or business required to be recognized under your current method of accounting. These amounts include total sales (net of returns and allowances), all amounts received from services, interest, dividends, and rents. You do not have to include taxes that are legally imposed on the purchaser and are merely collected and remitted on their behalf.  If you are not required to account for inventories and do not want to do so, you must treat inventory in the same manner as cost of materials and supplies that are not incidental. Under this rule, inventory costs for raw material purchased for resale are deductible in the year the finished goods or merchandise are sold (or, if later, the year you paid for the raw materials or merchandise).  If you want to change to the cash method of accounting, you must file Form 3115, Application for Change in Accounting Method. You may also have to make an adjustment to prevent amounts of income or expense from being duplicated or omitted. This is called a section 481(a) adjustment, which is taken into account over a period not to exceed 4 years.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

 

Shareholder Loans to S Corp

Posted by Pierre Dion/Padgett Business Services Posted on Aug 23 2012

Securing a loan for use in an S corporation often requires a shareholder guarantee.  If the loan is not properly structured, the shareholder's ability to deduct losses from the S corporation may be limited. The amount of losses an S corporation shareholder can take is limited to the adjusted basis of the shareholder's stock, plus any direct loans the shareholder makes to the corporation.  Losses cannot be deducted against a loan made directly from the lender to the S corporation - even if it is guaranteed by the shareholder.  To assure the ability to deduct losses, the shareholder should take out a personal loan for the amount needed and in turn, make a direct shareholder-to-corporation loan.  Shareholder loans should be evidenced by an enforceable note with reasonable repayment terms in order for the loan to be viewed by the IRS as bona fide debt.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Record Keeping Requirements

Posted by Pierre Dion/Padgett Business Services Posted on Aug 22 2012

A little reminder: The Internal Revenue Code requires you to retain all your financial records relating to positions taken on your tax return for three years.  However, we recommend you keep all your tax and financial records for no less than six years. You should keep all records relating to large purchases - for example, a house or large capital improvements (such as an addition) - for at least six years after the sale of the property.  Fortunately, the IRS is now permitting the use of independently prepared bank statements that list the payee as adequate support for your position.  This can be a big space saver for those who have been saving cancelled checks. Many banks no longer provide cancelled checks (unless specifically requested) but provide their customers with photocopies of their checks on 8 ½ x 11 paper.  Many of you will find that the storage of these records is far more convenient than the storage of cancelled checks.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.



Employees vs. Independent Contractors

Posted by Pierre Dion/Padgett Business Services Posted on Aug 20 2012

It's crucial to know whether your workers are employees or independent contractors.  Big dollars may be at stake in the form of Federal and State assessed penalties resulting from misclassification.  The validity of your company's pension plan may also be at stake.  A periodic review of the status of your workers to see if they are properly classified is critical...but the process isn't easy due to the complexity of the issue. Under the "common law" rules, a worker generally is an employee if the employer has the right to control and direct the worker regarding the job he is to do and how he is to do it. The IRS usually applies 20 common law factors to see if the employer has that right (you can learn more specifics by visiting this IRS Link http://www.irs.gov/newsroom/article/0,,id=173423,00.html) . There is no litmus test for exactly how many factors must be satisfied, nor are the factors uniformly applied. If you'd like to discuss these complex rules with us and see how they apply to your business in order to make sure that none of your workers are misclassified, please call our offices to arrange for an appointment.

 

 Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

To Lease or Not to Lease

Posted by Pierre Dion/Padgett Business Services Posted on Aug 08 2012

With lease prices becoming increasingly attractive, many individuals are wondering if it is indeed advantageous to go that route.  The decision to lease or buy a vehicle depends on the terms of the lease as well as the particular circumstances of the individual.  Leasing may be advantageous if you trade cars every few years and borrow the money to do so.  Since leasing provides more car for less money, this may be the way to go if you want a high-priced vehicle. Leasing also can provide a business owner with more cash flow since monthly lease payments on comparable cars are generally about one-third less than loan payments.  You probably want to consider purchasing the car if you intend to keep it for a long period of time or plan to drive more than 15,000 miles per year. Most lease contracts include a hefty additional charge for every mile driven over the limit. Also, purchasing a vehicle can generate a larger initial write off if the car is not subject to "Luxury Auto" rules for depreciation.  After making a decision to lease, be sure to negotiate the purchase price that the leasing company uses to calculate the lease payments and read the lease contract carefully to avoid hidden costs and penalties. Finally, comparison-shop to get the best deal available.

 

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This blog suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this blog.  PENALTY NOTICE: As required by U.S. Treasury regulations, you are advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Are you ready for Taxmageddon?

