Congress Introduces Bill to Help Taxpayers Cope with IRS

The House Ways and Means Committee has introduced legislation to help taxpayers enter into payment agreements with the IRS, relax the record-keeping requirements on cell phones, and improve IRS services for low-income taxpayers.

“This week, many Americans are preparing and filing their income tax returns,” said Oversight Subcommittee chairman John Lewis, D-Ga., in a statement. “The Taxpayer Assistance Act of 2010 responds to taxpayer needs that have been raised in hearings before the committee. This legislation helps taxpayers who are struggling in this economy by making it easier to enter into payment arrangements with the IRS. It also helps low-income taxpayers by improving IRS services available to them and helps small businesses and nonprofit organizations by relaxing the record-keeping requirements for employer-provided cell phones. I am pleased that many of these provisions have broad, bipartisan support.”

As recommended by the Obama administration, the bill would eliminate the strict substantiation rules requiring individuals to keep detailed records regarding cell phones and similar equipment used for business purposes.

The bill would also allow the Treasury Secretary to exempt, for religious reasons, certain tax return preparers from the electronic filing mandate.

The bill would also accelerate the interest on refunds for returns filed electronically by requiring the IRS to pay interest on refunds related to individual income tax returns that are filed electronically if the refund is not paid within 30 days of the later of the return due date or the date the return is filed.


In addition, the Taxpayer Assistance Act of 2010 would require the Treasury Secretary to conduct a study on the effectiveness of collection alternatives, such as offers-in-compromise.It would also repeal the partial payment requirement on submissions of offers-in-compromise. The bill would help taxpayers enter into offer-in-compromise agreements to settle their federal tax liabilities, and increase the likelihood that some amount of tax is collected, by repealing this requirement.

As recommended by National Taxpayer Advocate Nina Olson, the bill would allow IRS employees to refer taxpayers to Low Income Taxpayer Clinics. The bill would also codify the Volunteer Income Tax Assistance program and allow the Treasury Secretary to allocate, in the absence of a specific appropriation, up to $20 million of grant funding annually for the program. The bill also would increase the allocated amount for LITCs from $6 million to $20 million annually.

The bill would require the IRS, to the extent practicable, to notify taxpayers of the availability of the Earned Income Tax Credit in prior taxable years. The bill also would require the IRS to review return information (such as Forms W-2, Wage and Tax Statements) and identify potentially eligible taxpayers to the extent possible.


The bill would require the IRS to notify taxpayers when it suspects that their identities, or their dependents’ identities, have been stolen. It would also allow the IRS to use "mass communication," including the Internet and its Web site, to notify taxpayers of undelivered refunds.

The bill would require the National Taxpayer Advocate to conduct a study on the feasibility of delivering federal tax refunds on debit cards or prepaid cards, or by other electronic means. Furthermore, as recommended by the National Taxpayer Advocate, the bill would require the Treasury Secretary to study, and make recommendations on, the administrative and legislative steps required to allow the IRS to receive information returns before it processes income tax returns. The bill would also require the Treasury Secretary to study how to reduce the number of taxpayers making in-person payments at IRS Taxpayer Assistance Centers.

To pay for all the various provisions, the bill contains revenue-raising aspects, including expanding the "bad check" penalty to electronic payments. As recommended by the Obama administration, the bill would clarify that the penalty applicable to bad checks or money orders extends to all commercially acceptable instruments of payments, i.e., electronic payments. This proposal is estimated to raise $47 million over 10 years.

Similar to another administration proposal, the bill would also increase information return penalties. The bill would hike the penalties for failing to file correct returns, failing to furnish correct payee statements, and failing to comply with other information reporting requirements. This proposal is estimated to raise $419 million over 10 years.

Let me help you with your tax filing needs, I am CTEC certified and bonded.

Let me help you with your tax filing needs, I am CTEC certified and bonded.

IRS to Step Up Audits of Sole Proprietors

Washington, D.C. (April 12, 2010)

The Internal Revenue Service plans to check for unfiled tax returns and look for unreported income from sole proprietors of small businesses during correspondence audits.


