small business
Tort reform in effect in TN
Wednesday, October 5th, 2011 | consulting, litigation | No Comments
Tennessee’s tort reform law went into effect on October 1, 2011. It places caps on non-economic damages and punitive damages except in certain egregious cases.
Governor Haslam and legislative sponsors tout the increased predictability that the new law will bring to businesses aiming to quantify risk. They say it brings Tennessee on par with other Southeastern states, which will enhance recruitment of businesses to the state.
We anticipate that it will help existing businesses too, as insurers adjust their risk analysis for the new environment. That may bring liability insurance rates down, which would be a welcome relief to small business owners. Consult your insurer and let him or her know you are watching how their company responds to the reforms now in place.
This law follows the 2008 medical tort reform law that sponsors say has reduced non-meritorious claims by 50%.
Insurance is a useful tool to help you protect your business and personal assets from catastrophe. Our firm chooses not to sell insurance, investments, or other financial products. This frees us to give you unbiased insight into the use of insurance and other financial tools for the betterment of your company and family.
Another government email scam!
Thursday, September 1st, 2011 | consulting | No Comments
Our firm’s junk email filter caught another government email scam. This one appears to come from the FDIC, the federal bank watchdog, with the subject “FDIC: about your business accounts”. It hints that your bank (which it does not name) is being taken over, and provides a link for more info on how your accounts will be affected. I did not click the link (and you shouldn’t either). I suspect that the linked site asks for your banking information.
You can be sure that the FDIC (or any other government agency) will not ask in an email for your personal information. We cannot think of any circumstance under which the government would initiate electronic communication with you without your prior permission.
Always be alert to possible scams from the government or any other unexpected source. If you’re not sure about the verity of an email, you are welcome to call us and ask about it. If you are not sure about the identity of the sender, do not click a link in an email.
Protecting your business from such dangers is just one of the many ways we help you keep your company on track to greater success.
Bathroom as home office?
Thursday, August 18th, 2011 | consulting, tax | No Comments
The Tax Court ruled that a taxpayer cannot claim his bathroom as a home office in Bulas v. Commissioner, T.C. Memo. 2011-201 (Aug. 17, 2011). (Insert your own joke or mental image here….)
The taxpayer had a home-based business, a tax practice for which he used one bedroom of his home as an office. He built a bathroom adjacent to the office for his clients to use. He argued that the bathroom and the hallway between the rooms should also be considered part of the home office, which would increase the deductible percentage of his home-related expenses.
According to the IRS, in order for a home office to be claimed on your tax return, it must be exclusively used on a regular basis
- (A) as the principal place of business for any trade or business of the taxpayer,
- (B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business.
In this specific case, the taxpayer admitted to the court that his daughters and house guests sometimes used the bathroom. This occasional use by the family caused the bathroom to fail the “regular and exclusive use” test. The taxpayer might have successfully included the bathroom and hallway as part of the office if access by non-clients was limited, perhaps by a lockable door that separated the office “suite” from the rest of the house.
We can help you with creative and legitimate strategies for using your home office to save taxes. This deduction is subject to greater scrutiny from the IRS, so we can also help you maintain proof that your home office meets the requirements. With proper setup and records, the home office deduction can make a difference in your tax bill.
If you operate a company out of your home that is set up as an S-corporation, ask us about a plan that can secure the benefits of the home office deduction for your business.
Sharing company financials with employees
Tuesday, August 2nd, 2011 | consulting | No Comments
You can increase your employees’ engagement with company financial goals by sharing some information about the company’s finances with them. This article from Inc. magazine shared by our LinkedIn friend Jonathan Patrick describes how this can work. Learn what to share and what not to share to increase buy-in. A company whose employees understand their roles in achieving the company’s goals can exponentially increase its potential for success.
Standard mileage rates change
Friday, July 1st, 2011 | consulting, tax | No Comments
The IRS has adjusted the standard mileage rates beginning July 1, 2011, in response to higher gasoline prices. The new standard mileage rates will apply through the end of 2011.
Mileage Rate Changes
|
Purpose |
Rates 1/1 through 6/30/11 |
Rates 7/1 through 12/31/11 |
|
Business |
51 |
55.5 |
|
Medical/Moving |
19 |
23.5 |
|
Charitable |
14 |
14 |
You have the option of tracking actual vehicle costs or using the standard rates to calculate your vehicle expense deduction. You may deduct parking fees and tolls under either method. Remember to write down your odometer reading today and at year-end to help track total miles for each half of the year.