Posted by Pierre Dion/Padgett Business Services Posted on Aug 07 2012

Taxpayers (and tax professionals) are facing a unique set of challenges as the November Presidential election approaches and end-of-the-year tax planning looms. If Congress and the White House fail to act by December 31st, favorable Bush-era tax cuts will expire, along with a variety of business and investment tax breaks, raising income tax rates to levels last seen in 2001. Unfortunately, our current political and legislative environment only adds to the uncertainty as Republicans and Democrats are both hesitant to act until they know who will occupy the White House next year. This political gridlock combined with a fragile economy and the possibility of rising tax rates has been dubbed by many as Taxmageddon. So what does all this mean for taxpayers? How will the 2012 tax filing season be affected and what approach should taxpayers take for tax planning in 2013?

Our best advice is to stay informed of the possible changes that may affect your business and your personal tax position.

 

Staying in the Know

Many favorable tax provisions expired at the end of 2011. Unless Congress acts and passes retroactive changes by December 31st, many taxpayers will be affected by the following expired provisions when filing their 2012 income tax returns. Historically, many of these temporary provisions have been extended, but this year there is no guarantee that Congress will take action in time.

1.    Increase in the alternative minimum tax exemption (AMT Patch),

2.    Deduction for state and local tax for itemized filers,

3.    Deduction for PMI (premium mortgage insurance) for itemized filers,

4.    Provision for Tax - free IRA withdrawals for charitable donations (for those over age 70 ½ ).

 

Another handful of provisions are set to expire by the end of 2012, and it is unlikely that Congress will address these provisions until after the Presidential election. The IRS warns that late-year law changes make for an administrative nightmare and often result in delayed filings. While taxpayers (and the IRS) remain hopeful for tax reform, we may not see progress until late December making tax planning nearly impossible. Expiring provisions include the following:

1.    Bush-era tax cuts in marginal income tax rates,

2.    Reduced tax rates on dividends and long-term capital gains,

3.    Marriage penalty relief provisions,

4.    Expanded refundable credits for the child tax, adoption and earned income credit

5.    The moratoria on the phase outs of itemized deductions,

6.    The payroll tax cut, which reduced an employee's share of Social Security taxes by two percentage points, and

7.    A variety of previously extended temporary tax provisions (tax extenders) which affect individuals, businesses, charities, energy, community development, and disaster relief.

 
What's New For 2013?
Despite the uncertainty of what will happen to the expired and expiring tax provisions, the recent Supreme Court ruling to uphold the Affordable Care Act will affect taxpayers beginning January 1, 2013. This ruling requires all Americans to purchase health insurance or pay a penalty beginning in 2014. To fund this health care mandate, the following two items will be effective in 2013.

Medicare Tax Increase: Beginning in 2013, higher-income taxpayers will be subject to an additional 0.9% tax on earned income. The tax applies to income in excess of a single person's wage and self-employment income over $200,000, or a married couple exceeding $250,000. There is no employer match as this tax increase is entirely paid by the employee or the self-employed individual. There will be employer withholding, but if you are self-employed, you will need to build this into your quarterly tax estimates.

Investment Tax Increase: Beginning in 2013, higher income individuals with net investment income will be subject to a 3.8% tax of the lesser of two amounts: net investment income or the excess of the taxpayer's modified adjusted gross income over a $200,000/$250,000 threshold amount. Net investment income includes Interest, dividends, annuities, royalties, and rents, income from a passive business, capital gains and other net gains from the sale of property.

 

So, now what?

So what does all this mean for you as a taxpayer and how will this impact your tax planning for 2012 and 2013? The threat of Taxmageddon is real and will likely affect every American household, regardless of income. It's important for each taxpayer to understand that the outcome of the Presidential election coupled with the potential tax law changes make for a foggy and unpredictable future.

Today, due to this uncertainty, your trusted tax advisor may not have answers to all of your tax questions and tax concerns. Padgett is active in Washington DC, explaining to lawmakers the problem this uncertainty is causing and encouraging them to give small business some predictability in the tax laws they must comply with. While Padgett may not be successful in changing Washington, we can however ensure your concerns are heard and keep you informed once the rules are known. So what should you be doing today in these uncertain times?

While taking the most conservative planning approach, by assuming all of the laws will expire or will not be extended, may cause you to pay higher than necessary estimated tax payments or to withhold too much federal tax from your wages, taking a more aggressive approach could cause you to have an unprecedented tax liability at the end of the tax year, as well as additional penalties. Taking a middle ground approach, may put you into either one of the aforementioned predicaments. In the end, it all comes down to being flexible and staying in the know so that whatever the outcome, you are prepared, ready to act quickly, and can make educated decisions.