Posts Tagged ‘penalties’

Ethics, Decision Making, BP and Taxes

Wednesday, June 9th, 2010

What is Ethics?

Ethics is con­ven­tion­ally defined as a sys­tem of moral prin­ci­ples gov­ern­ing the appro­pri­ate con­duct for a per­son or group.  But this def­i­n­i­tion is kind of vague as it doesn’t really address appli­ca­tion in real life.  How does one arrive at per­sonal gov­ern­ing prin­ci­pals, and why?  That is the ques­tion of ethics in a nutshell. 

Real­ize ethics oper­ates in con­text.  In any given sit­u­a­tion, even if you are liv­ing in a cave by your­self, you will have inter­ac­tions with your envi­ron­ment.  What do you eat? What resources do you use and how do you man­age them?   What do you do with your waste? Add another per­son to the mix and you have to worry about their rights, feel­ings and the social con­text as well.  Make one or more wrong deci­sions and you will find your­self freez­ing, alone, in the dark, up to your eyes in your own excre­ment with noth­ing to eat.

What Ethics is not. What Ethics Is.

Ethics can­not be equated with feel­ings, laws, reli­gion or even soci­etal norms; it is easy to find cases where eth­i­cal con­duct is not nec­es­sar­ily equated these things.  Con­sider that a per­son enjoys dri­ving a car very fast; if this dri­ver decides to race through a neigh­bor­hood it may feel good, but it makes this uneth­i­cal dri­ver very dan­ger­ous to all those around him or her.  As for fol­low­ing the law, slav­ery was a part of US law, but clearly slav­ery devi­ates from eth­i­cal norms as well. If ethics were a mat­ter of reli­gion, then only reli­gious peo­ple could be eth­i­cal, but ethics must apply to all peo­ple of all faiths and to peo­ple who are not reli­gious at all. Finally if soci­ety itself drove ethics then we would merely have to poll the entire soci­ety to find out what was right, and then do that, but entire soci­eties can be cor­rupt as in the case of Hitler’s Third Reich; blindly fol­low­ing the pack does not make for eth­i­cal deci­sions either. 

Since we can’t rely on the law, our feel­ings, reli­gion or soci­ety to tell us what ethics is we must find a well-reasoned basis for defin­ing what is right and what is wrong. Right and wrong involves not only intro­spec­tion, but also eval­u­at­ing our rela­tion­ship with our envi­ron­ment via per­ceived rights, oblig­a­tions, ben­e­fits to soci­ety, fair­ness and other virtues.  For exam­ple there are eth­i­cal stan­dards not to rape, steal, mur­der, assault, slan­der and defraud.  Eth­i­cal stan­dards embrace cer­tain virtues of hon­esty, com­pas­sion and loy­alty.  Fur­ther­more eth­i­cal stan­dards include stan­dards relat­ing to rights, such as the right to life, the right to free­dom from injury and the right to pri­vacy.  Such stan­dards are stan­dards of ethics because they are sup­ported by well-founded rea­son­ing. Fur­ther­more, we need to keep eval­u­at­ing our posi­tions with respect to right and wrong as we gar­ner more infor­ma­tion through our per­sonal experiences.

Ethics is the cor­ner­stone to mak­ing good decisions.

One can­not leg­is­late moral­ity or intel­li­gence, but ethics attempts to address both of these things on a per­sonal level.  Ethics sup­ports good deci­sion mak­ing.  When mak­ing a deci­sion one should not only con­sider the con­se­quences and util­ity of a deci­sion, but also oth­ers’ rights, whether a deci­sion is fair and just, and whether it serves the com­mon good or not. 

Ethics and deci­sion mak­ing in the BP Disaster

Clearly BP con­sid­ered the util­ity of their deci­sion.  They are a com­pany who has an oblig­a­tion to its share­hold­ers to use their money wisely.  Drilling where they did seems like it was a good idea; it appears there is a lot of oil there.  They knew they were drilling in a dan­ger­ous place and they had been handed down rig­or­ous stan­dards to deal with the dan­gers of that sit­u­a­tion.   They knew the con­se­quences would be dire if they failed.  So why did they fail? 

