I’ll be taking a short break for the holidays, so happy Christmas and New Year to everyone.

If you can’t stop working, here’s some light reading:

• HMRC has published more information on the definition of ‘bank’ for the purposes of the tax on bonuses announced in the Pre-Budget Report.
• A number of policy groups and associations have got together to create a Public Sector Pensions Commission.

If you want to change your withholdings and/or deductions for 2010, here’s a link to the new W-4. Most companies merely require you to fill this out and turn it in to their payroll department.

http://www.irs.gov/pub/irs-pdf/fw4.pdf

Note: Posts on this blog are for information only, and are NOT legal advice.

TAX TIPS FOR SMALL BUSINESS OWNERS

1) Find a good accountant and hold him accountable- Get referrals, determine if they have experience dealing with your industry, how prompt to respond to your requests, does he deal with you not some recent college grad. If all of your competitors are driving BMWs and you’re puttering about in a Yugo find out who their accountant is.

2) Poor record keeping - everyone is looking for exotic tax deductions. The number one reason businesses do not get the deductions they deserve, next to not having a good accountant, is poor record keeping. Typically, this is due to the business owner assuming these responsibilities. Go sell, invest in a competent bookeeper.

3) Poor exit strategy - when starting a business, plan in advance how much could you afford to lose. Too often like the gambler at the casinos, the owner is doubling down enroute to losing thousands more than he anticipated.

4) Hire a payroll service - spending hours figuring out what to withhold from your employees, risking paying your taxes late incurring penalties is not a good use of your time.

5) Knowing the Sales Tax Rules - Every state has bizarre guidelines for what is and is not taxable. You could be paying sales tax, incurring a 7% -8 % for items in your business unnecessarily.

6) Domestic Manufacturers’ Deduction – If you’re a traditional manufacturer or a software development, architecture, engineering or construction business you may be eligible for a tax deduction that could lower your effective tax rate by up to three percentage points.  There are 247 pages of instructions in the IRS “helpful” manual to explain the code.  Suffice to say that if you’re business is in one of the categories listed above, you may be due additional deductions going back every year to tax year 2005.  Hurry up as you only have until April 15, 2009 to amend the tax returns from 2005.

7) Convert wages to reimbursed expenses for outside salespeople - If employee has legitimate employee expenses i.e. auto travel that he has not been reimbursed for, currently that employee deducts it as a miscellaneous expense. At best the employee reduces his taxes due IRS by 35% of expenses incurred. Meaning the other 65% of money spent by the employee came out of his pocket. If the company paid those expenses, the employee would get 100% back in his pocket. The employer benefits by reducing his employer payroll taxes and workmen’s compensation insurance (costs determined by employee wages).
Ex. Reimburse employee $10,000 for auto travel instead of paying salary. Employer saves $765 in matching employer payroll taxes plus lower workmen’s comp.

Buy a Hummer - In order to write off the purchase of a new SUV (now limited to $25k plus bonus depreciation) it must weigh at least 6,000 pounds. A Hummer weighs 6,001 pounds.

9) Military Employee Tax Credit - allows small business owners with fewer than 50 employees to claim a tax credit of 20 percent of wage differential payments as long as they continue to pay reservists some or all of their former compensation and the payments do not exceed $20,000. This credit is for employers to keep paying these employees while they serve in the military.

10) College tuition can be tax deductible – Code section 127 plans are qualified employer educational assistance plans that allow employers to offer up to $5,250 per year to employees in tax-free educational assistance. Employ your child (must offer to all part time employees) and get a deduction while avoiding paying payroll taxes. Child must be age 21 or higher.

In a story coming out of New York, it has been confirmed that pitcher Javy Vazquez was traded back to the New York Yankees by the Atlanta Braves on Tuesday for outfielder Melky Cabrera, a move that pushed New York’s payroll for the 2010 baseball season over $200 million.

