Knight Accounting and Technology

Many small business owners received a letter in the mail this week called the Periodic Report  – Directors / Shareholders – Colorado Corporate Control.  The bill is for $225.  This is NOT from teh Secretary of State and is NOT a legitimate bill for you or your business.  DO NOT PAY IT!  Your Secretary of State registration is controlled at their website, www.sos.state.co.us, and a timely filed annual report costs $10, not $225.  Please help me spread the word!

Do you want to learn, or master, QuickBooks?  I’ve scheduled a class at my office in Summit Cove for 10am – 2 pm on Wednesday, April 6th.  The cost is $200 and includes the 4 hour group class + a 30 minutes follow-up phone call.  Topics covered will include QuickBooks basics (Banking, Customer & Vendor Management, A/P, A/R), as well as advanced topics as questions arise (credit card processing, customizing invoices, etc).  For best results, please have yoru company’s QuickBooks file installed on a laptop that you can bring along, but if that’s not possible, we’ll make arrangements.

If you’re interested in joining the class, please email cpa@cpamichele.com to register.

If you own a small business, don’t forget that the 1099-MISC deadline is coming up.  If you paid any independent contractors or partnerships (even if they have LLC after their name) more than $600 for performing a service for your business in 2010, you must issue a 1099-MISC.

If you need our assistance with these, please send the name, address, tax ID# and amount paid for any contractor hired.  (Just a note…the healthcare bill currently imposes a new law that starting in 2012 you need to file 1099-MISC for all goods that you purchase (i.e. office supplies), as well as service providers…there is hope, but no guarantee, that this law will be repealed).

I spent some time with a friend yesterday who is an HR Specialist.  She opened my eyes to the complexities of HR compliance regarding I-9′s and I want to post a bit of it here (although this is not to ignore all the other regulations you need to be following when you have employees!)

ICE (Immigration and Customs Enforcement) has increased inspections since July 2009 in a “long term strategy to address and deter illegal employment”.  Employers can face stiff penalties for I-9 violations which include substantial fines and also debarment from government contracts. Penalties can be imposed for hiring unauthorized workers as well as simply for committing paperwork violations even if all workers are authorized to work.

Penalties can include $250 to $3,000 for improper completion of the I-9 form. Paperwork violations, mistakes or missing items such as a date missing, can result in a $100 penalty up to $1000 for each form. Improper completion, retention or making it available for inspection fines range from $100 to $1,100 for each I-9. Knowingly hiring or continuing to employ unauthorized workers fines range from $250 up to $11,000 per violation. Firms who show a pattern of hiring unauthorized workers are liable for criminal penalties of as much as $3,000 per employee and may be subject to six months in prison. Investigators have considerable discretion in assessing fines and will look at factors like the size of the company, the seriousness of the violations, whether the employer was trying to comply in good faith and the pattern of past violations.

Has your business had a compliance check lately?  The employment laws continue to change and I recommend to all my clients that they work with an HR Specialist occassionally…what better time than now?

The IRS has just announced that due to the last minute deal struck by Congress, individual taxpayers who itemize their deductions won’t be allowed to file their returns until mid-February.  My scheduling will go on as planned, but be forewarned that everything will be a bit slower this year because of the delay.  With the later filed returns, refunds may take a few extra days…or weeks…so it’s more important than ever to efile your return and request direct deposit!

Without a moment to spare, Congress has passed an $858 billion tax bill, setting rates for both 2010 and 2011.  The good news is, it’s all good news! 

The biggest relief for taxpayers is that the Alternative Minimum Tax patch is in place once again for 2010, sparing over 20 million taxpayers from facing a huge surprise bill.  If you’ve paid AMT in the past, you’ll most likely still pay it, but at least millions of new taxpayers won’t be pulled into it.  The “Bush Tax Cuts” have also been extended two years, so tax rates will be staying the same through 2012.  And, the estate tax is going to remain at 35% for amounts over $5 million through 2012.

Working American’s will see another form of tax relief in lower payroll taxes.  Each pay period, workers are forced to pay 6.2% Social Security tax on their first $106,800 of income, which is withheld from their gross pay.  For 2011, this rate drops to 4.2%, so it’s the equivalent of a 2% raise for all working American’s.  I haven’t been able to determine if this applies to self-employed workers as well, but hopefully the details will be hammered out soon.  The last form of benefits applies to the unemployed.  These individuals receive another 13-month extension on their benefits.

