Archive for the ‘General Business’ Category

New Backup Withholding Rules For TIN-Name Mismatch

Saturday, July 24th, 2010

When you are notified by the IRS that a payee provided an incorrect name and taxpayer identification number (TIN) combination, you are to start backup withholding (28%) and pass along any “B Notices” you receive.  

 The interrim procedures require the payee to validate a Social Security number (SSN) by contacting the local Social Security Administration (SSA) office requesting an SSN printout, which they must give you a copy of.  Once you receive the printout you can stop backup withholding. 

There are 2 “B Notices“. These are notices you receive with your mismatch notification that you are to forward to the payee with the TIN-Name mismatch.   The first B-Notice you receive should be given to the payee with a Form W9, Request for Taxpayer Identification Number and Certificate. 

NOTE: Following this link takes you do a pdf document at the IRS.gov website.  Pdfs can be viewed and printed using Adobe Acrobat Reader, which can be downloaded for free from Adobe.com.  Art and Business Consulting LLC (ABC LLC) and its owners, employees and affliates are NOT affiliated with IRS.gov or Adobe.com.  When you visit their sites you will be subject to their policies and ABC LLC does not know what thier policies are. 

To continue.  When you receive the first Notice of a TIN/Name mismatch from the IRS you should deliver the B Notice to the payee with a blank Form W-9 and begin backup withholding of 28%.  Presumably if they return the W-9 with different TIN/Name information you would make the change and stop backup withholding.  If they don’t then eventually you will get the second B notice, but while you are waiting for it you would continue backup withholding in the absence of any action by the payee. 

When you receive a second notice of TIN/Name mismatch you should deliver the second B notice to the payee (do NOT give them a w-9); the second notice tells the payee they must go to the IRS or SSA to get the proper Name-TIN combination.  The payee must now certify the TIN-Name Combination with the SSN printout.  In the past the SSA would send a form SSA-7028, but the Form is now obsolete hence the interrim procedure noted above. 

In general you should only receive 2 of these notices in a 3 year period per payee. 

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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More Changes For AZ Taxpayers

Friday, June 25th, 2010

July 1 is the start of the Arizona State fiscal year which is why several changes are going into effect on that date. 

AZ Withholding Tax Change: On July 1, 2010 an employer must withhold Arizona state income tax according to the new A4s, which they should have obtained from all of their employees prior to that date. We have prevously  blogged about the change coming to the Arizona A4. On July 1st Arizona’s state income tax withholding rate will decouple from the federal withholding rate. Every employee needs to do a new A4. An employer should not advise employees about how to complete the form except to point out the form comes with worksheet to assist them. That said, a quick and dirty calculation would be to see how much tax you owed to the state last year and divide it by your Arizona state income; but of course this assumes that your income, expenses, marital status, dependents, items of credit and deduction, etc. are similar to last year, which it may not be.

AZ Child Support Garnishments Change: If you are an employer who does garnishments for things like child support in Arizona through CLEARINGHOUSE, please be advised that the fee will increase from $2.25 to $5.00  starting July 1.

In addition to these changes that go into effect in less than a week, there are other things you should aware of. 

Transaction Privilege Tax License Change:  You are probably aware that the Arizona “sales tax” increased 1% statewide on June 1st, and you should have already adjusted your software, point of sales systems and registers.  However sometime in September the AZ DOR is going to be sending out Transaction Privilege Tax renewal forms.  The only people who won’t have to renew their licenses are those who got their licenses on or after July 1, 2009.  The law increases the fee to obtain, change or renew a license to $40 up from $12 for a period of 1 year and 2 weeks starting June 15, 2010;  means the change will be in effect for the state’s entire upcoming fiscal year.  It’s not expected to be a big revenue raiser, but the AZ DOR hopes to get people who have never filed a TPT return or who haven’t filed in a long time off the sales tax rolls.  If you’e had your license a year or longer, you will need to pay for the renewal if you want to keep it.