I con­fess I know noth­ing of about oil-well drilling in the deep ocean, and my opin­ion rests on the con­clu­sions of experts describ­ing what went wrong. If the con­clu­sions of these wit­nesses and experts ulti­mately prove to be true, then, in my opinion, this dis­as­ter occurred because the peo­ple empow­ered to make deci­sions did not make eth­i­cal decisions.  They were work­ing in a dan­ger­ous place; they com­pounded the sit­u­a­tion by being mak­ing stu­pid deci­sions to save a lit­tle bit of money. They appar­ently did not ade­quately incor­po­rate all of the infor­ma­tion at hand and ignored the very real con­se­quences of a fail­ure; they appar­ently did not con­sider the rights of those who would be injured by their decision. Had they made eth­i­cal deci­sions, this dis­as­ter might not have happened. 

Deci­sions based on hubris, greed and the avoid­ance of unpleas­ant emo­tions are com­pletely under­stand­able human fail­ings.  That is why it is vital for the peo­ple at the top of the deci­sion mak­ing trees, espe­cially those who can impact the lives and liveli­hoods of so many others, to make eth­i­cal decisions.

Ethics, Taxes & the Indi­vid­ual Tax­payer & Small Busi­ness Owner

I am sure as you are read­ing this you are think­ing,” I am not British Petro­leum.  If I decide to cut a cor­ner or bend a tax law for finan­cial rea­sons, I am not going to pre­cip­i­tate a national dis­as­ter; I am not hurt­ing any­one one.”  We disagree. 

Every time an employer col­lects his employ­ees’ pay­roll taxes and does not send them into the gov­ern­ment, that employer is steal­ing from that employee-it’s was not the employer’s money to begin with.  It’s not only unfair, it’s thiev­ery.  Fur­ther­more this employer is steal­ing from every tax­payer who does fol­low the rules, because it falls on those who do pay into the sys­tem to cover the short­fall.  A com­pany that does not pay into the unem­ploy­ment sys­tem is steal­ing from every employer who does pay as those pay­ing into the sys­tem cover the short fall and pay higher taxes as a result.  A tax payer who cheats on their taxes is steal­ing from every tax­payer who does pay what they owe.  

A sin­gle drop of water raises the sea; a large enough num­ber of indi­vid­u­als not pay­ing their fair share do make a dif­fer­ence to the rest of us.  It is nei­ther fair nor just for a sin­gle tax­payer to expect every­one else to cover their oblig­a­tions. Theft does not serve the greater good.  Bilking the sys­tem is dishonest.  Failure to deposit pay­roll taxes is a heart­less act; the gov­ern­ment may make an employee pay taxes they already paid once again. 

Fail­ure to pay taxes is also short-sighted.  There are very real pun­ish­ments asso­ci­ated with defraud­ing the gov­ern­ment and fail­ing to pay taxes: Penal­ties, inter­est, poten­tial seizure of assets, gar­nish­ment of wages & bank accounts, and even jail time.  From a risk-reward assess­ment, sav­ing a few bucks here and there can cost big later on, not to men­tion the costs of hir­ing pro­fes­sion­als to deal with the prob­lem once the IRS catches on. 

A busi­ness owner is a per­son in a posi­tion of lead­er­ship.  How a busi­ness owner behaves does influ­ence the behav­ior of their employ­ees and ven­dors.  If the busi­ness owner thinks it is okay not to pay taxes, then their employ­ees may think steal­ing from the boss is okay too. 

In con­clu­sion, being a tax cheat does not even serve vested-self inter­est over the long haul. 

Whereas we at Art & Busi­ness Con­sult­ing, LLC can help you get back every dime in taxes you are enti­tled to and can assist you in resolv­ing your tax prob­lems, we are kind of like an exec­u­tive at the top of a deci­sion mak­ing tree.  We are oblig­ated to serve not only our clients, but our soci­ety as a whole. We must make eth­i­cal decisions.  As always Art and Busi­ness Con­sult­ing is here to help.  If you find your­self in an eth­i­cal quandary, or need help with another 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, 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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Gear up for expanded 1099 information reporting starting for tax year 2011.

