Outsourcing the Payroll Functions?

Three Tips for Employers Outsourcing Their Payroll, according to the IRS website.

Background:

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.  Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following: 

1. The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.  The IRS can also hold you personally liable for certain unpaid federal taxes.

2. If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

3. Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

For more information; the IRS web site – www.irs.gov has more information.

Source: IRS.gov

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IRS reduction on Interest Rates

The Internal Revenue Service announced that interest rates will decrease for the calendar quarter beginning Oct. 1, 2011. The rates will be: 

• 3 % for overpayments ( 2% for corporations),
• 3% for underpayments;
• 5% for large corporate underpayments; and
• 0% - 0.5% for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

  

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

 

The interest rates announced today are computed from the federal short-term rate during July 2011 to take effect Aug. 1, 2011, based on daily compounding.

 

Source:  IRS.gov

 

 

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Back to School Expenses, Taxes, and your Wallet.

Copping with School Expenses:

Back to School is just around the corner and with that $$$ ...for tuition, books, and supplies.   The good news is that they are some tax benefits that can help offset students costs.

Who qualify?

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

Under which IRS Regulations?

American Opportunity Credit- The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable.  It covers, tuition and fees, course related books, supplies and equipment. Generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

Lifetime Learning Credit In 2011-  A credit of up to $2,000 for qualified education expenses. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.  To qualify, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

Some of the Terminology you should know: 

What constitute "Tuition and Fees Deduction?"

What is consider "Qualified Education expenses"

How you calculate your "Modified Adjusted Gross Income"?

Who is considered an "Elegible Student?"

How much you are allowed to include?

Source: IRS.gov

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Tax Planning

The Internal Revenue Service issued guidance on the treatment of basis for certain estates of decedents who died in 2010. The executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

However, you need to hire a CPA to do the numbers for you, to see which is a better option. 

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Legal Entity Identifier (LEI)

WASHINGTON – This Month, the U.S. Department of Treasury’s Office of Financial Research (OFR) issued the following statement on the progress made to date and next steps forward in the global initiative to establish a Legal Entity Identifier (LEI).

The plan is to issue a notice of proposed rulemaking that would require the LEI to be used for data reported to the OFR. 

“The OFR will continue to work with policymakers, regulators, and the private sector to achieve a mutually agreeable, effective, and timely global LEI solution,” said Richard Berner, Counselor to the Secretary of the Treasury. “An LEI would serve as a cornerstone in fulfilling the G-20 mandate to improve market integrity and regulators’ ability to mitigate risks posed to the financial system.”

The Financial Stability Board (FSB) is hosting a workshop on September 28 and 29 to discuss how to coordinate work on LEI and move the initiative forward. Additionally, because of the work that has been done to date, the OFR believes that sufficient progress can be made to allow for an initial phase of implementation in 2012, consistent with the needs of regulatory authorities in a variety of jurisdictions. The OFR intends to issue a notice of proposed rulemaking consistent with that timeline. In the United States, the OFR’s objective remains to coordinate with the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC), which are issuing rules for reporting swap transactions to trade repositories, and for all three agencies to require the same system for identifying parties in reporting.

An LEI is a unique number that would identify a legally distinct entity that engages in financial market activities. Currently, there are many ways to identify entities, but there is no universal identification scheme for legal entities across markets and jurisdictions.

During the recent crisis, the lack of a universal entity identifier made it difficult for firms and regulators to assess market exposures to risky or failing institutions. An LEI would promote financial stability by illuminating those exposures. It would also contribute to market efficiency by enhancing transparency for investors, reducing reporting burdens and other operational costs for financial firms, and improving customer service. Indeed, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a critical sponsor in the LEI’s development: the OFR.

The OFR has conducted extensive outreach to solicit participation and input from a broad group of policymakers and regulators, and to facilitate global coordination on important issues, such as scope, governance, and implementation. A task force of the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) has been evaluating the potential use of an LEI for over-the-counter (OTC) derivative reporting worldwide. In the United States, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) proposed rules for swap reporting and expressed a preference for using an LEI for that reporting, if it can be established through international consensus and is available in a timely manner. The Canadian Securities Administrators published a consultation paper calling for each participant conducting a derivative transaction in Canada to be assigned an LEI based on universal internationally accepted standards. And recently the Hong Kong Monetary Authority (HKMA) published a consultation paper on reporting to the Hong Kong Trade Repository (HKTR), which states that the HKTR will work with the HKMA to consider how to incorporate a global LEI into that reporting.