Nonconformity with Federal 2009 tax forms: This change quietly went into effect on April 27, 2010.  The State of Arizona decided not to conform to the Federal Tax code after the first tax deadline had passed.  If you filed your tax form on or before April 15, 2010 and you had any of the following items of income, deduction or credit on your tax return-you may need to file an amended Arizona tax return and pay additional tax.  You do not need to amend your federal tax return, just Arizona’s. 

  • Unemployment: you need to add the $2400 the federal government exempted from gross income back into your Arizona income and pay the additional tax.
  • Automobile Sales Tax deduction: you need to remove the automobile sales tax from your deductions, which will increase your income and you may owe additional tax.
  • Haiti Contributions made between January 11 and before March 1, 2010 that were taken as a charitable deduction in 2009.  These contributions will be eligible charitable deductions on your Arizona taxes in 2010.  Again this will increase your income and you may owe additional tax.
  • Discharge of Indebtedness (DOI) Income From Business Indebtedness Discharged by the Reacquisition of a Debt Instrument-the feds allowed it to be added ratably over 5 years, AZ did not. 
  • Original Issue Discount (OID) on Reacquisition of Debt Instrument-the feds allowed the income to be deferred, AZ did not. 
  • Special Federal Net Operating Loss (NOL) Carryback Rules for 2008 and 2009 Losses-the feds allowed a special longer carryback period of 3, 4, or 5 years, instead of 2, AZ did not. 

 The amended tax form is 140X for individual taxpayers and it can be found on the AZ DOR website.  There is more information about AZ 2009 nonconformity here. These links take you to the Arizona Department of Revenue website and you will be subject to their privacy policies etc.; Art and Business Consulting LLC is not affilicated with the AZ DOR. 

If you live in another state, check with your state’s department of revenue regarding conformity issues with respect to your state. 

As always Art and Business Consulting is here to help.  If you need help filing an amended Arizona tax return, or any other with a small business and or tax issue, please give us a call.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Medical Plans for Small/Micro Business Owners

Monday, June 14th, 2010

In general Group Health insurance including dental & qualified long-term care insurance is deductible as a business expense, but there are very specific issues with respect to small business owners.  A sole proprietor, partner or 2% or more shareholder of an S-corporation cannot deduct more than they earned from self-employment and cannot deduct medical insurance under self-employment for any time they are covered under any other employer’s plan including their spouse’s employer.

  • Payments made by a partnership on behalf of a partner are deductible as Guaranteed Payments to the partners, not as medical insurance expense/employee benefits.  The partnership must reimburse the partner if the partner pays for the insurance in their own name. 
  • For 2% shareholders such payments must be included in their wages subject to the usual withholding taxes. 2% shareholders must be reimbursed by their S-corporations in order for the insurance to be considered established under the business to qualify for the adjustment.
  • Self-employed persons, AKA Sole Proprietors, can take the Medical Insurance Adjustment to 1040 Income, whether they purchase the insurance in their own name or the name of the business. 

However there is a way to obtain medical insurance for business owner that is deductible as a business expense.  Based on Section 105 of the Internal Revenue Code, a small business owner who can demonstrate employable interest in the business can become eligible for an employee benefit program. All business filing types are eligible including sole proprietors, partnerships, C- and S- corporations. Section 105 HRA plans are designed specifically for small business owners that can legitimately hire their spouse. Because the spouse/employee can be reimbursed for family expenses the employer indirectly benefits as well. This type of plan is made possible by Section 105 of the Internal Revenue Code, Revenue Ruling 71-588 and IRS Letter Ruling 9409006. For C-corporation and S-corporation owners it will not be necessary to use the spouse/employee method. The corporation becomes the employer and the owner is an employee as long as they are an employee receiving a regular paycheck.