Saturday, June 5th, 2010

4/14/2011 Update: Repealed. On April 14, 2011 Pres­i­dent Obama signed the Com­pre­hen­sive 1099 Tax­payer Pro­tec­tion and Repay­ment of Exchange Sub­sidy Over­pay­ments Act of 2011 into law.  It repealed the expanded 1099 infor­ma­tion report­ing require­ments that were included in the Patient Pro­tec­tion and Afford­able Care Act. Here is the leg­isla­tive sum­mary, “Amends the Inter­nal Rev­enue Code to: (1) repeal require­ments for the report­ing to the Inter­nal Rev­enue Ser­vice (IRS) of pay­ments of $600 or more to cor­po­ra­tions that are not tax-exempt and of gross pro­ceeds paid in con­sid­er­a­tion for any type of prop­erty; (2) repeal require­ments for report­ing pay­ments made with respect to rental prop­erty which is not part of a trade or busi­ness; and (3) increase, for tax­able years end­ing after Decem­ber 31, 2013, the advance applic­a­ble dol­lar amount of the tax credit for health care pre­mium assis­tance for tax­pay­ers whose house­hold income is less than 400% of the poverty line. “- source govtrack.us.

It would appear who a busi­ness has to issue a 1099-MISC to goes back to the way it was before. FYI The Way It Was Before: Pay­ments made by a trade or busi­ness, includ­ing non­profit orga­ni­za­tions, tax­able farm­ers coop­er­a­tives, gov­ern­ment agen­cies, trusts of qual­i­fied pen­sion or profit-sharing employer plans, of $600 or more in pay­ments per year for

  • non-employee ser­vices & goods inci­dent to pro­vid­ing those ser­vices e.g. a auto shop repairs a busi­ness vehi­cle, the total pay­ment is reportable as the parts are inci­dent to the repair service,
  • the Fair Mar­ket Value of bar­ter­ing exchanges for busi­ness related ser­vices & mate­ri­als inci­dent to those ser­vices, between busi­nesses, and/or indi­vid­u­als involved in a trade or busi­ness e.g a painter and a lawyer exchange ser­vices, where the lawyer got his office painted, and the painter gets a boil­er­plate con­tract com­posed.  How­ever if the lawyer assisted in the painter’s divorce then pay­ment via bartered ser­vice pro­vided by the painter is per­sonal & not involved in trade or business-the lawyer would issue a 1099-MISC, but the painter would not…
  • non-employee pro­fes­sional fees, e.g. fees paid to a doc­tor, lawyer, etc.,
  • rent,
  • non-employee awards, & prizes, which need not be related to ser­vices received, e.g. the Fair Mar­ket Value of a prize won on a game show,
  • non-employee bonuses, taxable fringe ben­e­fits & other allowances,
  • non-employee reim­burse­ments such as car, fees, mileage and other non-employee expenses,
  • non-employee com­mis­sions, includ­ing golden para­chute payments,
  • pay­ments made to a non-employee’s estate,
  • pay­ments made to rent coin oper­ated amusements,
  • dam­ages, includ­ing puni­tive damages,
  • deferred non-employee compensation,
  • direc­tors fees,
  • fish boat crew payments,
  • Indian gam­ing prof­its paid to tribal members,
  • pay­ments made to experts and other wit­nesses in legal proceedings,
  • OR pay­ments of more than $10 per year in royalties,
  • OR sales by a busi­ness of $5,000 or more per year of con­sumer prod­ucts to a per­son on a buy-sell, deposit-commission, or other com­mis­sion basis for resale (by the buyer or any other per­son) any­where other than in a per­ma­nent retail establishment,

is required.  The 1099-MISC infor­ma­tion report­ing require­ment is for com­pen­sa­tion paid to indi­vid­u­als and non-incorporated busi­nesses. Infor­ma­tion report­ing for pay­ments made to cor­po­ra­tions for med­ical, health care & legal ser­vices as well as those for fish­ing activ­i­ties is required; most other cor­po­ra­tions are exempt from 1099-MISC infor­ma­tion report­ing. Per­sonal pay­ments are not reported, only those involved in trade or busi­ness.  Employ­ees, includ­ing house­hold employ­ees & statu­tory employ­ees, do not get 1099s, they get W-2s. The pre­ced­ing list is not nec­es­sar­ily com­pre­hen­sive and does not include instruc­tions on how to pre­pare the 1099-MISC, merely is to advise the reader of sit­u­a­tions in which a 1099-MISC is likely required.