Estimates by the IRS show that $68 billion of the $345 billion tax gap in 2001 was due to the underreporting of income by sole proprietors. The IRS conducted more than 5.1 million correspondence examinations between fiscal year 2004 and FY 2008 that recommended the IRS collect approximately $35 billion in additional taxes, according to a new report by the Treasury Inspector General for Tax Administration. For each tax return examined, a correspondence examination generated about $6,800 in recommended additional taxes.


TIGTA found 129 audits where sole proprietors may have avoided tax and interest assessments totaling more than $1.7 million because the IRS failed to address significant potential income misstatements during compliance audits. These audits were identified from a statistically valid sample of 298 closed correspondence audits of individual returns with sole proprietorships that were closed by tax examiners in the IRS Campus Compliance Services operations during fiscal year 2007. Unlike procedures for audits conducted in the field, procedures for correspondence audits of sole proprietors do not require examiners to complete minimum checks for unfiled returns (employment tax and information returns) and to probe for unreported income.

TIGTA recommended that the IRS require correspondence examiners to check for unfiled returns, such as employment tax and information returns, and to probe for unreported income. These checks are required of IRS examiners who conduct in-person audits, but not of correspondence examiners.

"Sole proprietors who underreport their income can create an unfair burden on honest taxpayers and diminish the public's respect for the tax system," said TIGTA Inspector General J. Russell George in a statement. "It is imperative that the IRS institutes policies to address this problem."


In response to TIGTA's draft report, the IRS agreed to develop inventory selection filters to identity and refer to field examiners those sole proprietors who did not file required employment tax or information returns; and those with indicators of unreported income.

Protect yourself by keeping audit proof records of all your business transactions.  As a QuickBooks Certified Pro-Advisor, I can help.  Call for a free 1 hour consultation.

IRS Adds Web Infor on Small Business Health Insurance Tax Credit

The Internal Revenue Service has updated its Web site to provide information to small employers regarding the new tax credit for providing health coverage.



The new Web pages include a graphic to help employers quickly determine if they qualify for the credit; scenarios that explain how much certain businesses and exempt organizations would benefit from the credit; tax tips on taking the credit, and a set of questions and answers.   Here is a link:

http://www.irs.gov/newsroom/article/0,,id=220809,00.html

The IRS is encouraging small employers to carefully consider the tax credit.

You will be hired!

March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) act was enacted into law. Today I’d like to share with you the details of HIRE and how it might impact you.



First, employers who hire a new employee between February 3, 2010 and Jan 1, 2011 are exempt from paying their share of the payroll tax (the 6.2% FICA/Social Security withholding) effective with the employees first paycheck after March 18, 2010.


Important to note: for this to apply, the newly hired employee must have been out of work for 60 days prior to being hired with an allowance for a total of 40 hours work over that period. This does not impact the wage history for the employees’ social security benefits.


The second provision is for an up to $1000 tax credit for retaining those newly hired employees for over a year, provided their second 6 month period wages are at least 80% of the first 6 months.


As these tax breaks are meant to raise the employment level, a new hire may not fill an existing position unless that employee left on their own or was fired with cause. Hiring a family member or any relative also doesn’t qualify for this break.


This may seem a trivial amount, a total $3500 or so for a $40K/yr worker. But consider that when car companies are looking to stir up business, it’s small concessions, zero percent financing or a couple thousand dollars cash back that helps to move that $30,000 car. As it appears the economy’s bottom has already passed, this new provision may provide the boost some employers need to hire on that next worker.

Intuit Online Payroll keeps me informed of the latest payroll updates and makes it easy to administer payroll. And, as a wholesale service provider, I can offer the same updates to you PLUS personal service and integrated bookkeeping at the lowest available cost for individual businesses.

That last minute scramble before tax time

I have heard from so many people how they are stressed out and under the gun to get all their paperwork together for their tax preparer.

The truth is, you eat an elephant one bite at a time, and if you do your paperwork one month or one week at a time; it won't feel like you're eating an elephant.

Having a professional bookkeeper is a cost effective and sure fire way to stay on top of your paperwork. When you look at how much time is spent doing payroll, payroll taxes, and trying to reconcile your bank and credit card accounts each month, how much is that worth? A professional bookkeeper can handle all of that for you and have your financial information ready to go when you are, in a fraction of the time, allowing you to spend your time growing your business.