So you are saying, “So what.  If I can take the deduction on my personal tax forms why would I care?”  Whereas it is true that up to 100% of the payments made for health insurance maybe deductible on your 1040, which saves on the associated income tax, all those premiums will be subject to Self-employment taxes as well.  Under a section 105 Plan, the amounts paid for the plan premiums will not be, a tax savings of 15.3% of those premium costs.  Furthermore out-of-pocket medical expenses are only deductible if you itemize, subject to the 7.5% limitation of income; under a section 105 it may be possible to write off 100% of out-of-pocket medical expenses too. 

Setting up a Section 105 Plan is not a trivial exercise.  Care must be taken when establishing a Section 105 HRA to ensure that a legitimate employer/employee relationship exists with the family member. In 1999 the IRS Industry Specialization Program issued a paper that said: “The extent and nature of a spouse’s involvement in the business operations is critical. Although, part-time work does not negate employee status, the performance of nominal or insignificant services that have no economic substance or independent significance may be challenged. Merely calling a spouse an “employee” is not sufficient to qualify a non-working spouse as an employee”.

If you are going the employee/spouse route, the spouse must provide meaningful services to the company, those services must be necessary (have economic substance), and the spouse’s compensation, which includes the Section 105 plan, must be reasonable. Furthermore it is essential that business and personal funds not be co-mingled.  e.g. If you hire your spouse to do filing for 4 hours a week and then pay them $10/per hour and provide them with family medical plan costing $800 per month, you can bet the IRS is going to look askance at compensation which is 82% benefits and 18% hourly wages.  It probably won’t fly. 

How do I establish a section 105 plan?  If you are a business owner, you are going to have to hire your spouse.  Really, we are talking the whole employment enchilada here. Your business will need an EIN for payroll purposes.  You will need an employment application, w-4, I-9, New Hire paperwork and other items from your spouse, just as you would for any other employee.  You will need to keep a record tracking hours your spouse worked and a description of your spouse’s duties.  You will need to pay reasonable compensation for those duties on a regular payroll schedule.  The household account and the business account must be separate so that paychecks and reimbursed medical expenses won’t be deposited back into the account they came out of.  Your spouse/employee will need to be the policy holder.  Finally you will need the Section 105 plan documents. 

In order for a Section 105 plan to work there are a lot of rules that must be followed, which is why Art and Business Consulting LLC recommends you get help if you think your business might qualify for a one.  Section 105 plans are really outside Art and Business Consulting LLC’s bailiwick, although we could certainly advise you on the related tax issues.  So we have found someone who does do Section 105 plans.

Art and Business Consulting LLC is not affiliated with the following entity, Total Administrative Service Corporation (TASC), but we did meet with Todd Kuehn, Regional Sales Director-Scottsdale Region Office TASC  at an Arizona Society of Enrolled Agents event.  TASC’s bailiwick does include Section 105 Plans; they are a third-party benefits administrator based out of Madison, Wisconsin, can simplify compliance and the administrative procedures associated with Section 105. According to their website, TASC has been doing just that for over 30 years with BizPlan. They even offer a savings guarantee and a full Audit Guarantee!

For more information see http://www.tasconline.com/buytasc/affiliate/bizplan/460163769708.  Please note if you click on this link you will be navigating away from our website; you will be subject to their policies and we have no idea what those policies are. Art and Business Consulting LLC has not received any gifts or other compensation for mentioning these folks, and we are not specifically endorsing them. 

As always Art and Business Consulting is here to help.  If you need help with a small business and or tax issue, please give us a call.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Treatment of Vendor Allowances

Sunday, April 11th, 2010

Retailers sell goods purchased from various vendors.  Most goods purchased for resale, or used to make items for resale must be treated as inventory until such time as goods purchase or manufactured are sold.  In general the purchase price of inventory and other cost relating to the manufacturing process cannot be taken as a deduction against income until the merchandise is sold. Once the merchandise is sold then the costs incurred from purchasing, shipping, assembling etc. the item can be expensed as Cost of Goods Sold (COGS).

