If you are not using a payroll service or software that has a payroll module, make sure you keep accurate and detailed records of your payroll.  Remember, the Internal Revenue Service (IRS) does not easily bend when they impose penalties and interest on late payroll tax deposits. 

Your employees won’t be happy if the W-2 you prepare has to be amended after they have filed their tax return, and you won’t be happy if you’re stuck answering IRS or state notices of inconsistencies in the payroll returns filed.

By keeping a spreadsheet of the following, you can accurately figure the 941 payroll tax deposit amount, due dates (losing track of this obligation can bury you financially if you fall behind), and file accurate payroll returns:  

1.  Record the date of the payroll check.  The IRS determines when the taxes are due by the date your employee was paid.
2. Record the gross salary.  This figure is the amount that you report on the quarterly payroll reports and the annual W-2.
3. Itemize the deductions.  You will need to know the Federal withholding amount and both the Social Security and Medicare withheld as well as other deductions, such as health insurance, HSA, 401k or SEP, child support and other deductions.  Some of these items reduce the amount of taxable income reported and some don’t.
4. Track the net payroll check and check numbers.  This record will be a great help when it comes time to reconcile your payroll bank account.

Always remember to keep an up-to-date file on each employee.  It should contain current Forms W-4, I-9, W-11 (HIRE Act if applicable), employment application, signed and dated notice of probationary period, history of pay rates and raises, and work evaluations including details and dates of reprimands that could cause dismissal. 

If time management is an issue, we can certainly assist you in any or all of the payroll record keeping and filing of payroll tax returns.  Just call us at 904-396-5400.

Filed under: General by Kathy Bordin
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Earlier in the year, you may have read that employers who hire unemployed workers between February 3, 2010 and January 1, 2011 may be eligible for a payroll tax credit.  (If you missed it, see the “Implementing the Hiring Incentives to Restore Employment Act” blog.)

If you are a qualified employer (household employers don’t count) and hired one or more workers who met the criteria, make sure they complete and sign IRS Form W-11. To qualify, your new hires must not have worked more than 40 hours in the past 60 days. You don’t need to do anything with your W-11 for now, just keep it with your payroll records.

You will also need to complete the IRS’s revised Form 941 and calculate your exemption on lines 6a through 6d.  Instructions are available for this form, but if you need additional help, or if you need a CPA in the Jacksonville area, give us a call at (904) 396-5400.

 This tax change is actually good news for your business—we’ll make sure you take full advantage of it.

Filed under: Tax by Lynn Barwell
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You may have heard the IRS is increasing its audits of business tax returns—it’s true. But implementing some simple standard business practices will better prepare you if your business is audited:

Deposits

• First, expect the IRS to assume all deposits into your business bank account are income.  Most probably are, but you may have deposited, for example, loan proceeds. 
• Be sure the loan your business received, either from the bank or from your personal funds, is properly recorded with a written loan document. 

Expenses

• Second, expect the IRS to assume all outflows from your business bank account are going to you personally unless you can prove they are valid business deductions. Keep your receipts and statements to show that those deductions actually satisfied a valid business purpose. 
• Be especially careful if some of your vendors also sell to the general public. For example, a construction contractor may purchase from Lowe’s or Home Depot, but without proper documentation, the IRS agent may assume these are personal expenditures.

Comingling

• Never mix business and personal expenses in the company bank account, and avoid directly paying personal expenses from it! Instead, pay yourself a salary and a distribution.
• Keep business items in the business account and the personal items in the personal account.  Comingling of funds can make it difficult to manage the bank account and may, justifiably, raise the suspicion of the IRS agent. Some lawyers contend that this comingling could jeopardize the legal protection of your corporation.
• If you pay an expense personally on behalf of your business, simply complete an expense reimbursement and have the company pay you, the same way you would reimburse an employee. You can find a useful Expense Report template on our website. Click on Tax Center and scroll to the bottom for Excel spreadsheets to properly document your expenses and business mileage.