12/14/2010 Update: Land­lords beware. Unless your rental income derives pri­mar­ily from a tem­po­rary rental of your per­sonal res­i­dence, you need to start report­ing pay­ments of over $600 per year paid to var­i­ous crafts­men etc. via Form 1099-MISC in 2011.  You will need to col­lect infor­ma­tion nec­es­sary to com­plete form 1099-MISC; the usual method is get your con­trac­tors to com­plete a Form w-9.  The best advice is to have the con­trac­tor com­plete the form W-9 before they start work­ing for you, rather than wait­ing until you owe them money for the job. Get­ting the W-9 up from may help avoid con­flict over the 28% backup with­hold­ing you are sup­posed to do if they do not wish to give you a com­pleted w-9.

There may ulti­mately be a list of cer­tain pub­li­cally traded com­pa­nies such as Home Depot, Wal­mart & Sta­ples that may be exempted from the new report­ing requirements. Furthermore elec­tronic funds trans­fers (online bill pay etc.) may also be exempted from infor­ma­tion report­ing  in the same way debit and credit card trans­ac­tion are, BUT as of this date there is NO guid­ance from the IRS along these lines.

7/13/2010 Update: The 1099 report­ing of pay­ment of over $600/year to cor­po­ra­tions will only apply to cash, check or barter accord­ing to the IRS.  It may be time to insti­tute a pol­icy of pay­ing cor­po­ra­tions via credit or debit card. This comes about because start­ing next year credit card proces­sors will be required to report total annual credit card trans­ac­tions to the IRS via 1099-K; the IRS will be able to com­pare a cor­po­ra­tions gross receipts with the report from the credit card processor.

As part of the Patient Pro­tec­tion and Afford­able Care Act signed into law March 23, 2010, by Pres­i­dent Obama, busi­nesses will be required to report pay­ment of over $600 per year of goods or ser­vices made to any­one, includ­ing cor­po­ra­tions, except for enti­ties exempt under 501 (a), which are char­i­ties and the like.  Sec­tion 9006 of the Act amended Sec­tion 6041 of the Inter­nal Rev­enue ser­vice code-go ahead, look it up.  This change in infor­ma­tion report­ing has been dis­cussed for a long time as a means of track­ing down more tax cheats, but until now con­gress had not acted upon it.

The require­ment for infor­ma­tion report­ing starts in 2012.  This start date sug­gests that means your busi­ness will need to be gath­er­ing report­ing infor­ma­tion in 2011, so it can be reported on 2012 1099s.

The law rep­re­sents a con­sid­er­able expan­sion of infor­ma­tion report­ing via 1099-MISC; in the past cor­po­ra­tions were gen­er­ally excluded from infor­ma­tion report­ing; only pay­ment for ser­vices (and goods paid for inci­dent to the ser­vice) over $600 per year, and goods over of $5000 per year need to be reported.

The IRS uses 1099 infor­ma­tion for income match­ing ,which helps them iden­tify busi­nesses that are under report­ing of income and not pay­ing all of their taxes.  Yes, even your busi­ness is com­pelled to be an agent of the IRS under cer­tain circumstances.

So what do you need to do now? Start get­ting w-9s from every­body includ­ing cor­po­ra­tions: you must have a cur­rent address and valid Tax Payer Iden­ti­fi­ca­tion Num­bers (EIN or SSN) for any ven­dor you rou­tinely pay more than $600 per year for goods or services-starting in 2011.  A Form w-9 is the rec­om­mended method for obtain­ing this infor­ma­tion; it is avail­able in PDF for­mat from the IRS.gov web­site (pdfs can be printed out using adobe acro­bat reader which can be down­loaded for free from the adobe.com web­site).  Art and Busi­ness Con­sult­ing LLC and its own­ers and employ­ees are not affil­i­ated with IRS or Adobe.

Be sure your account­ing pro­gram lists pur­chases by ven­dor and amount paid as you will also need this infor­ma­tion to prop­erly pre­pare the 1099s in 2012.  Look at the length of your ven­dor list, and you will see this project is not one to be under­taken at the last minute. If you are like most busi­nesses you prob­a­bly have only been report­ing a very small por­tion of that list.  It’s going to take a while as some ven­dors will be reluc­tant to sup­ply the infor­ma­tion when asked.  In 2011 you will have no choice, you will be required to gather this information.