In addition Uniform Capitalization (UNICAP) rules require capitalizing indirect costs allocatable to the production of real or tangible personal property to that property – so the cost of inventory will include not only the cost of materials and labor to produce it, but also will included costs such as depreciation of equipment used in the manufacturing process as well.

Some vendors give an allowance that is to cover the estimated cost of defective merchandise with no obligation to return the defective merchandise nor let the vendor know how much was defective.  If this is the case, then these allowances do not have to be included in income as they are fixed and NOT related to actual amount of defective merchandise NOR proof of defects NOR require the return of the defective merchandise.  This allowance is treated as a trade discount, a simple reduction in the Cost of Goods from the vendor.

In addition since this allowance is not related to the defective merchandise specifically, the allowance reduces the cost of all of the goods from the vendor not just the defective merchandise.

Finally when valuing the subnormal goods received, these items should be valued at the bone fide selling price less the cost of direct disposal (if any).  They are neither scrap nor spoilage, which normally must be depreciated under UNICAP.

As always, small business services and taxation are our business.  If you have any questions about UNICAP rules, trade discounts or valuing inventory, or if you need other help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Health Care Reform, What Does It Mean To You?

Wednesday, March 24th, 2010

As I look over the information flooding in I realize, it doesn’t affect me much for the next  four years, except perhaps my insurance rates may go up and the threshold for itemized medical expenses is going to increase. I am currently shopping for health insurance and the prospects are grim. For the first time I am actually considering going without coverage.  Why?  Because the policies I can afford right now will not prevent me from going bankrupt in a medical emergency and do not pay for anything until an outrageous family deductible is satisfied.  I understand having insurance may make the difference between a doctor seeing me and not seeing me, but as a basically healthy person I am seriously considering rolling the dice, mostly because I just can’t afford it anymore. I know I am not alone. Update: I did finally get some family coverage-a plan with a high deductible that doesn’t qualify as an HDHP-go figure, but the price is less than half of the ghastly and expensive plan offered by my mate’s new employer.

Does health care reform help with my current dilemma? No.  I have to wait until 2014 then maybe it helps… or not. My crystal ball doesn’t see that far into the future.

In my opinion Health Care Reform does nothing to address the reasons why health care costs have skyrocketed. According to some analysts insurance costs will continue to rise.  As look what happened with credit cards in advance of that reform being enacted, I expect health insurance providers are going to keep raising rates and messing around with Joe-average consumer until 2014 as well.

Getting down off my soap box and moving along… Since the House Reconciliation Act strikes out or modifies a number of provisions in the Senate’s Patient Protection Act to which House members had objected, the Senate now must pass the “sidecar” House Reconciliation Act before it becomes law. Who knows how long that will take and what the final result will be.

Update: The Senate passed a sidecar that the House signed off on; President Obama is signed off on it March 30, 2010.  In the “new” version – banks are being stripped of the power to do student loans-in the past the loans were guaranteed by the government anyway, so the taxpayers were taking all the risk and the banks were making all the interest.  This bill will not change the status of existing student loans. What does this have to do with health care? Not much. Why did the banks get such a sweetheart deal in the first place? Dunno.  Weird how congress works.

The entire health care reform law rests on the idea that if everybody is paying into the pool, costs for sicker people will come down, therefore the law requires all individuals to have health insurance coverage by 2014; those who choose not to have insurance would pay a tax. Individuals who currently have coverage and wish to retain that coverage can do so under a “grandfather” provision in the heath care package and the coverage will be deemed to meet the individual’s responsibility to have health coverage. A similar grandfather provision applies to employers that currently offer coverage. Individuals covered by Medicare, Medicaid, Veteran’s affairs and other government programs would be regarded as having essential coverage.  The IRS will oversee much of the implementation of health care reform.

The health care reform bill means new obligations for insurance companies, new responsibilities for employers and eventually every individual will be required to have coverage or pay a tax. Some of the new law’s provisions take effect in a matter of weeks. Many other features of the health care overhaul won’t take effect until 2014 or even later.