You do keep a mileage log, don’t you? The IRS has been finding easy money by increasing audits of business mileage because many taxpayers do not keep adequate records. You may keep your mileage log in any format that is convenient for you. IRS dictates that the log should contain the number of miles (beginning and ending odometer readings are best) for each business trip, the destination(s), and the business purpose of the trip. Anything less, and the deduction may be disallowed. If you spend the day on the road going to multiple work locations, a daily total is adequate along with a list of the locations you visited.
Another business mileage trip-up relates to commuting miles. If you do not report expenses for business use of your home, you had better report commuting mileage with your business mileage deduction. IRS says that mileage from home to the first work location of the day and from the last work location to home is non-deductible commuting mileage. If you do have a home office, then your home office is your first and last work location, and all mileage to other work locations throughout the day is deductible.
For more details about business, medical, moving, and charitable mileage deductions, feel free to call or email us. As with all things tax-related, special rules abound related to company expense reimbursement plans, personal use of company vehicles, depreciation, and other vehicle-related issues. We can help bring you peace of mind by setting up a reporting system that will pass muster with the IRS.
Do you use a budget?
Wednesday, June 22nd, 2011 | consulting | No Comments
Does your company use a budget to plan ahead? Many small business owners manage their businesses day-to-day or week-to-week, wrapped up in the details. You probably have some sense of how you would like for things to work out in the future if this happens or if things go as you think they will.
Working through a budgeting, forecasting, and planning process helps you rise above the details so you can develop a broader view of where your company has been and where you want it to go. With a plan in place, you have the tools to chart a course toward your goals and to see when you are veering off course. A budget is not so much a snapshot as a process. As conditions change, or as new information warrants, you make adjustments to your plan that will help drive your company in the right direction.
Because of increasing volatility, budgeting and planning are becoming more difficult, as this article from CFO magazine points out. Traditional budgets are giving way to rolling forecasts that evolve rapidly with changing times, but by any name, the process serves the same purpose: “it still keeps people focused on the end game,” as one CFO put it.
As the old saying goes, you can achieve 80% of your goals if you write them down. We can help you develop a budgeting and planning process that’s the right fit for your company. It’s an important way to help you steer your company toward the success you envision. Mid-year is a good time to look back and ahead. Give us a call today.
Bureaucratic snafu resolved
Friday, April 29th, 2011 | consulting, tax | No Comments
We helped one of our clients solve a problem today by resolving a bureaucratic snafu. The issue relates to one of the many areas where the federal and state governments communicate with each other. For owners of heavy trucks, the state requires county clerks to obtain verification that the federal heavy highway vehicle use tax has been paid before issuing a new registration annually. This has been a standard procedure for many years to ensure that heavy haulers pay for the extra wear and tear their big rigs inflict on the nation’s highways.
For several years, our client has been resigned to the apparent requirement and has dutifully paid the tax because otherwise, the company could not get tags for their truck. We found out about the situation as we worked on an unrelated matter. We learned that this particular type of truck is exempt under federal tax code because it is not designed to haul loads. But the county clerk’s staffers refused to issue the tags until our client provided proof that the tax had been paid.
We did some research, pulled the documentation together, and called the county clerk’s office. At first the clerk was not aware that an exception to the law existed. After we explained the exception and the fact that our client’s truck met the requirements for the tax exemption, she called her colleague at the state level. She confirmed that indeed there is an exception and the state has a procedure in place to handle it that the county clerk’s office was unaware of until today. She now has an affidavit for our client to sign to certify that their truck is exempt so they can get tags for their truck.
The representative from the county clerk’s office called us back to let us know that she would immediately inform the staff and make the affidavit available to our client and all others who apply for tags for an exempt vehicle. We solved a problem for our client that saves them a significant tax cost each year.
If you own a heavy truck subject to the heavy highway vehicle tax and you file IRS Form 2290, check the instructions for the exemption rules or call us, and we can help you determine if your vehicles are exempt. This is just one of the many ways we go beyond the usual tax-and-accounting CPA services to help our clients solve problems.
Filed an extension - now what?
Thursday, April 28th, 2011 | consulting, tax | No Comments
You pulled your records together and worked on your tax return, maybe using an “easy-to navigate” software program. But you were left with a nagging feeling that there may be something you missed, so you filed an extension.
Now what?
We’ve received calls from several people in this situation, asking us if we would take a look at their returns. This is a smart call if you have items on your return that are new for this year, or if an unusual event occurred in 2010. The mainstream tax software is designed to be easy for the average user, with questions that take you step-by-step through your return. In their effort at simplicity, sometimes the questions gloss over details in the code that might be important in your particular situation. Sometimes your answer directs the software to another module and list of questions, or to skip some questions. If you answer incorrectly at this stage, you may be messing up without knowing it.