What do I do if a busi­ness does not vol­un­tar­ily sup­ply the W-9 infor­ma­tion when asked? Your busi­ness is sup­posed to do backup with­hold­ing of 28%, mean­ing you are sup­posed to keep 28% of what you oth­er­wise would have given to them in pay­ment and give it to the gov­ern­ment instead.  The threat of back-up with­hold­ing is usu­ally enough to ensure coop­er­a­tion on the part of the entity com­plet­ing the W-9. Update 12/14/2010: The penal­ties have increased. For will­ful dis­re­guard its $250 for each 1099 you fail to file; the penalty may be reduced to $30-$100 (depend­ing on how late it is) of the you can show the fail­ure to file was not inten­tional. There is a $50 per ven­dor per year fine for fail­ure to 1099.    The fine may be waived if it is not shown to be from will­ful neglect. Since the new infor­ma­tion report­ing require­ment will be for the tax year 2011 do not do backup with­hold­ing on non­com­pli­ant cor­po­ra­tions until then.

What if I don’t’ want issue the 1099s? In addi­tion to the $50 fine per occur­rence for fail­ure to obtain a W-9 (see Form W-9 page 2), the gov­ern­ment comes back to you for all the other business’s taxes; this is called Will­ful Dis­re­gard by the IRS and they take a dim view of it.  So you get to pay the other guys taxes and yours.  Very gen­er­ous.  So either issue the 1099’s and deduct what you paid them, or don’t deduct what you paid and don’t issue the 1099’s.  Mat­ters not to your book­keeper or accoun­tant, you pick.  How many people’s taxes are you will­ing to pay?

As always Art and Busi­ness Con­sult­ing is here to help.  If you need help with this issue another 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, 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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Restaurants, Form 8027 & Tips Reporting For Employers & Employees

Friday, May 21st, 2010

An inde­pen­dent con­trac­tor sug­gested that although the IRS receives about 50,000 Form 8027’s in a given year it should be receiv­ing around 3 times that amount.  As a result, the IRS will focus exams on firms that failed to file form 8027.

What is Form 8027? It’s the Employer’s Annual Infor­ma­tion Return of Tip Income and Allo­cated Tips.  It’s required of employ­ers who oper­ate large food or bev­er­age estab­lish­ments.  If more than one estab­lish­ment oper­ates under 1 roof each estab­lish­ment must pro­vide a Form 8027 if receipts are recorded sep­a­rately, and file form 8027-T, Trans­mit­tal of Employer’s Annual Infor­ma­tion Return of Tip Income and Allo­cated Tips as well along with the form 8027.

What is a large food or bev­er­age establishment?

  • It serves food or bev­er­ages to be con­sumed on the premises.
  • Tip­ping is customary
  • More than 10 employ­ees, who worked more than 80 hours, were typ­i­cally employed on the premises in a typ­i­cal busi­ness day.  The num­ber of employ­ees includes those who are not nec­es­sar­ily tipped, such as bussers, cooks, kitchen staff, wine stew­ards, seat per­sons etc.  but it does not include a per­son who owns 50% or more of the stock in a cor­po­ra­tion while work­ing in the business.

The Instruc­tions for Form 8027 includes a work­sheet to deter­mine if Form 8027 is required.  You will take ½ the aver­age of the num­ber of hours worked/per day in the month with the great­est gross receipts and add it to ½ the aver­age of the num­ber of hours worked/per day in the month with the low­est gross receipts.  If this num­ber s more than 80 hours then your firm is required to file Form 8027.

If busi­ness is a new busi­ness, and has more than 10 employ­ees who worked more than 80 hours that were typ­i­cally employed on the premises in a typ­i­cal busi­ness day for 2 con­sec­u­tive months, the busi­ness will be required to file form 8027 cov­er­ing the remain­der of the year start­ing with the next pay period after they meet the requirement.

Busi­nesses not required to file form 8027:

  • Estab­lish­ments that oper­ated less than 1 month dur­ing the year.
  • Estab­lish­ments where tip­ping is not cus­tom­ary such as fast food where 95% of the sales are car­ry­out or cafe­te­rias with a 10% or more ser­vice charge.