  • The law doesn’t require employers to provide health insurance benefits; however, large employers (organizations with 50 or more employees) that don’t offer insurance will have to pay an annual tax of $2,000 per full-time worker. Businesses with more than 200 employees must automatically enroll workers into their health insurance plans.  Employees would then be able to opt out if they choose.
  • Small-business tax credits of up to 35% will take effect this year to help organizations with 25 or fewer employees pay for affordable employer-provided insurance. Update: Qualified Small Business: those with 25 or fewer employees and average annual wages of $50,000 or less. Starting in 2014 the small business will have to pay 50% to be eligible for the credit.
  • Qualified small businesses will be able to purchase insurance for employees through state-based exchanges known as Small Business Health Options Programs (SHOPs).  They will be designed to allow small employers to pool risk together, ideally lowering coverage costs.  SHOPs must be in place by 2014. If you’re a small business and even one of your employees opts out of employer-provided coverage in favor of insurance available through the state-based exchanges, you could be required to provide a voucher worth the value of the per-employee premiums you pay under your plan.
  • 2011: Employees will no longer be able to use FSA funds to pay for over-the-counter medications. The penalty for using HSA for non health care related expenses goes from 10% to 20%. 2103: The law also caps employee contributions to health-related flexible spending accounts (FSAs) at $2,500 per year & indexed to inflation thereafter.
  • All health plans must maintain dependent coverage for insured employees’ children until they turn age 26.  This rule takes effect in September. If your business provides health insurance coverage, get ready to re-enroll many young people who left their parents’ family coverage sometime within the last few years.
  • A high-risk insurance pool will be set up this spring and summer to provide affordable coverage for uninsured people with pre-existing conditions. Even if your company does not offer insurance, you may get questions from workers seeking coverage; refer them to your state’s insurance commission.
  • 2011: Large employers that pay for retiree drug coverage (Medicare part D) must declare for accounting purposes whether they intend to keep doing so; your accountants will have to wait for the IRS to set the final rules first.  Also employers must begin reporting the value of health care benefits on employee W2s
  • There are new rules limit how and for whom insurance companies can deny coverage.  The health care reform law prohibits insurers from denying coverage to children based on pre-existing conditions, putting lifetime dollar limits on coverage and canceling coverage retroactively except in cases of fraud. Similar rules for adults won’t kick in until 2014.
  • For some low income individuals and families, their premiums will be capped at a percentage (2-9.5%) of their income.

How do they pay for it?

  • There will be a 40 percent excise tax on high-dollar health insurance plans, to begin in 2018 payable by the insurer, which they can pass along to their customers
  • 2013: an increase in Medicare payroll taxes starting in 2013 on taxpayers in the $200,000- plus income category ($250,000 for joint filers)
  • There will be an 10% indoor tanning tax beginning July 1, 2010.
  • New fees on certain health-related industries &  a dozen other “revenue raisers” are also included in the final bill.
  • 2013: While not exactly a revenue raiser, taxes for some will increase as the itemized medical expense deduction threshold is raised from 7.5% of AGI to 10% of AGI in 2013. For individuals 65 and older the change doesn’t occur until 2016.

Other Items in the act:

  • Denies Biofuel Credit for “Black Liquor,” presumably because of abuses of this tax credit.
  • Codifies the Economic Substance Doctrine, the taxpayer’s economic position other than their tax position must change in a meaningful way in engaging in a transaction-mostly affects tax-shelter partnerships & S-Corporations. Violations are subject to stiff, automatically-applied penalties of 20 or 40 percent, depending on the underlying transaction and level of disclosure.
  • Increased corporate estimated tax payments on corporations with $1 Billion dollars in assets.
  • 2012: Adds corporations to information reporting; businesses will be need to get taxpayer identification info from corporations they pay more than $600 a year to for services and property (that’s a lot more 1099-MISCs folks) and report those payments.