How long can MLB allow this kind of spending before realizing the damage it does to the rest of baseball, or more specifically, the AL East teams.  Why would I, as a Toronto Blue Jays supporter, come watch them play this year since they had to trade their best player, Roy Halladay (who took out a full-page ad in the Toronto Sun newspaper thanking Toronto for supporting him – very classy move!) and have no chance in hell of making the playoffs with their tiny $80 million dollar payroll when the Yankees have an all-star at every position, $200 million dollar payroll and most of the top players in the game?

This news story is good for the Yankees and their supporters, but BAD for baseball.

Of course lame-duck commissioner, Bud Selig will do nothing.

And what happens to the Yankees and their super-high payroll?  Payroll tax, of course. 

The World Series champions were hit with a luxury tax bill of nearly $25.69-million.  New York is the only team to pay a tax for this season and has crossed the threshold in all seven years since the tax started. According to the collective bargaining agreement, the Yankees must send a check to the commissioner’s office by Jan. 31.

The Yankees have been billed $174 million of the tax’s $190 million total since 2003. The only other teams to pay have been Boston ($13.9 million for 2004-7), Detroit ($1.3 million for 2008) and the Los Angeles Angels ($927,059 for 2004).

At least the Yankees got a big bang for thier buck, winning the World Series for the first time since 2000 after adding high-priced free agents CC Sabathia, A.J. Burnett and Mark Teixeira.

New York’s payroll was $226.2 million for the purpose of the luxury tax and the Yankees pay at a 40 percent rate for the amount over $162 million. To compute the payroll, Major League Baseball uses the average annual values of contracts for players on 40-man rosters and adds benefits.  $140 million!  What a rediculios amount to start with.

The Yankees’ regular payroll — using 2009 salaries and prorated shares of signing bonuses — finished at $220 million. That was a drop of $2.5 million from 2008 but more than $77.8 million higher than any other team — a gap larger than the payrolls of the bottom 11 clubs in MLB.

The New York Mets came in second at $142.2 million, followed by the disappointing Chicago Cubs at $141.6 million.  The Boston Red Sox at $140.5 million was next, followed by the Detroit Tigers at $139.4 million and the NL champion Philadelphia Phillies at $138.3 million – which represented a big increase from the $112.7 million the Phillies spent when they won the World Series in 2008.

Only two teams (out of 8) outside the top 11 by payroll made the postseason: Colorado (16th at $84.5 million) and Minnesota (23rd at $73.1 million).

Florida again was last in the majors, even though the Marlins raised their payroll by $10.5 million to $37.5 million. San Diego dropped from 23rd at $71.2 million to 29th at $43.2 million.  So Floria would have been at $27 million this year which was just over a million more than the leage will receive from the Yankees in the form of luxery tax.  Sick, eh?

Half the 30 teams cut payroll from 2008. In addition to the Padres, Seattle dropped from $120.5 million to $102.3 million, Toronto fell from $98.3 million to $84.1 million (and if they could ditch Vernon Wells, be down another $20 million) and Cincinnati sliced from $82.9 million to $72.7 million.

Besides the Phillies, other teams with big increases were Tampa Bay ($51.0 million to $71.2 million), San Francisco ($82.1 million to $95.2 million), Kansas City ($69.2 million to $81.9 million), the Cubs ($130.5 million to $141.6 million) and Washington ($59.7 million to $69.3 million).

Overall payroll rose 1.2 percent to $2.91 billion from $2.88 billion, down from a 6.3 percent increase the previous year.

Payroll figures are for 40-man rosters and include salaries and prorated shares of signing bonuses, earned incentive bonuses, non-cash compensation, buyouts of unexercised options and cash transactions, such as money included in trades. In some cases, parts of salaries that are deferred are discounted to reflect present-day values.

The commissioner’s office computed the average salary at $2,882,336. The players’ association, which uses slightly different methods of calculation, had its average salary at $2,996,106.