If you are “lucky” enough to be audited by the IRS, you will now be prepared with the proper documentation.  Of course, if you need the help of a CPA, call us at (904) 396-5400 and we can assist you with the IRS audit process.

Filed under: Tax by Adam Robinson
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One of the key initiatives affecting small businesses and their employees from the two health care bills passed in March is the Small Business Health Care credit. Postcards were sent to most small employers to pique their interest about this opportunity.

This new credit for small businesses through 2013 offers an incentive to increase the employer financial participation in its employees’ health insurance. Firms with fewer than 25 employees and average wages under $50,000 can receive a credit of up to 35% of the cost of employer-paid coverage, with the full credit limited to companies employing 10 or fewer full-time staff averaging under $25,000 each.

In a few cases, an employer with up to 50 employees may be eligible with the right mix of part-time and full-time employees. Not-for-profit entities are also eligible for up to a 25% credit.

To be eligible, the employer must provide at least 50 percent of the single rate cost of health care coverage for some of its employees. The credit is a bit complicated to compute, but essentially uses an average of the hours of all employees, not including overtime, to determine the average wage.

If that average is under $25,000, the full credit is likely available. Between $25,000 and $50,000, the credit begins to phase out, with nothing available if the average is above $50,000. The credit is scheduled to become more robust beginning in 2014.

As with most tax laws with specific rules of implementation, advanced planning can help your chances of benefitting from these cost-saving tactics. Don’t let this opportunity pass you by without considering if it can help you and your employees with health care coverage. We can help you with that planning.

As the Department of Health and Human Services develops these regulations, much more will be learned about this new law…and many new forms will be developed. So stay informed and give us a call now if you’re ready to get started:  904-396-5400.

Filed under: Tax by Mark Patrick
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It’s certainly believable that given the current economic conditions, U.S. home foreclosures increased nearly 22% in 2009. Losing your home is obviously devastating, but there are tax ramifications following a foreclosure which could cause you to owe more money to the Internal Revenue Service (IRS).

The basic tax rule of forgiveness of debt is simple: when a lender cancels your debt, a Form 1099C is issued to you and the IRS for the amount of the debt. The amount of forgiveness is then taxable as ordinary income to you. 

With the Mortgage Forgiveness Debt Relief of 2007, Congress provided homeowners a break, in that the forgiveness of debt on your primary residence is excludable from income. Note that this relief is only available on a primary residence mortgage up to $2 million in debt through 2012. Forgiveness of a mortgage or loan on your vacation home, car or other debt is reported as taxable income to the taxpayer.

Two exceptions can affect the homeowner. If the mortgage (even on your vacation home) is forgiven in bankruptcy, the forgiveness of debt is not taxable income. Also, if you can prove that you’re insolvent, part of the debt may be forgiven. For example, if you have assets of $150,000 and liabilities (debt) of $200,000, then up to $50,000 of your debt forgiveness is tax free. Any excess would be taxable as ordinary income.

Therefore, when you lose your primary residence due to foreclosure, no further tax burden exists on the amount forgiven. However, you should also consider what impact no longer owning a home will have on your tax bill in the future. When owning a home you’re eligible to deduct the mortgage interest paid on principal borrowed to purchase the home and the interest on an additional $100,000 in home equity borrowing. As a homeowner, you also can deduct the real estate taxes paid on the home. 

So, taxpayers who lose homes should do some tax planning to prepare for the impending amount due to the IRS because of the reduction in their itemized deductions. Someone in the 25% tax bracket who in the past could deduct $10,000 in mortgage interest and $3,000 in real estate tax will see an increase in the tax owed of $3,250. If you couldn’t pay your mortgage, chances are you’ll have difficulty paying the IRS the additional taxes.