Advice to businesses: Stay in contact with your health insurance broker or carrier.  They’ll have information as soon as it’s available. Talk to your FSA provider about implementing changes the FSAs as soon as possible as employees are going to start want to know what they need to do now.  It’s up to you to provide your employees about how the new mandates affect them, ask your benefits carrier for materials you can pass along to your employees.

Individuals should also stay in touch with their insurance broker or carrier.

And hang on. It’s going to be a bumpy ride.

What do you think about health care reform? What does health care reform mean to you?  Do you expect to receive any benefit or experience any harm in the near-term, or long-run?

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Posted in Business Taxes, General Business, General Individual, HR Info, Individual Taxes, Other Information | 2 Comments »

Jerks in the Workplace

Tuesday, February 9th, 2010

The recession has hit America’s workplaces hard.  Employees who remain after multiple rounds of layoffs are stressed out, and anyone who has been laid off probably harbors feelings of hurt as well.  With emotions running high, all this stress is spilling out into offices and other industrial settings. But that does not mean your company needs to be a hotbed of vulgar comments, taunts and demeaning behaviors.

Most employers have a sexual harassment policy, but many do not have a similar code of conduct for general interpersonal relationships.  Why would your business want a civil code of conduct?

  • Employers who fail to have such a policy may leave themselves open to a hostile work environment claim.  Keep in mind that employees are more litigious than ever.
  • Weeding out offenders will help with employee retention, which may become an issue as the economy rises out of the recession and workers feel more secure about venturing out to find a new job.
  • A civil work environment is a lot better for morale, benefiting productivity and employee health.
  • In extreme circumstances allowing jerks to prosper could lead to workplace violence, which no employer ever wants to face.

If you do not have a civil code of conduct, develop a simple one now.  A civility policy needs to the usual sections, a simple statement of the code of conduct, separate from your harassment policy, a means of documenting violators, counseling them, and the usual escalation procedures, up to an including firing the offender.

Then of course your company must uniformly enforce these rules. This last bit is really important…

In a recent case a professor of Middle Eastern descent faced anonymous harassment.  The jerk in this case would leave notes threatening the professor calling him racist names, but the culprit could not be identified.  The administration emailed all the students and faculty campus-wide reminding everyone to treat one another with respect and asked students to come forward if they had any information regarding the harassment.  The college also filed a police report regarding the harassment.  Later on the professor was terminated for unrelated reasons; he went to court claiming he had been subjected to a hostile work environment.  The court disagreed stating the college had done everything it could.

What does your workplace civil code of conduct look like? Do you have a story you would like to share with other readers? We would love to hear from  you.

If you need help with this issue or any other, remember, small business services and taxation are our business.  Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice.  Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Worker, Homeownership, and Business Assistance Act of 2009

Saturday, November 14th, 2009

After much debate and congressional gnashing of teeth, the long awaited unemployment extension act, entitled, the Worker, Homeownership, and Business Assistance Act of 2009, has been passed and signed into law as of November 6, 2009. It is happening none too soon for some unemployed workers – DOL statistics list more than a third of unemployed workers have been unemployed for 27 weeks or more. This legislation contains benefits for homebuyers, businesses experiencing losses too.   This blog is not to discuss the rightness or wrongness of the legislation; it merely to express what has been signed into law and what it is supposed to do.

Unemployment Benefits Provisions: These benefits are supposed to help workers.

  • provides an additional 14 weeks of extended unemployment benefits (EB) in all States
  • an six additional weeks of EB for workers in states with unemployment levels over 8.5 percent. High unemployment states currently include the District of Columbia, Puerto Rico, Alabama, Arizona, California, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, North Carolina, New York, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Washington, West Virginia and Wisconsin. More states could soon qualify because of rising unemployment rates.
  • These benefits are in addition to the Emergency Unemployment Compensation (EUC) which may provide up to 33 weeks of additional benefits beyond regular unemployment compensation.
  • Check with your state’s unemployment agency for eligibility details and information on how to apply for benefits as unemployment varies from state to state.