Why didn’t I pursue a career in baseball!  Dammit.

For all employers there is a new W-4 for 2010.  Employers should consider having employees fill out a new W-4 each year, especially if an employee has changes in exemptions (marriage or changes with children).   Employers should keep W-4’s and I-9’s for at least 3 years after an employee is terminated.

You can download it at http://www.irs.gov/pub/irs-pdf/fw4.pdf?portlet=3

Recently the question was posed whether or not it was possible to add an EIN to an existing QuickBooks Payroll Service subscription using your QuickBooks software.  We are happy to say that this is a possibility.  However, there are some things to look out for.  You wouldn’t want to cause any issues with your payroll, employees like getting paid you know!

For more information on this and other situations like it, contact us today…

Holy Jeez.  I found all kinds of shit in my yard yesterday morning.  I’m not sure how to really process it.    The items included a starburst, still in the wrapper, a time sheet, and a dryer sheet.

I’d like to think all of it was left by one person.

The time sheet clearly names Javier Escaname as the culprit.  He’s an early riser, working 7 to 4PM.  So here’s probably what went down.  Javier, rushing to work in his early morning, starburst induced high, realized that he had a leftover Bounce sheet attached to his sweater (it was cold), and thought, “damn that static cling.”

And whilst trying to reach for the offending dryer sheet, leaned forward and from his pocket fell his time sheet and his starburst (his primary source of energy).

I’ve decided to attach a photo of me trying to read… in my yard.

Form SMP1 is completed when an employer cannot pay statutory maternity  pay or must stop paying it.

Old paper versions of the form can still be used, but there is now the option to fill in the form online or download and print it.

It’s always worth having a read of HMRC’s Notes for Software Developers. Since they need a reasonable amount of time to update systems etc you’ll probably get early news of coming PAYE and NI changes.

One of the Employ and Pay has read it so you don’t have to!

The latest version has a few points worth noting…

Pay tables:

• With the 50% tax rate coming in for those earning £150,000 plus, new taxable pay tables will be issued for paydays on or after 6 April 2010.

Tax codes:

• Employees who have subsidiary sources of income that are liable to the 50% rate  will be taxed at the basic rate and pay any additional tax via self-assessment. This is because HMRC is unable to issue D1 tax codes for the present – they aim to introduce them for 2011/12.
• Employees who earn more than £100,000 will lose £1 of their personal allowance for every £2 they earn above the £100k mark. As a result revised tax codes will be issued. Taxpayers will also be sent an explanation of the change with their form P2 coding notice for 2011/12.
• Previously tax codes D0 and NT were always operated non-cumulatively, unless the employer received a letter from HMRC saying otherwise. From 2010/11 the codes will be operated cumulatively unless they have non-cumulative tax week 1 or tax month 1 markings.

P35:

• Employers required to file their year-end forms electronically (most of them from 2009/10 onwards) will no longer receive paper forms P35. Instead they get either a P35PN reminder or a P35N online notice. EDI filers won’t receive a reminder at all.

Payroll works number:

• Employers are being reminded to ensure they consistent with their  payroll works number. It should be the same on form P45(3) or P46 and the tax year-end P14 form.

Most small businesses have already done some belt tightening this year. We’ve trimmed dead wood, become a more lean machine, and every other metaphor you can apply to spending less money. Still, when we see our final projections of where our year-end financials will end up, we might  wonder if we should cut a little more.

Sylvia Ann Hewlett, founder of the Center for Work-Life Policy, wrote in the New York Times this weekend about a creative approach to cutting costs by trading employees money for time. She cites the example of KMPG, the giant accounting firm, and their solution to cutting payroll costs without losing star talent. They presented 11,000 employees with a Chinese menu of choices: work a four-day week and take a 20% pay reduction; take a short sabbatical while earning 30 percent of their base salary; both of those options; or neither of those options, retaining their regular salary for their standard work week. Over 80% of them chose one of the flex options.

