IRS Aims to Fill “Tax Gaps”

It hasn’t really been in the news much, but the IRS is quietly putting into action some new plans to try to catch some of the estimated $300 billion dollars a year in tax revenue that’s lost due to incomplete income tax reporting issues.  There are so many ways for individuals and small businesses to receive income now, including online sources such as PayPal, that are not required to report income with the same formality as traditional sources. 

But the IRS is now trying to change all that, according to a recent article on CNNMoney.com, with forms like the new 1099-K.  The 1099-K will require PayPal and other payment processors like it to compile income info for its users and issue them a 1099-K at year’s end (along with sending one to the IRS).  In addition, credit and debit card companies will have to send1099-Ks to their clients that receive payments by those methods.

Also, the 1099 MISC will have extended requirements – basically any large business transaction will require a 1099 MISC – not just contract labor services.  This will greatly increase the amount of paperwork that small businesses will be required to file at tax time, therefore increasing processing time and expenses.  Basically the average small business will go from processing about 10 1099s a year to processing around 200 1099s a year – for everything from the guy who maintains your internet service to your landlord.

Both these changes are actually hidden inside the health reform bill, but nobody seems to know why or how they got there.  Apparently they had been waiting for legislation to tack it onto.  The 1099-K will go into effect next year and the expanded 1099 requirements in 2012.  So is this filling the gap or is this just making it harder to run a small business in America?  If it is both, is it worth it?  What do you think?

IRS Updates

Here are some quick IRS updates for your busy Friday”

1. If you are a non-profit organization and missed the May 17 deadline to complete your Form 990, it is not too late.  The IRS Commissioner is urging you to still file and they will work with you since many smaller organizations did not learn of the policy change until late.

2. The form to claim Payroll Exemption for Hiring Unemployed Workers is now available on the IRS website.  The new Form 941 and Form W-11 are required to claim the payroll tax exemption.

3. Interest rates will remain the same for the 3rd quarter of 2010 starting in July.

4. Notice 2010-44 provides detailed information on the new Small Business Health Care Tax Credit that can be claimed on your 2010 income tax form filed in 2011.

5. 2010 Tax Filing Statistics now available on the IRS website – interesting information on how many people self-prepare, file electronically, get refunds, etc.

Have a great weekend!

IRS Knocking? What You Should Know About Audit

Has the IRS come knocking on your door for an audit this year?  The number of audits have steadily increased over the last ten years, but they are still rather rare – only about 1% of all people who make $200,000 or less, 2% for $200,000 to $1 million, and about 6% for the super wealthy over $1 million.  If you happen to get an audit this year, it will most likely be for the year 2008 because audits go out about 18 months after the fact. 

If you are a lucky recipient this year, there is some great advice on CNNMoney.com to help make the process go as easily as possible for all concerned.   First off, don’t delay action if you receive a notice.  Respond within the time frame – usually 30 days – or you lose your right to argue in your own defense. 

It is advisable to have an experience tax professional and an attorney with you through the process – they can help you navigate the system and also speak for you in meetings so that nothing you say can be used against you. 

If you do attend the meetings, provide only the information requested – do not offer additional info that may widen the investigation.  And if you don’t like the result, ask kindly to speak to a supervisor – sometimes higher-ups are able to be more flexible.

Of course at all times remain courteous and professional and provide the IRS with the information requested within the requested time frame.  The more cooperative you are from the beginning, the more willing they will be to work with you.  If you have nothing to hide, you have nothing to fear.

Tax Exempt? Don’t Lose Your Status!

In the business of doing good and helping others, serving your community, and enjoying the tax exempt status that goes along with non-profit work?  Then you best be aware of an important deadline coming up. 

May 15 is the filing deadline for the Form 990 (and since May 15 is a Saturday this year the actual deadline is Monday, May 17).  Form 990 is due from all tax exempt organizations, including churches and other religious organizations, by the 15th of the 5th month after the end of fiscal year. 

 The law was enacted in 2006, making 2009 the third year of the requirement.  If an organization has not filed a form in the last three years, it will automatically lose its tax exempt status, and any income earned between that time and when the status is reenacted will be taxable.  So this year, 2009, is a crucial year to make sure you have filed forms for the past three.

For information, visit The ABCs of Exempt Organizations on the IRS website.

Mom and Money

Mother’s Day is Sunday, in case you had forgotten, and here’s an interesting financial fact about Mother’s Day that you might not be aware of.  Mother’s Day is second only to Christmas in the amount of money spent on gifts for the one who gave you birth.  This Mother’s Day is expected to bring in $14.6 billion dollars in sales for goodies for America’s 83 million moms.  That’s over $125 each!  Are you spending that kind of money on your mom this year? 

Invest in the economy – buy mom a really nice present this year and chalk it up to your contribution to our ailing financial state!  And don’t forget all the other moms in your life – wives, sisters, daughters, grandmothers, etc.  Spend for mom and for America!  😉

May 15 Open House Announced

The IRS has just announced that Saturday, May 15 they will host a nationwide Open House to help small businesses and individuals with tax questions and issues.  The Open House will be 9 a.m. to 2 p.m. at approximately 200 IRS locations nationwide.  IRS agents will be on hand to answer questions about payments, preparing and filing late returns, the audit process, and more.  At the last open house in March, about 2/3 of taxpayers requested some kind of assistance and about 88% of those had their issues solved the next day.