Note: In my research there is a question as to whether workers who run out of regular and EUC benefits after December 26, 2009, will eligible for this 14-20 weeks of extended benefits.  I have been to the AZ unemployment benefit extensions website and they are researching how this legislation affect Arisona workers.  AZ DES states that they will publish updates on the website; AZ DES requests that you do not call them as nobody you might talk to will have any more information than what is contained on their website.

Homebuyer Credit: These benefits are supposed to kick start the housing market again.

  • extends the $8,000 First-Time Homebuyer Tax Credit through April 30, 2010 and
  • provides a $6,500 credit to certain other homebuyers, people who have lived in their current home for at least 5 years and want to step up to a new home, through April 30, 2010
  • for purchases after the Act’s enactment date, the credit cannot be claimed for buying a residence with a purchase price in excess of $800,000
  • in addition, the Act includes new anti-abuse provisions: To curb fraud, taxpayers must now attach a copy of the settlement agreement to the tax return.  The credit must be repaid if, within three years of purchase, the home ceases to be the taxpayer’s principal residence.
  • the credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.
  • the bill will also eliminate the first-time homebuyers recapture requirement for military personnel, including members of the Foreign Service and intelligence community, who are forced to sell as a result of an official extended duty of service and will allow military personnel serving outside the United States at least 90 days in 2009 or 2010, one additional year to qualify for the credit.

NOL carry-back for 5 years for businesses: These benefits are supposed to get companies hiring workers again.

  • increases from two to five preceding years the period for which businesses can offset net operation losses in 2008 OR 2009 against income.
  • the only companies not eligible for the 5-year NOL carry-back are Fannie Mae, Freddie Mac and companies that took money under the Troubled Asset Relief Program (TARP)
  • the taxpayer can choose to carry-back the losses in either 2008 OR 2009 for this treatment, but once the year is elected it cannot be changed.
  • small businesses that qualified for the 5-year carry-back under American Recovery and Reinvestment Act of 2009 (ARRA), may be eligible for 5 year carry back in both 2008 and 2009.
  • under this act, the 5th year carry-back cannot exceed 50% of the taxable income for that year.
  • the Act suspends the 90% limitation on the use of net operating losses for AMT purposes.

It also helps military families by clarifying that military base realignment and closure payments – added as part of the recovery act – are tax exempt.

The Act gives broad authority to the Treasury to issue anti-abuse regulations including anti-churning rules (including sale/leaseback), anti-stuffing rules, and rules similar to the wash sale rules.

How are they paying for it?

The legislation pays for these new steps, principally by postponing tax provisions benefiting U.S.  multinational corporations.  The legislation delays for seven years (through 2017) a  tax break enacted in 2004 that would let U.S. multinational companies that have shipped jobs overseas reduce their U.S. taxes by deducting more of their worldwide interest income against their U.S. income.

The Act extends the Federal Unemployment Tax Act surtax through June 30, 2011: FUTA was set to drop to 6%, but this extends the 6.2% level-by the way this surtax was enacted about 30 years ago as a temporary measure that keeps getting extended.

The Act increased the penalty from $89 to $195 per partner/shareholder for failure to file an S-corporation or partnership tax return.

The Act increases estimated tax payments for large corporations in 2014

And that is everything I have been able to find out about this new legislation, I hope you find it informative.  As always, small business services and taxation are our business. If you need help Please give Art & Business Consulting a call. We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.   Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Fraudulent Charge Detection: Another Reason Commingling is Bad

Thursday, September 24th, 2009

Commingling of funds is bad.

What is commingling? It means that you are treating the business’s funds as your own.  For purposes of this discussion I am talking business/owner mixing of funds, but it can apply to the Business/Client relationship or the Fiduciary/Client relationship as well.