Hewlett points out that because KPMG positioned these options as “a strategic response to the downturn, rather than a ‘benefit’ for working mothers, it has gone some distance to legitimizing flex time. Taking this option has become an honored choice — a way to save jobs. As a result, overloaded men as well as overloaded women have felt free to vary their schedules.”

I’ve seen one small company try a flawed version of this plan with disastrous results. Faced with the need to reduce payroll and loathe to eliminate jobs, the business owner asked everyone in the company to take a 15 percent pay cut, assuring them that she was taking the same reduction in salary. She hoped they would see this as a good way to help all their coworkers keep their jobs.

It didn’t work that way. Morale plummeted and some of her best talent jumped ship. Months later, when she was able to reinstate full salaries, she didn’t score any points with her staff because the damage was already done.

The crucial elements of cutting payroll while retaining employees are 1) giving them something back, i.e. time, in exchange for giving up some of their salary, and 2) giving them the choice of making that trade or not. Asking employees to help suck up your losses by getting paid less for the same work week is only going to hurt the company in the long run.

The thing about being an entrepreneur is that you have the potential to make a lot of money in good years. You also have the potential to lose money in the bad ones. We all willingly take that risk, but it’s not fair to expect our employees to share in the down side. On the other hand, in 2010 or 2011, when we see year-end projections that show us closing the year with gobs of money, we’ll benefit nicely from the upside of that risk-reward ratio.

The IRS is launching a new compliance examination program focused on employment taxes. Beginning in late 2009, the agency will randomly select businesses and conduct a series of audits to determine if they are properly following a host of payroll tax and compensation-related rules. The program is part of the IRS National Research Program (NRP), an initiative to improve its compliance programs and better use its resources, and will involve the examination of approximately 6,000 businesses over three years.

Four primary areas the IRS will examine

* Worker classification: Are you properly classifying workers as employees versus independent contractors?

* Fringe benefits: Are you making the proper adjustment for the personal use of business vehicles and complying with discrimination standards for the various fringe benefits?

* Officer compensation: The IRS is likely pursuing unreasonably low compensation paid by closely held S corporations or excessively high compensation paid by closely held C corporations.

* Reimbursed expenses: The IRS is testing the “accountable plan” rules to determine if actual, documented expenses are being reimbursed versus impermissible flat dollar or percentage allowances.

How to prepare: Businesses should review their compliance before these exams begin. Those with potential issues can shore things up in advance of these audits. Does your business have workers receiving 1099s as independent contractors who regularly perform services under your direction and control? That may raise a question about employee status. And, as a result, some fringe benefits may be discriminatory, because not all employees were properly covered. The ‘accountable plan’ rules can be particularly tricky. There are some IRS allowances that do permit flat dollar reimbursements, such as the out-of-town meals or lodging per diems. But in most areas, tax-free reimbursements can only occur if there is specific documentation of the business expense by the employee.

How we can help

If your business may have weaknesses in any of these areas, we can help you review your compliance. For more information, contact us at jwalker@jwcpa.com

The fiscal year 2008-09 payroll for the Woonsocket School Department is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Scituate School Department is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Town of Scituate is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Town of Charlestown is now available. Click here to find it.

The fiscal year 2007-08 payroll for the Cumberland School District is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Cumberland School District is now available. Click here to find it.

The fiscal year 2008 payroll for the Town of Narragansett is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Town of Lincoln is available. Click here to find it.

The fiscal year 2007-08 payroll for the Town of Lincoln is now available. Click here to find it.

The fiscal year 2008-09 payroll for the Middletown School District is now available. Click here to find it.

The fiscal year 2009-10 payroll for the Town of Warwick is avalable. Click here to find it.

The fiscal year 2008-09 payroll for the Town of Warwick is avalable. Click here to find it.

The fiscal year 2008-09 payroll for the Town of Johnston is now available. Click here to find it.