Forms 8027 are due on March first of the fol­low­ing year, or March 31 if filed elec­tron­i­cally.  An exten­sion of time to file is requested using form 8809, Appli­ca­tion of Exten­sion of Time to File Infor­ma­tion Returns, and can be filed no later than March 1.  There are penal­ties for fail­ure to file unless the firm can show rea­son­able cause for the delay.

You will be report­ing Gross Receipts.  You may have Non-allocable Receipts for car­ry­out and items for with a 10% or more ser­vice charge that are not included in Gross Receipts.  Com­pli­men­tary Items for which tip­ping is cus­tom­ary must be included in the Gross Receipts; e.g. drinks at a casino, tip­ping is cus­tom­ary – include them in Gross Receipts, fruit bas­ket in hotel room, tip­ping is not cus­tom­ary – do not include them in Gross Receipts.   You must allo­cate tips among employ­ees if total tips reported to you dur­ing any pay­roll period are less than 8% (or the approved lower rate; the bur­den of proof for a lower rate rests with the peti­tion­ing employer). Employers-you need employ­ees to report tips to you. When you allo­cated tips you must include the allo­cated tips on the employee’s W-2, which is due to the employee by Jan­u­ary 31 of the year fol­low­ing.  The instruc­tions for Form 8027 pro­vide spe­cific instruc­tions for com­plet­ing the form.

Tips Reporting-Employees

  • The employee must report ALL tips if the employee receives more than $20 per month in tips. The employee may have heard all they need to do is report tips equal to 8% of sales, or 10%, or just charge-card tips. That’s a big myth, and could get the employee in legal trou­ble if they earn more.
  • Employ­ees should keep a daily tip diary, so they have a record to show to the IRS to prove earnings.
  • Employ­ees need to report tips to their employ­ers if they earn more than $20/month.  They must report these tips by the 10th day of the month fol­low­ing.  The employer can require report­ing more often….
  • The employer needs to know this tip income so they can prop­erly with­hold Social Secu­rity, Medicare and other pay­roll taxes from the employee’s paychecks.
  • Fail­ing to report tip income can result­ing in penal­ties, inter­est, a big bill for the unpaid FICA taxes and pos­si­ble jail time.
  • Some­times the employee owes more pay­roll taxes than the wages on their pay­check will cover.  The employee may either pay their employer money out of their tips to cover the unpaid Social Secu­rity Taxes avoid­ing under­pay­ment of esti­mate tax penal­ties, OR they may pay esti­mated taxes. The employee also may need to set aside some money to cover their taxes come tax time.

Tips Reporting-Employers

  • Employ­ers are required to gather tip reports from their employees.
  • The employer is required to pay the employer’s share of taxes on employee tips, and with­hold all pay­roll taxes for tips and wages, from the wages actu­ally paid to the employee.
  • Some employ­ers must file form 8027 and allo­cate tips.
  • Some­times the employee owes more pay­roll taxes than the wages on their pay­check will cover.  In this case the gov­ern­ment requires the employer to pay with­hold­ing taxes in a cer­tain order. The employer needs to report Uncol­lected Social Secu­rity Taxes on the employee’s w-2.

Are you required to file Form 8027? Are you prop­erly record­ing and with­hold­ing taxes for employee tips?  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, HR Info, Individual Taxes, Other Information | 2 Comments »

Correcting Employment Tax Errors Without Penalty or Interest

Sunday, February 14th, 2010

Employ­ment tax forms are cor­rected by fil­ing a 941-X.  The due date of the amended tax return is the same as the due date of the quar­ter in which the error was discovered.

e.g.  L-corporation dis­cov­ers in Feb­ru­ary that it under-reported and under-paid employ­ment taxes for the 4th quar­ter of the pre­ced­ing year.  Since the error was dis­cov­ered in Feb­ru­ary the amended return and tax is not due until April 30th.

How­ever, Inter­est will be charged if you do not file the amended tax return AND pay the taxes by the due date.

NOTE: If you do not pay the taxes before the IRS asks for them, inter­est will be charged, there­fore it is to your company’s advan­tage to report the error and pay the taxes when the mis­take is discovered.

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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Posted in Business Taxes, HR Info | No Comments »