Examples of commingling of funds:

  • Depositing checks made payable to your business into your personal bank account
  • Making withdrawals from your business checking account to pay obviously personal expenses without documentation
  • Using the same bank account or same credit cards for your business and personal needs.
  • Writing business checks for obviously personal expenses
  • Moving money back and forth between your business and personal accounts without documentation.
  • Paying a business debt or obligation with personal funds. Whether it is a large sum of money or just office supplies, the business owner should document it.
  • Another way to commingle funds is to pay personal obligations with business funds.  Business owners should pay themselves with dividends, payroll, or some other legal method, deposit their pay into a separate account at a completely different bank, and use that account for their personal expenses.
  • Business owners often hold their business accounts and loans at the same bank where their personal accounts are held.  This is usually a bad idea as the bank may have the right to offset different accounts against one another.  Even though it is not intentional, this is commingling of funds.

To avoid commingling, the business owner must document every time that money moves between their business and personal accounts.  That document might be a pay stub, a promissory note, or a simple reimbursement slip.  A few tips:

  • Avoid paying business debt with a personal check or personal debit card.  It is better to write a personal check payable to the business and then pay the debt with a company check.  Moreover, in exchange for that personal check, the business should give the business a promissory note with an interest rate better than the applicable Federal Rate.
  • For small items like a quick run to the office supplies store, submit a reimbursement request to the business along with a receipt, even if the business owner is the only employee of the business.  Avoid constant reimbursements.  Whenever possible, pay for business expenses with a business check.
  • When the business owner needs to pay a personal obligation, the business must declare a dividend, cut the “employee” a regular payroll check, cut the owner or member a draw, or have the business give them a loan.  Always create a pay-stub, dividend statement, or promissory note to document the transaction.

Protect the corporate veil: If having your corporate veil pierced sounds like a bad thing, it is.  All that work you did to form an LLC or corporation–filling out Articles of Organization, paying filing fees to your state, drafting an Operating Agreement–will be for nothing as far as protecting your assets from creditors if your veil is pierced.  There are several factors that courts look at when deciding whether to pierce your company’s veil and hold you personally liable on company debts and lawsuits.  One important factor is the presence of commingled funds.  If you treat your business’s money the same as your own, then you risk the exposure of your personal assets.

Mixing business and personal funds is sloppy.  It’s bad legally, for the reasons above, and it’s simply bad business.  It also makes accounting difficult.   Accounting tells you how your business is performing, what is doing well and what needs improvement.  When you have sloppy records you won’t be able to figure out which parts of your business are winners and which are losers.  You won’t know which products have the highest margins, or which ads bring the highest return; you won’t know what is working and what isn’t.

Commingled accounts make it harder to spot fraudulent charges: If your business and personal expenses all run through the same account, it may be hard for your bank, or your accountant to spot fraudulent charges before it’s too late.  An internet charge on your bank or credit card statement to Microsoft Xbox would stand out on record that consists entirely of business charges, but if the owner is in the habit of paying for their personal expenses out of their business account, not so much.  Valuable time to act on the fraud may pass while the bank, bookkeeper or accountant spends time investigating whether the charge is valid or not-if they ask at all.

As for taxes, you can’t deduct what you can’t document. Keeping track of your business income and expenses is crucial to minimizing your taxes and maximizing your deductions.  Many small business owners pay more taxes than the law requires because they don’t have a good system for keeping track of expenses.  If you maintain a separate bank account to run all your business transactions through, and only your business transactions, you have an improvised way of tracking all your business income & expenses.  You can simply use your bank statement.  Besides nothing makes a tax auditor drool like a set of commingled books, except perhaps a person who says they have no records at all.

Perhaps this documentation all sounds like a lot of hassle, but Art & Business Consulting  is here to help.  We can help prepare promissory notes to document your loans to your business, we can advise you, and we can  help you set up your accounting system.  We can even keep track of your income, expenses, loans, repayments, calculate the interest, etc. for you.  A little record keeping now can save a lot of hassle later on. Business services are our business. If you need help, Please give Art & Business Consulting a call. We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.   Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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