Knight Accounting and Technology

I spent some time with a friend yesterday who is an HR Specialist.  She opened my eyes to the complexities of HR compliance regarding I-9′s and I want to post a bit of it here (although this is not to ignore all the other regulations you need to be following when you have employees!)

ICE (Immigration and Customs Enforcement) has increased inspections since July 2009 in a “long term strategy to address and deter illegal employment”.  Employers can face stiff penalties for I-9 violations which include substantial fines and also debarment from government contracts. Penalties can be imposed for hiring unauthorized workers as well as simply for committing paperwork violations even if all workers are authorized to work.

Penalties can include $250 to $3,000 for improper completion of the I-9 form. Paperwork violations, mistakes or missing items such as a date missing, can result in a $100 penalty up to $1000 for each form. Improper completion, retention or making it available for inspection fines range from $100 to $1,100 for each I-9. Knowingly hiring or continuing to employ unauthorized workers fines range from $250 up to $11,000 per violation. Firms who show a pattern of hiring unauthorized workers are liable for criminal penalties of as much as $3,000 per employee and may be subject to six months in prison. Investigators have considerable discretion in assessing fines and will look at factors like the size of the company, the seriousness of the violations, whether the employer was trying to comply in good faith and the pattern of past violations.

Has your business had a compliance check lately?  The employment laws continue to change and I recommend to all my clients that they work with an HR Specialist occassionally…what better time than now?

Without a moment to spare, Congress has passed an $858 billion tax bill, setting rates for both 2010 and 2011.  The good news is, it’s all good news! 

The biggest relief for taxpayers is that the Alternative Minimum Tax patch is in place once again for 2010, sparing over 20 million taxpayers from facing a huge surprise bill.  If you’ve paid AMT in the past, you’ll most likely still pay it, but at least millions of new taxpayers won’t be pulled into it.  The “Bush Tax Cuts” have also been extended two years, so tax rates will be staying the same through 2012.  And, the estate tax is going to remain at 35% for amounts over $5 million through 2012.

Working American’s will see another form of tax relief in lower payroll taxes.  Each pay period, workers are forced to pay 6.2% Social Security tax on their first $106,800 of income, which is withheld from their gross pay.  For 2011, this rate drops to 4.2%, so it’s the equivalent of a 2% raise for all working American’s.  I haven’t been able to determine if this applies to self-employed workers as well, but hopefully the details will be hammered out soon.  The last form of benefits applies to the unemployed.  These individuals receive another 13-month extension on their benefits.

There is no doubt that this tax bill is highly favored by the Republican’s and goes against the Democrat’s agenda.  It will actually cost lower-income earners money because they benefited more from last year’s Making Work Pay Credit than they do from the lower taxes.  And, wealthy individuals making $500,000 and up will save almost $4,000 over their last year’s tax bill.  Since some of the provisions, such as the AMT patch, expire at the end of 2010, and others such as the tax cuts expire at the end of 2011, we still don’t have a solid picture of what the future holds.  But, we can still be thankful that our government was able to come together at the 11^th hour and prevent an across the board tax increase!

I have posted my tax season schedule at http://cpamichele.com/blog/appointments/.  Or, you can just click on the Scheduling page on my website (www.cpamichele.com)   If you would like first pick of your appointment time, please visit that page and schedule early!  There are only limited evening appointments this year, so if that is important to you, scheduling early will guarantee you a good spot!

This just in…Obama and the GOP finally reached a deal on taxes!  I’m not sure why it’s being called a “deal” since the Republicans got just about everything they asked for: The Bush tax cuts are extended for 2 years, the estate tax is set at 35% and only assessed on estates greater than $5 million, and many of the research and development tax credits are still available for businesses.  To top it all, there is still a proposal on the table for Social Security taxes drop from 6.2% to 4.2% which would be a huge winner for small business!  Let’s keep our fingers crossed!  More to come as the details are ironed out, but here is a link to a great WSJ article (http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEFTTopStories)

There are some huge changes in the works.  I just wrote this article for the Summit Daily News and thought I’d repost it here for all to see.

If you own a small business, there are a number of drastic changes to your business operations included in the recently approved HIRE Act, and many more on the way as a result of the healthcare bill and a tax extenders package currently working its way out of committee.