When a home is lost to foreclosure the taxpayer may also lose the benefit of the homebuyer’s tax credit taken in previous years. First time homeowners in 2008 could take advantage of the Housing and Economic Recovery Act which gave them a refundable credit of 10% of the purchase price, up to $7,500. This credit amount was essentially a loan from the IRS and needed to be repaid beginning in 2010 over 15 years. The American Recovery and Reinvestment Act of 2009 provided a credit of up to $8,000 which did not have to be repaid if you stayed in the home for the next three years. The credits would have to be repaid if your home was foreclosed on in the next 15 years (for a home purchased in 2008) and within three years (for a home bought in 2009 or early 2010).

Losing your home is a terrible problem for many homeowners in the current economy. Homeowners facing foreclosure should be aware of all financial aspects of losing their homes before they start the process. If you still have questions, call us at (904) 396-5400.

Filed under: Tax by Lisa Campbell
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The trusty copier has been in offices for years. No longer the humble duplicator, it’s been changing, developing, and getting smarter until it’s also a printer, scanner, and fax machine. Until CBS News opened our eyes recently, many of us never thought about the hidden hard drive it now contains to enable it to do all these things*.    

It’s a potential problem when you have a spy faithfully recording everything you copy, print, scan, and fax. At least some of those documents probably contain sensitive information relating to your clients or your organization. 

No worries, though, because the copier is too big and heavy for thieves to want to steal it, right? True, but sooner or later it will get old and you’ll want to trade it in or dispose of it some other way. What to do then? Options include:

• Erasing the hard drive. You can buy software to do this erasing, but the jury is out on how effective it is. Some say wiping it of data a couple of times will do the trick, but others insist the data is still recoverable.
• Removing the hard drive and destroying it. While this task isn’t easy, at least you know your sensitive information won’t wind up in the wrong hands.

As for Patrick & Robinson, our clients depend on us to take care of the information they entrust to us. You can be sure we’ll be taking a screwdriver and mallet to Old Sharpy when it’s outlived its usefulness.

Need an accountant you can depend on? Call us at 904-396-5400.

*(View Copy Machines: Risky Business? on You Tube if you haven’t seen it yet.)

Filed under: General by Lynn Barwell
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Are you connected with a tax exempt organization and are the tax returns filed currently?

If not, your organization could lose its exempt status after May 17^th. The Pension Protection Act of 2006 started a three-year countdown to remove the privileged status of all non-profit organizations – other than churches and church-related organizations – unless a Form 990 series information form was filed with the IRS in at least one of the three years following that enactment. The 2009 tax year is the third strike for an organization to avoid automatically losing its federal tax-exempt status.  Even if you have never filed a return in the past you must file this year to prevent expulsion.

With a due date of the 15^th day of the fifth month, this makes May 15 the deadline for calendar year entities. Since May 15 falls on a Saturday this year, the deadline is extended to Monday, May 17. Organizations can request an extension of their filing date by filing Form 8868 by the original due date. This form will provide up to six extra months to file. Otherwise there’s no grace period from filing by the original due date. The IRS has no discretion regarding these deadlines.

Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N (e-Postcard). This form asks for a few basic pieces of information. Tax-exempts with annual receipts above $25,000 must file a Form 990 or 990-EZ, depending upon their annual receipts, while private foundations file form 990-PF.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

More details are available at www.IRS.gov or by calling us at (904) 396-5400.

Filed under: Tax by Mark Patrick
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With all of today’s technology it’s easier than ever for the IRS to spot (and make!) mistakes.  And with every error or question the agency sends out a letter, so if you receive one:

 Don’t panic; you’re not alone! The Internal Revenue Service sends out millions of letters each year. 

1. Read the notice carefully because each letter usually addresses a specific issue.
2. If your correspondence is a correction notice, compare the information with your tax return and records.
3. If you agree with the change, follow the directions on the letter. Are you getting a different refund amount? If so, just cash the check. If you owe, make the payment.
4. If you don’t agree with the change, let the IRS know why in writing. In your reply include the tear-off portion of the letter you received, along with any supporting documentation. 
5. Keep copies of your correspondence and allow at least 30 days for a response.
6. Lastly, let your CPA know, especially if the change affects your estimated payments for the current year!