In one recent case, a husband and wife used one of the name-brand tax programs to do their return, which included a business. Because of the way the software asked the questions, they inadvertently entered the same business information in two places on the return, doubling their income. Because of the software’s design, they did not become aware of the error until after they had e-filed the return.
The errors prompted a barrage of notices from the IRS and an audit of their return. They are now spending a lot of time, effort, and money to resolve these issues. The excuse, “it was the software’s fault,” has been tried all the way to Tax Court, and it has failed at every turn.
So if you are not confident that your self-prepared tax return is correct and that you have claimed all the deductions and credits to which you are legitimately entitled, you are smart to have filed an automatic extension. The next step is to gather your records and make an appointment with a tax expert like us. We can review your return and your financial situation to make sure your tax return is accurate and complete and your tax bill is as low as possible.
We’ll also advise you about the possible audit risk of your return. The IRS has been stepping up its examination of such items as employee business expenses, businesses reported on Schedule C of Form 1040, business mileage, and other areas. This means that good recordkeeping is more important than ever to prove that your deductions are legitimate.
Contact us today to quiet those nagging doubts about your return.
Paperwork cloud lifts
Wednesday, April 27th, 2011 | consulting, tax | No Comments
A paperwork cloud has hung over business owners and landlords for much of the last year. A clause in the health care reform law (Patient Protection and Affordable Care Act) required businesses to report payments of more than $600 to corporations (not required under prior law) on Form 1099. It also added reporting of payments for goods. Then last summer, the Small Business Jobs Act extended the reporting requirements to landlords.
Together, these provisions threatened to dramatically increase the compliance workload of companies both issuing and receiving these documents. The extra load would have fallen disproportionately on small businesses, because they typically have less cushion to absorb such changes. Some suggested that the additional burden and its costs could stymie the economic recovery.
We brought you the news in posts here and here, but we did not post about the expansion in the Affordable Care Act because talk of repealing that provision had begun shortly after the act was signed into law. We had anticipated that the expansion of the requirements to landlords would stick, but we learned long ago that we stand a fairly high chance of being proven wrong when we try to predict the actions of Congress.
Late in tax season (when we were too busy to post about it) came the news that Congress had agreed on language to repeal the new 1099 reporting requirements, reverting to the rules in effect before the two new laws. For landlords, the repeal is retroactive to January 1, 2011 (when the new rules for this group of taxpayers took effect). The expansion under the Affordable Care Act was to have taken effect after December 31, 2011.
1099 reporting in a nutshell: Code Sec. 6041 generally requires payments totaling at least $600 in a single calendar year to a single recipient to be reported to IRS. Reporting on Form 1099 is required only when the payor is considered to be engaged in a trade or business and has made the payment in connection with that trade or business. The type of payment that most commonly triggers the reporting requirement is payment for services. Payments to corporations are exempt, and a number of other exemptions apply. Contact us to make sure your 1099 reporting is compliant.
IRS abates penalties
Monday, April 4th, 2011 | tax | No Comments
In a payroll tax case we have been working on for over a year, the IRS has agreed to abate penalties, saving the taxpayer over $200,000. This is a very unusual decision for the IRS, which considers non-payment of payroll taxes to be an unauthorized loan of government funds.
Employers are required to withhold income tax, Social Security tax, and Medicare tax from their workers’ wages and deposit these funds regularly. At the same time, employers pay their share of Social Security and Medicare taxes. Penalties mount rapidly if an employer falls behind on these deposits.
The circumstances of this taxpayer’s case were unique. Their office manager/bookkeeper had let the company get behind on their payroll tax deposits, but she had told the owners that everything was fine. She had gained unauthorized access to the company’s post office box so she could intercept the IRS notices before the owners saw them. Her ruse unraveled when she was absent one day. The owners received one of the notices in the mail and called us.
Our investigation revealed how serious the situation was, with a delinquent tax liability in the mid-six figures, plus penalties and interest. The owners amassed enough funds to get the back taxes paid. We organized the documentation, interviewed the owners, and fashioned a compelling narrative describing the course of events that led to the late deposits. Through a series of letters, conversations, and meetings, we were able to persuade the IRS to abate the penalties. If the decision had gone the other way, the burden of paying the penalties on top of the back taxes probably would have put the company out of business.
We consider this a big win against the odds for our client. Not all of our engagements with the tax authorities end this well, but this is one example in which our willingness to stand toe-to-toe with the IRS on behalf of the taxpayer turned a potentially catastrophic situation into a more manageable one. As a result, the owners can now turn their focus back to managing their company through the recession.
Do you have an IRS story you’d like to share? How can we advocate for you?