There is no doubt that this tax bill is highly favored by the Republican’s and goes against the Democrat’s agenda.  It will actually cost lower-income earners money because they benefited more from last year’s Making Work Pay Credit than they do from the lower taxes.  And, wealthy individuals making $500,000 and up will save almost $4,000 over their last year’s tax bill.  Since some of the provisions, such as the AMT patch, expire at the end of 2010, and others such as the tax cuts expire at the end of 2011, we still don’t have a solid picture of what the future holds.  But, we can still be thankful that our government was able to come together at the 11^th hour and prevent an across the board tax increase!

I have posted my tax season schedule at http://cpamichele.com/blog/appointments/.  Or, you can just click on the Scheduling page on my website (www.cpamichele.com)   If you would like first pick of your appointment time, please visit that page and schedule early!  There are only limited evening appointments this year, so if that is important to you, scheduling early will guarantee you a good spot!

Just this in…the Democrats are NOT backing Obama’s tax cut plan, so my post on Monday is now incorrect!  The assumption was that he could get his Democrats to back him, and while there is still a chance, it is not certain!  Another thing to keep in mind (thanks to R.B. for reminding me…i encourage everyone to ask questions and keep me on my toes!)…the AMT has still not been patched for 2010.  While about 4 million taxpayers were subject to Alternative Minimum Tax last year, that number could grow to 25 million taxpayers this year if a patch is not set by December 31st!  I don’t know about everyone else, but this is keeping me on my toes lately!

This just in…Obama and the GOP finally reached a deal on taxes!  I’m not sure why it’s being called a “deal” since the Republicans got just about everything they asked for: The Bush tax cuts are extended for 2 years, the estate tax is set at 35% and only assessed on estates greater than $5 million, and many of the research and development tax credits are still available for businesses.  To top it all, there is still a proposal on the table for Social Security taxes drop from 6.2% to 4.2% which would be a huge winner for small business!  Let’s keep our fingers crossed!  More to come as the details are ironed out, but here is a link to a great WSJ article (http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEFTTopStories)

It comes as a surprise to many people that if you hire someone to work in your home…think babysitter, housekeeper, yard worker, nurse or caretaker…then you are responsible for pay their Social Security and Medicare taxes, pay for Unemployment Insurance, provide a W-2 and file Schedule H with your tax return if you pay any individual more than $1,700 in a calendar year, or $1,000 or more to any employees in a calendar quarter.  If none of this sounds familiar and you hire help for your household, then read on!

Let’s talk about who does not need to file the paperwork related to Household Employees.  You are not required to file the paperwork described above if your business hires the individual (obviously, businesses have their own set of paperwork requirements!), or if you hire a business to perform the services, rather than individuals.  You are also not responsible to complete paperwork if the employee is under age 18 and does not perform services full-time, such as a student.

Assuming that you are personally hiring another individual to work in your household, where do you begin?  The process is very similar to a business hiring an employee.  They must complete an I-9 form (to prove eligibility to work in the United States) and a W-4 form (to communicate to you, the employer) how much they would like withheld in taxes.  Then, each time you pay that employee, you should withhold 7.65% from their check to cover their portion of Social Security and Medicare taxes (unless you, as the employer, chose to pay those taxes on the employee’s behalf) as well as any federal or state withholdings the employee has asked you to withhold on their behalf.  In all, you should estimate 12 – 15% in taxes and unemployment insurance if you aren’t paying the employee’s portion of Social Security and Medicare, and 20 – 23% if you are covering their share of the taxes.  

In addition to paying your employee, you’ll need to file Colorado Unemployment Insurance reports each quarter (if you are paying out more than $1,000 per quarter), make quarterly tax deposits using the EFTPS system, prepare and mail W-2’s to each employee, prepare and mail a W-3 to the Internal Revenue Service, and file an annual Schedule H Household Employment Taxes form.  Schedule H is attached to your tax return, and reconciles your annual amounts of Social Security, Medicare, Federal Withholdings, and Federal Unemployment Taxes. 

Sounds like a lot?  To be honest, I didn’t even realize the extent of the requirements until I started digging for my own personal knowledge.  I don’t recommend attempting it alone, so if you find yourself hiring a nanny, housekeeper or other regular help, I suggest that you contact a CPA or payroll processor for help (that would be me, if you are in the market for one!!!), at least until you get a feel for all the deadlines and paperwork requirements.