The HIRE Act is a positive step for businesses.  While you should consult your own CPA, HR or payroll expert regarding the details, the Hiring Incentives to Restore Employment Act was passed on March 18^th, 2010 and provides tax breaks to companies who hire the unemployed.  Simply put, if you hire an employee between February 3^rd, 2010 and January 1, 2011 and that employee has not been employed for more than 40 hours during the previous 60 days, the employer does not have to pay the usual 6.2% of Social Security tax on that employee’s wages through the end of the year.  The employer can also receive a credit up to $1,000 if the individual remains employed for a full year. 

If you believe you have employees that meet this criteria (family members don’t count, nor can you terminate an existing employee without cause just to replace them with a formerly unemployed employee!), you should work with your payroll provider immediately.  Employees will need to sign an affidavit certifying their previous work status, and the credit can be claimed on the 2^nd Quarter Form 941 which is due July 31^st.

The healthcare bill also offers a few benefits for small businesses, but many of these are phased in over the next eight years.  The only change we’ve seen so far in 2010 is a credit available on the 2010 tax return for small businesses with fewer than 25 employees who offer health benefits to their works.  If your company fits this scenario, you and your tax advisor should work through the formulas available at www.irs.gov.  

Other small business changes lurking on the horizon are not nearly as favorable to businesses, and will cost businesses thousands of dollars in additional taxes and administrative work. Two changes on the horizon for 2011 are limits to FSA and HSA contributions, and a new employer requirement to report the aggregate value of benefits they provide for health coverage on their employees’ W-2’s.  The latter has sparked rumors across the internet that health benefits will become taxable and that’s not the case, they will just be reported as additional information.  Unfortunately, details aren’t available yet, so we’ll all have to stay tuned towards year end.

The most dramatic change to small businesses is buried deep in the healthcare bill.  Beginning in 2012, businesses will have to issue 1099-MISC forms to all vendors they pay more than $600 to for goods or services.  Under current law, you don’t have to issue 1099’s to corporations and you don’t have to issue 1099’s for the purchase of goods, only services.  Beginning 2012, if your business buys a $600 computer from Office Max, they will need to collect Office Max’s address and tax ID# at the time of purchase and send them a 1099 at year end.  I predict that even the smallest businesses will need to send dozens more 1099 forms a year, while larger businesses will be sending hundreds or thousands of additional forms.  This will increase costs for small businesses both on the front end to collect and track the information, and at year-end to issue the 1099’s.  In my opinion, this is the costliest nightmare to face small businesses in decades!

The last notable change applies only to S Corporations.  Currently, S Corp owners are allowed to pay themselves a reasonable salary and take the rest of the company profit as distributions, which are not subject to the 15.3% Social Security and Medicare tax paid on the owner’s salary.  This saves many S Corporations tens of thousands each year.  If the tax extenders package is passed, this benefit will no longer exists for those S Corporations in service fields such as accounting, law, health, engineering, architecture, consulting, and investment management.

As always, I will do my best to keep small businesses in the loop on these upcoming changes through my blog at www.cpamichele.com.  In my 10 years as a CPA, I’ve never seen so many changes in such a short amount of time, and who knows what surprises lie ahead!

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

We’ve all heard “no new taxes” in campaign speeches throughout the years, but how is the governemnt planning to pay for some of the breaks being offered to individuals?  By increasing fees and penalties paid by small businesses!  The latest example of this trend is the late filing penalties for S Corporations and Partnerships.  S Corps are due 3/15 each year, and 9/15 if a proper 6-month extension is filed.  Partnerships are due 4/15 each year, and 9/15 if a proper 5-month extension is filed.  If you file after that, the penalty is increasing to $195 per shareholder per month, which is quite an increase over the $50 per shareholder fee that existed only 2 years ago.  Of course, you can avoid thees penalties by filing on time, but I don’t think this is the end of fees being assessed and increased in the near future.

Check out my latest Summit Daily Article, the Perils of Paperless Banking.

I’m now a columnist for the Summit Daily!  While I’ve published several textbooks in the past and been featured in a national publication, TaxPro Journal, there is something very special about being in our hometown newspaper.  The article itself, How to Protect Yourself from IRS and Email Scams, can be found at this link: http://www.summitdaily.com/article/20090929/BUSINESS/909289980&parentprofile=search.  Please check it out, and if there’s any topics you want to read more about, please let me know!

Intuit just announced that QuickBooks 2010 is scheduled for pre-orders on September 28th.  As a QuickBooks Pro Advisor, I can get a discount if you are interested.  I’m not sure what the normal pricing will be this year (I usually recommend that you check out Costco for great deals on Intuit products), but if you want to get the hands on the software as soon as its released, I can order QuickBooks Pro for $149.95 or QuickBooks Premier for $279.95.  Please let me know if I can help!