If you have recently purchased or downloaded QuickBooks, get the training necessary to keep yourself up to date in a fraction of the time and take advantage of all this powerful accounting software has to offer.

Call me for a FREE 1 hour consultation to discuss your bookkeeping needs.

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TOP 10 BOOKKEEPING MISTAKES MADE BY SMALL BUSINESSES

From one-person entities to major corporations, bookkeeping is a significant part of any business endeavor. While it is typically not one of the more glamorous jobs, bookkeeping is at the heart of a company's success, and errors can cost the company significantly. Below are 10 of the most common errors that you want to avoid.


Not saving receipts of less than $75. While such receipts may not be required by the IRS, they provide backup documentation for the many deductions you may claim. It is very simple to have a folder for such receipts, which can prove valuable at tax time.


Doing it yourself. No matter how much they hate it, many small business owners insist upon handling the books themselves. Having a competent bookkeeper coming in to handle the books can be extremely beneficial in that they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions.


Forgetting to track reimbursable expenses. Small business owners often pay for expenses out of pocket or with their own personal credit card then make the mistakes of failing to track these expenses. They then fail to submit the expenses to the company for reimbursement.


Not properly classifying employees. The proliferation of independent contractors, consultants, and freelancers has made it difficult to determine who is on staff and who is not. This results in misfiling when it comes to filing taxes since there are different rules and regulations for employees and non-employees.

Lack of communication. Having someone handling bookkeeping is only effective if they are filled in and kept up to date on all financial transactions. A frequent mistake is paying someone a bonus and not reporting it or buying supplies and not providing the bookkeeper with the information or receipts.

Not reconciling the books with the bank statement each month. One of the fundamental aspects of bookkeeping is reconciling the books and bank statements every month. Nonetheless, there are businesses that do not do this and others where errors are made by not doing it properly. Again, this is a good reason for hiring an experienced bookkeeper.


No backup. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems.

Not deducting sales tax. A common mistake in retail businesses is not deducting the sales tax from the total sales. This results in a higher total sales amount and does not lower the amount of taxes due.


Petty cash nonchalance. A system should be set up whereby a set amount of money is in petty cash and each time money is taken out for any purpose, a petty cash slip is filled out. When the fund is exhausted, the slips will total the original amount and a check can be written to cash to set up the full amount again. Many offices are nonchalant about using the petty cash fund without keeping accurate records.

Miscategorization or overcategorization. There are fairly standard categories for expenses. However, often expenses are entered into the wrong categories or too many categories are created. Use general bookkeeping guidelines for standard categorization and create as few new categories as possible. Try to follow generally accepted accounting practices.

THE IMPORTANCE OF PLANNING YOUR ADVERTISING

PLANNING YOUR ADVERTISING SHOULD BE SIMPLE
You choose your target customers, then decide on the product or service you know they need. You work out the best way to reach them through advertising, advertise, and then wait for them to respond. You measure the return, to ensure you made more profit than the cost of the ad.

But it doesn’t always work like this. For many small businesses, advertising happens when a persuasive media salesperson talks them into buying a series of ads, or when they are reminded they need to renew their directory advertising.


HOW IT SHOULD WORK
 
You decide what advertising tactics fit a particular type of customer, product, or service.


For example, a sports shop might consider conducting an advertising campaign for their baseball equipment in February, preceded by a direct mail campaign to customers in December.


THERE ARE FIVE STEPS TO EFFECTIVE ADVERTISING PLANNING:

 
1) Target your customer.
2) Select appropriate products and services.
3) Choose your form of advertising.
4) Fit tactics to targets.
5) Put someone in charge.

5 TIPS ON ADVERTISING BASICS

1. Be consistent in your ad message and style including business cards, letterhead, envelopes, invoices, signs and banners.


2. Newspapers, radio and TV stations are helpful in producing the advertising that you will be running with them.


3. While word-of-mouth advertising has been around a long time, it usually falls short of being able to attract the number of customers needed to be successful in business.


4. Promote benefits rather than features. A benefit is the emotional satisfaction your product or service provides, or a tangible performance characteristic.


5. Know your competitors. Knowing everything about your competitors is just as important as knowing everything about your own business.