Stark County Sales Tax Rate Change

If your business makes sales in Stark County, Ohio, please take note of the new sales tax rate. Effective July 1, 2011, the sales and use tax rate for Stark County will change from 6.00% to 5.75%.

Remember That Your Tips Are Taxable

If you work in an occupation where you receive tips, they are considered taxable income. Regardless of whether the tips are cash or non-cash, they are subject to federal income, Social Security, and Medicare taxes. The tips received must be included on your income tax return. If you receive $20 or more worth of tips in one year, you should report them to your employer so that they can withhold the taxes for you. The amount of tips as well as the amount of taxes withheld will then appear on your W-2 for your tax return. To help you keep track of your tips, you can use IRS Publication 1244.

Here is a short list of common positions that receive tips:

• Waiters/Waitresses/Caterers
• Bartenders  
• Taxi Drivers/Chauffeurs
• Hairstylists/Barbers
• Manicurists/Pedicurists
• Dog Groomers
• Delivery Drivers

Even if your profession is not listed, do not think that you are exempt from having your tips taxed. Remember that any occupation that receives tips is subject to these taxes!

Hiring Incentives to Restore Employment (HIRE) Act Enacted Into Law

Obama signed the Hiring Incentives to Restore Employment (HIRE) Act on Thursday! This Act provides employers with the opportunity to receive two new tax benefits when they hire workers who were previously unemployed or only worked part-time. Although household employers are not qualified to receive the benefits, businesses, agricultural employers, tax-exempt organizations and public colleges and universities are. So, before you start hiring, here are some things to think about…

When an employer hires qualified workers after February 3, 2010 and before January 1, 2011 they can receive a 6.2% Social Security tax incentive (a savings of up to $6,622) for each worker. There are no limits or phase-outs for the benefits claimed, they can hire as many qualified workers as they wish, and it has no effect on the employee’s future Social Security benefits!

The savings are applied to wages paid after March 18, 2010. If an employer realizes these benefits in March, they will have a credit applied to their second quarter employment taxes. The IRS says that they will make revised 941 Forms and details available in the next few weeks.

The Social Security benefit sounds pretty good, right? Well, the HIRE Act doesn’t stop there. When an employer retains the qualified workers for at least one year (52 consecutive weeks), they can claim an additional tax credit of up to $1,000 per worker! The credit can be claimed on the business’s 2011 income tax return. The only catch is that the total wages paid to each worker starting 6 months after the hire date to 1 year after the hire date must equal at least 80% of the total wages paid to that same worker during the first 6 months (26 weeks) of employment.

Still interested in going for the tax benefits? Here are the criteria that an employee must meet:

• A statement certifying that he or she was unemployed or worked fewer than 40 hours during the 60 day period prior being hired must be provided by the employee. The IRS is currently developing a form for this. 
• He or she must be a new hire for the employer.
• He or she can fill an existing position, so long as the previous worker left the position voluntarily or for cause.
• Family members and other relatives do not qualify.

Even though an employer may be eligible to take this Social Security tax break, they still need to withhold the employee’s share of Social Security taxes, Medicare taxes, and Income taxes, as well as provide the employer’s share of Medicare taxes and Unemployment taxes. If you are an employer hiring a qualified employee, be sure to tell your payroll tax specialist to ensure that you receive the benefits without any issues.

DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.

"How To" Check the Status of Your Tax Refund

If you’re like most of us, you’re anxious to know exactly when your tax refund from good old Uncle Sam shows up in your account. After all, it is your money that you loaned out. Checking the status of your tax refund, whether you e-filed or paper filed is relatively easy. It can also be done both in English or Spanish. For those individuals who “e-file”, your refund information may be available as soon as 72 hours after the IRS acknowledges receipt of your e-file return.” Paper Filers” will be able to access refund information within 3-4 weeks. The following steps were obtained from the article “Checking the Status of Your Federal Tax Refund is Easy” on the IRS.gov website. read more

Doing Business With the IRS – Speaking with the Auditor, Part 14 of 16

In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS. 

Q.  Should the taxpayer being audited speak with the examining officer or not?  I heard its best not to meet with the agent because I might say something too revealing and end up expanding the audit.