So if you received a notice you don’t understand or still need help with processing your return, mark May 15 on your calendar and plan to visit the IRS office near you.  Locations in Texas are listed here.  There are also two additional open houses scheduled in June – June 5 and June 26.

What’s in the Financial Reform Package

Well, we just saw the passage of a very hotly debated health care reform bill, and now the government has set out to bring health to something that is really sick – the huge mess that is the  financial system in the US.  Since no one wants to be seen as siding with Wall Street and the HUGELY unpopular and dysfunctional banks, it is highly likely that an agreement will be reached and a bill passed some time this year.  But what would be in this bill?  Several different bills have been proposed by the House and Senate, but the basic tenets of the bills are as follows:

• Government regulators would receive more authority to monitor financial dealings such as mortgages, securities, etc.
• Financial firms would be forced to reduce debt and have more capital in reserve – basically like putting a larger down-payment on a house or car instead of taking larger loans
• Government would be allowed to seize failing financial institutions just like they do banks now
• Creating an independent consumer protection agency with the power to write rules for banks, credit agencies, and lenders – some want this inside the Federal Reserve, some want it outside – some businesses may be exempt from the oversight of this agency
• The Senate version permits state attorneys to sue businesses who violate the laws of this new agency, the House bill does not

It will be interesting to see what agreement is reached – the Senate is meeting today and it looks like partisan politics may once again delay decision-making.  Let’s all hope that something can be decided, passed, and enacted soon – because I think we can all agree that something needs to be done to make sure we never end up in another financial crisis like this one again.

Think US Taxes Are Bad? Think Again.

Sometimes we can all benefit from a little perspective.  You are probably reeling from tax day still, but it may make you feel better to consider what people in other countries pay in taxes.  It might make you just a little grateful for the fact the only Iceland and Ireland have lower taxes for families than the United States.  Sweden, Turkey, France, and Poland have the largest tax burden but they also have access to many more social services and government programs.  Here is a chart from MSN Money that compares tax rates across the globe:

Tax burdens around the world

Country Single, no kids Married, 2 kids Country Single, no kids Married, 2 kids Australia 28.3% 16.0% Korea 17.3% 16.2% Austria 47.4% 35.5% Luxembourg 35.3% 12.2% Belgium 55.4% 40.3% Mexico 18.2% 18.2% Canada 31.6% 21.5% Netherlands 38.6% 29.1% Czech Republic 43.8% 27.1% New Zealand 20.5% 14.5% Denmark 41.4% 29.6% Norway 37.3% 29.6% Finland 44.6% 38.4% Poland 43.6% 42.1% France 50.1% 41.7% Portugal 36.2% 26.6% Germany 51.8% 35.7% Slovak Republic 38.3% 23.2% Greece 38.8% 39.2% Spain 39.0% 33.4% Hungary 50.5% 39.9% Sweden 47.9% 42.4% Iceland 29.0% 11.0% Switzerland 29.5% 18.6% Ireland 25.7% 8.1% Turkey 42.7% 42.7% Italy 45.4% 35.2% United Kingdom 33.5% 27.1% Japan 27.7% 24.9% United States 29.1% 11.9%

Source: OECD, 2005 data

Feel better now?  You should.

Remote Bookkeeping with CSB

Yesterday our blog discussed the importance of hiring a professional bookkeeping service to improve your business operations and prepare for the coming tax year.  We know we have readers who may not be located near our office who might be interested in finding out more about our services.

Looking for a bookkeeper you can trust does not necessarily mean looking for someone local.  Cloe Sill Bookkeeping and Tax Services can provide remote bookkeeping services to you regardless of your location.  Through Logmein services online we can connect to your computer and maintain your books at your convenience.   With over 15 years experience in bookkeeping and tax preparation, we can help you take your small business to the next level, no matter where you are located. 

For more information, email Cloe at cloe@bookkeepingtaxplus.com or call our office at 830-257-1040.

Tips for a Better Tax Year 2010

So tax year 2009 is over.  Hopefully you got your return completed and filed on time.  Now is the perfect time to asses how your tax time went this year and to determine what you need to do to improve your book and record keeping processes so that the next tax year is much smoother and easier.   Here are some common bookkeeping errors that can make a big difference not only in your tax time peace of mind but also in the ultimate success of your business or home:

1.  Keep your receipts – many small businesses only keep receipts for items that are $75 or more, but you will probably claim deductions for items of smaller amounts.  It is wisest to keep all receipts at least for the entire year but permanently with your tax files if they document tax related expenses and deductions.

2. Make sure you have back-up – there is no paperless office in the world yet.  You will want to document and make copies of everything that goes through your office – this will be especially important if you are audited.  Copies of all invoices, bills, statements, payments, deposit slips, etc.

3. Reconcile each month – reconcile your bank statements with your books EACH MONTH so you know where you stand financially and aren’t surprised by unexpected overdrafts.  This is done easily if you have some kind of bookkeeping software, but if you find you just don’t have the time, then…

4. Hire a professional – especially if you have a small business to keep track of.  Many small businesses make the mistake of trying to do their bookkeeping in-house to save money.  Many lack the expertise and knowledge to do it properly and so it ends up costing them more in mistakes, bank fees, etc.  Proper communication with your bookkeeper is critical – make sure you supply them with copies of all income and expense related information on at least a monthly basis.  In turn, make sure you request at least quarterly updates and reports.

If Cloe Sill Bookkeeping and Tax Services can help you in any way set up a more productive bookkeeping system for 2010, please feel free to contact our office.