 If you have any questions, don’t hesitate to call us for help at (904) 396-5400. Happy post-tax season!

Filed under: Tax by Lynn Barwell
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We often discuss with friends and clients whether they should compute and prepare their payroll checks or use an outside service to handle this important process. While no standard answer applies to all businesses, some important issues should be considered in making that decision.

Preparing payroll is:

Complicated – If you’re not familiar with computing a payroll check and making the payroll tax deposits each payday, it’s likely you’ll be overwhelmed with the percentages and rules. The various rates of withholding of the different taxes and the brackets and employer tax rates and wage caps can be daunting. Add to that the various types of compensation that are tax exempt and the calculation of overtime, and you may run yourself crazy meeting all of these demands. Mistakes made in this process could impair your employees’ happy relationship with your company!

Time consuming – Complexity equals greater preparation time. Is payroll check preparation and form completion the best use of your time, or would you be better serviced by experienced professionals? The basic data still needs to be gathered in your office, but the challenging bookkeeping and compliance does not. If you’re battling the daily dragons of your business, you’ll want to free up some time from the drudgery of “busy work.”

Prone to problems – Payroll services take on all the liability issues, relieving their clients of the risk of meeting deadlines and filing forms. We frequently see our clients’ frustrations with penalties, embezzlements, and costly fees to correct compliance errors. Often the resulting cost is more than a payroll service would have been for an entire year.

Costly – Anything related to the accounting function is generally thought of as overhead that would rather be avoided. However, if an overhead function provides timely information and efficient results, it removes the more expensive cost of managing through problems. Outsourcing payroll is an effective way to improve efficiency and remove a common headache.

Sensitive – Likely the most confidential information in your office is your payroll and employment files. Few other issues can cause bad will like disagreements over compensation and benefits. If all of those files are maintained outside of your office with a payroll processor, your confidential data becomes one less worry.

So, if using a payroll service is such a great solution, what would hold you back? Services are available that can address job cost posting, time clock interfaces, workers’ compensation insurance, employee benefits products, human relations support, and management reporting.

The only decision left is how to get started—and we can help. As a provider of ADP Small Business Services, we offer a turnkey approach in which all we need from you is setup information for your company and employees. We handle all of the data entry, forms completion, direct deposit and tax payments. You can also work directly with ADP, doing your own setup, data entry, scheduling and filing.

Bottom line: we’re ready to take this burden off of you. Give us a call (904-396-5400) if you’d like more information or if you’re ready to start. Mid-year conversions are never a problem.

Filed under: General by Mark Patrick
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Where’s my refund?

The No.1 question people ask after filing their returns is when will they get their refund? The IRS makes it easy to find out, but you must wait 72 hours after it was accepted via efile, or 3-4 weeks after you mailed it in. You’ll need to know your filing status, the first Social Security number on the return, and the dollar amount of your refund. You have three options:

• Go to IRS.gov and click on “Where’s My Refund?”
• Automated refund information is available 24/7 by calling 1-800-829-4477
• For daytime information, call 1-800-829-1954

Do I still need my documents now that I’ve filed?

Keep tax returns and supporting documents for at least three years. Some documents (such as records relating to your home purchase/sale, IRA’s, etc.) should be kept longer. The IRS offers more specific guidelines in Publication 552. 

Do I need to let the IRS know if I moved after I filed my return?

If you’re expecting a refund by mail, be sure the post office has your change of address. You can let the IRS know by filing Form 8822.

What do I do if I made a mistake?

If you discover a mistake on your return it can be corrected by filing an amended return, Form 1040X.

What do I do if my problem is bigger than I can handle or if I have a question that hasn’t been answered on this blog entry?

Call us (904-396-5400)!  We can answer any of the questions you might have and help find a solution.

Filed under: Tax by Lynn Barwell
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