A.  I love this question because it is one that I must ask myself every time I am faced with representing a client before the Service.  “Should I discourage the client from participating in the meetings with the service or not?”  The answer is, it depends on the makeup of the client.  I believe it can be a good thing to bring the taxpayer and agent together for a meeting outside the taxpayer’s place of business, as long as I can prepare my client in regard to what to expect.   I want them to be at ease and know what they are dealing with.  It lets the IRS agent know we are not trying to hide anything and can aid the process.  If my client is too nervous or just unable to meet with the agent then that’s O.K. too.

I have found that clients generally come away from the experience better educated and that helps me help them. 

The most important thing to remember when doing business with the IRS is to keep good records.  Don’t panic.  Being audited is not a suggestion that you did anything wrong or dishonest.  We are here to help you through the audit.

Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.

Upcoming Questions and Answers
Q.  How do I handle my client’s phone call that they have received an IRS notice?
Q.  What did I learn from my interview with an IRS agent?

Past Questions and Answers Posted
Q.  What is the Examination Process?
Q.  How are tax returns selected for an audit?
Q.  Should I have someone represent my interest in the examination and audit process?
Q.  What is the examiner looking for?
Q.  What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?
Q.  What will expand an audit? (cause more years or items to be examined)
Q.  What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q.  What is the appeals process?
Q.  How does the Offer in Compromise work and who should consider using it?
Q.  What do I need to know about fees and penalties?
Q.  What is the role of the agent vs. that of the revenue officer?
Q.  Can you comment on source codes?  What might a source code indicate or what should I be looking for?

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

2010 Standard Mileage Rates

Beginning on January 1, 2010, the standard mileage rates are as follows:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical and moving purposes
• 14 cents per mile driven for charitable services

The new rates reflect lower transportation costs compared to a year ago and slightly lower.

Doing Business With the IRS, Penalties – Part 11 of 16

In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS. 

Q.  What do I need to know about fees and penalties?

The IRS imposes penalties to encourage compliance with the tax laws.  The examining officer has some liberty regarding the penalty for negligence which can be 20% of the taxes owed.  Negligence can include any failure to make a reasonable attempt to comply with the IRS laws, exercise of ordinary and reasonable care in the preparation of a tax return, or keeping adequate books and records to properly substantiate items deducted.  In other words, you truly tried your best to do the right thing but missed something along the way. 

Where the examining officer has no control whatever is the substantive underpayment of taxes penalty.  Underpayment is considered substantial if it is more than the larger of 10% of the correct tax or $5,000 for individuals and $10,000 for businesses.  To avoid the substantial underpayment penalty you have to provide adequate disclosure of items which might cause such an underpayment along with the disclosure of the position for the reasonable basis for such a position. 

 Some of the most common penalties are listed here. 

 The most important thing to remember when doing business with the IRS is to keep good records.  Don’t panic.  Being audited is not a suggestion that you did anything wrong or dishonest.  We are here to help you through the audit.

Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.

Upcoming Questions and Answers
Q.  What do I need to know about fees and penalties?
Q.  What is the role of the agent vs. that of the revenue officer?
Q.  Can you comment on source codes?  What might a source code indicate or what should I be looking for?
Q.  Should the taxpayer being audited speak with the examining officer or not?  I heard it’s best not to meet with the agent because I might say something too revealing and end up expanding the audit.
Q.  How do I handle my client’s phone call that they have received an IRS notice?
Q.  What did I learn from my interview with an IRS agent?

Past Questions and Answers Posted
Q.  What is the Examination Process?
Q.  How are tax returns selected for an audit?
Q.  Should I have someone represent my interest in the examination and audit process?
Q.  What is the examiner looking for?
Q.  What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?
Q.  What will expand an audit? (cause more years or items to be examined)
Q.  What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q.  What is the appeals process?

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Employee or Independent Contractor?

Determining the proper worker status

When you hire someone to work in your business, that individual will either be an employee or independent contractor for tax purposes. Failure to properly classify the worker can subject you to an IRS audit and possibly interest and penalties for failing to withhold and deposit payroll taxes. Under common-law rules, if you have control over what work is being done and how it will be done, you are generally regarded as an employer and the worker is considered your employee.