The OFR is working with the FSB Secretariat and other authorities to organize the September LEI workshop, which will include stakeholders and experts in finance, data, and technology from the public and private sectors. One objective for the workshop is for public sector participants to develop a roadmap for their next steps in the development and implementation of an LEI.

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Have an unreported Offshore Bank account?

The IRS 2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on Aug. 31, 2011. So, taxpayers who come forward voluntarily get a better deal than those who wait for the IRS to find their undisclosed accounts and income. New foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore. The IRS continues its focus on banksbanks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas.

Source: IRS

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State of the U.S. Economy

The bad news:

Economic growth moderated in the first half of 2011. The advance estimate by the Bureau of Economic Analysis (BEA) is that real GDP rose by 1.3 percent at an annual rate in the second quarter of 2011, following a 0.4 percent increase in the first quarter. This is slower than growth in the second half of 2010, when the economy expanded by 2.4 percent at an annual rate.

The BEA show that the recent recession was even more severe than previously estimated. From late 2007 through mid 2009, real GDP fell by a cumulative 5.1 percent (revised from 4.1 percent) – the deepest recession in postwar U.S. history. The decline in real GDP growth in the fourth quarter of 2008 was revised sharply lower to an annual rate of -8.9 percent from -6.9 percent, making it the largest one-quarter decrease since early 1958. The revised data show that since the economy began to recover in mid 2009, real GDP has risen by 5.0 percent, recouping nearly all of the output lost during the recession.

The recent deceleration is partly due to transitory factors, so these factors have either reversed or are receding, and their absence is expected to provide a boost to growth in the coming months. Consumption growth has been held down by slow income growth, which in part reflects a recent soft patch in the labor market recovery, and by ongoing household balance sheet restructuring. The consequent low demand for credit, combined with tight lending conditions, has resulted in anemic credit creation. The underlying weakness in demand poses a downside risk to the economy going forward.

The GOOD news:

Private forecasters currently anticipate that the economy will grow by more than 3 percent at an annual rate in the second half of 2011.  The economy has made significant progress since the recovery began, especially given the historic proportions of the financial crisis and recession.

The unemployment rate, which is currently at 9.2 percent, has fallen about one percentage point since its peak in the fall of 2009. While this progress is encouraging, there are still far too many Americans looking for work. Moreover, unless more is done to generate jobs, the high level of unemployment will continue to weigh on the recovery. That is why the Administration has called on Congress to enact measures – including extending the payroll tax cut, passing the pending free trade agreements and creating an infrastructure bank – that will help put Americans back to work.

Source: Acting Assistant Secretary for Economic Policy- US govt.

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Do you need to keep track of your tax witholdings?

Why is better to have a mid-year tax withholding check-up?
To little in federal tax withheld from your pay, means you need to fiind a lot of money when you file your taxes. If you withhold too much, you will get a large refund, but that means you gave up the use of your money interest free for several months. 

What can you do?

Depending on your situation, and your choices. You may want to adjust your federal tax withholding with your employer.

What about if you married/divorced during the tax year?

Your calculations will change accordingly, can go either way.  The same applies if added a dependent, purchased a home, changed jobs or retired.

How do you know? Obviously, you must do the numbers to find out by mid year, or when circumstances changes.  You may want to do the calculations yourself or have a professional do it for you.  Fill in all information that applies to your situation. Estimate when necessary. But remember, the results are only as accurate as the information you provide.

What happens then?

You must do nothing or adjust your federal withholding on Form W-4, Employee’s Withholding Allowance Certificate. 

Documentation to keep.

Keep all calculations, asumptions, and documents in a secure place for when the time comes to do your taxes.

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Independent Contrator!....Anyone?

People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

Generally, you are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Medicare and Social Security Taxes for Self-Employed.  YOU are then an Employee.

There is a fine line where you do not want to be walking under, 'cause you may end up paying the employee share of the payroll taxes too. 

Source IRS

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Tax Savings

To encourage investments by small businesses, legislation was passed that will increases the ability of small businesses to immediately deduct the cost of machinery, equipment, and other qualifying property. For 2009, the American Recovery and Reinvestment Act (Recovery Act) increased the amount that a small business could expense from $133,000 to $250,000. The Small Business Jobs Act (Jobs Act) further increased this amount to $500,000 for 2010 and 2011. Although this amount would have fallen to $25,000 in 2012, last December’s Tax Relief Act increased the 2012 amount to $125,000.

Source: US Treasury Secretary minutes.

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