The IRS uses three factors to determine the proper worker classification. Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. Behavioral control looks at the type of instruction given, the degree of instruction, an evaluation system, and training.

The second factor is financial control. Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. Financial control factors consist of significant investment, unreimbursed expenses, opportunity for profit or loss, services available to the market, and method of payment. If you provide the tools and supplies to do the job, set the work hours, provide the location where the work is performed, and can hire or fire the worker, chances are this worker is classified as an employee. However, if the worker provides his own tools and supplies, performs services for an agreed price, performs these same services to others, and maintains control over how the work is completed, the worker is more likely an independent contractor.

The third factor is the type of relationship between you and the worker. Under type of relationship, take into consideration any written contracts, employee benefits, permanency of the relationship, and services provided as the key activity of the business. An employee will be hired for a long-term relationship and employee benefits will generally be provided.

You must weigh all of these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate an independent contractor. The key is to look at the entire relationship you have with the worker, consider the degree or extent of the right to direct or control, and finally document each of the factors used in arriving at a determination.

If you are unsure whether your newly hired worker is an employee or independent contractor, you may file Form SS-8 with the IRS. They will assist you in making a proper determination, thus avoiding mistakes, audits, and additional taxes and penalties.

Winter 2009/2010 NATP Tax Tips

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Doing Business With the IRS, Lost Records – Part 5 of 16

In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS. 

Q.  What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?

A.  Were your records lost in a fire or a flood? 

It is not an excuse that will get you anywhere.  Believe it or not, you can actually enlist the help of the IRS to get your past returns filed.  That’s right, the IRS will provide you, at no charge, copies of the records they have on you filed by other third parties, such as wages, non-employee compensation, interest, dividends, etc.  This may be enough to file your taxes.  And did you know that the banks are required by law to keep your records for seven years?  So you can get those bank records for up to seven years.  Seven years and a week later could be a problem.  Oh, and if the bank gives you a problem about retrieving your records, the IRS might be willing to help you with that too.

The agents will often create their own analysis of your income and expenses based on their fact finding research.  They will make assumptions of your income and expenses.  It is up to you to disprove false assumptions.  This is harder to do without the evidence or backup documents.

Ideally, you will want documents that backup the numbers reported on your tax return filings, such as:

• Payment records
• Invoices
• Receipts
• Mileage logs
• Charitable cash or non-cash contributions
• Meals and entertainment
• Investments
• Other

The most important thing to remember when doing business with the IRS is to keep good records.  Don’t panic.  Being audited is not a suggestion that you did anything wrong or dishonest.  We are here to help you through the audit.

Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.
Upcoming Questions and Answers
Q.  What will expand an audit? (cause more years or items to be examined)
Q.  What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q.  What is the appeals process?
Q.  How does the Offer in Compromise work and who should consider using it?
Q.  What do I need to know about fees and penalties?
Q.  What is the role of the agent vs. that of the revenue officer?
Q.  Can you comment on source codes?  What might a source code indicate or what should I be looking for?
Q.  Should the taxpayer being audited speak with the examining officer or not?  I heard it’s best not to meet with the agent because I might say something too revealing and end up expanding the audit.
Q.  How do I handle my client’s phone call that they have received an IRS notice?
Q.  What did I learn from my interview with an IRS agent?

Past Questions and Answers Posted
Q.  What is the Examination Process?
Q.  How are tax returns selected for an audit?
Q.  Should I have someone represent my interest in the examination and audit process?
Q.  What is the examiner looking for?

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

W-2 Error

Be careful which form you give to your workers and file with the IRS. In Porter, D.C., Iowa vs. IRS, the service was successful in having the contractor pay employment taxes after the contractor made a mistake in the form that was filed. The contractors had regularly treated similar workers as contractors and given 1099 forms each year except one year they gave out W-2s.

There is a 1978 law that the IRS can’t argue that contractors are employees if the business always gave them 1099s, regularly treated similar workers as contractors and had a reasonable basis for that treatment. They made an error by changing forms one time and it cost them.

DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.