Mixing business with personal

I've worked in the accounting field now for about 11 years and one thing I can certainly tell you is that if you mix up your personal affairs into your business affairs, things get really sticky.

The sheer volume of entries required to process the accounting alone will cost you big time! There are almost always mistakes made when someone else is trying to figure out whether or not an expense was incurred personally or for the business. You may shop at Sam's, for instance, personally and also for your business supplies. What ends up happening is, the accounting clerk is left to audit every receipt and make decisions and ask a bunch of unnecessary questions...when it is possible for you to write yourself payroll (if that is how you are set up) or a draw check, then pay your personal affairs through your personal accounts.

You shouldn't waste money paying your accountant to process checks written to your home cable company. Chances are for smaller accounting firms like this one, we end up spending an unreasonable amount of time completing the financials and that makes you unhappy, your bank or lender unhappy and we never recoup the loss of time put in vs. amount charged.

Keep your personal affairs-personal and your business affairs-busniess.

Making Work Pay Tax Credit begins April 1st

If you haven't heard by now, the government has passed the Making Work Pay provision which is giving people a bit more back on their paychecks. As an employer, you must be aware of the change and what the new tax tables will be in order to comply with the tax credit changes. Chances are pretty good, your employees know atleast enough that their normal net pay will be slightly higher, so if it's not, they will ask!

From the IRS website:

For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

It's not necessary to have any employees re-submit any forms W-4 in order to participate, it will be to all employees.

If you use a computer program to generate your payroll, make sure you get proper updates from your software provider in plenty of time to begin the changes on April 1, 2009.

If you use a professional payroll preparation service, be sure to check in with them if you have any specific questions about the tax credit.

Change your payday, save money on preparation costs!

If you use a professional service to generate your business payroll, you might consider an alternative payday in an effort to save money!

Friday is the #1 day used as payday. I'd say that is followed by #2 Wednesday. If the service you use to prepare payroll offers lower fees for having your payday on an alternative day such as Tuesday or Thursday, you should consider switching paydays! Some payroll preparation services are extremely over run with payrolls due on these busier days and offer lower or discounted rates for companies who's payroll can be prepared for an alternative, less congested payday.

Another option is if you currently pay weekly, you might consider moving to a bi-weekly or semi-monthly pay period. This would automatically lessen the frequency of your preparation and drop your costs in half.

Of course there will be a period of adjustment on both the employee side and the administrative side but in the end, it could prove beneficial in more ways than you'd think.

If you are unsure if your payroll service offers these types of discounts, it never hurts to check into it. It could potentially save you hundreds of dollars or more each year!

February 2, 2009 - W-2 & 1099 Postmark Deadline

If you haven't already, make sure you complete and mail the recipient copies of the forms W-2 & 1099 with today's date.

You will also be required to file and/or pay other 4th Quarter 2008 payroll forms. If you are not sure about the specific filing requirements for your business, please consult your accounting and tax professional.

Beginning of the year payroll

When preparing to process payrolls for the beginning of a new year, it's important to keep a few things in mind:

1. If you are using a computerized payroll processing program, make sure you pay any renewal fees ahead of time in order to acquire any updates needed for the next year's tax withholding tables. You will also possibly need your state unemployment rates handy to set up before the system will allow you to generate payrolls. If you are unable to generate a payroll with dates for the new year, contact your software technical support for further information and help. It's always a good idea to conduct and early attempt at a 'dummy' payroll that can be deleted at a later time just to make sure you are ready to go before the actual day. This can cause many frustrating issues when dealing with banking deadlines for direct deposit services, especially with the New Year's holiday.

2. When processing payroll information manually, it's important to be sure you have an updated set of 2009 Federal and MO State (or whichever state is applicable for your business) as well as any Local tax table rates handy as some they change from year to year. Many of these tables can be found online for your convenience.

3. If you have an outside payroll processing service, be sure you have given them your updated unemployment rates, as these forms often are mailed directly to the business address on file and not to your specific preparer.

As always think ahead, pay early and be prepared!

"Do I really have to keep *all* these receipts?"

This is a common question from people in business. Let's think practically here for a moment. Those receipts can be quite a bother. They seem to accumulate over night and take over your desk before you can sort through them! Right? Well the bigger trouble is, at year's end, they matter. You need to be able to prove your expenses if you're going to claim them on your tax return against the income you've received.

A sound piece of advice would be to find a way of contending with receipts as the year progresses, perhaps a filing system or system of envelopes by category would work. Remember, always date such envelopes with atleast the year on the outside, this will help keep things simple in the future. Maybe it could be just as simple as stapling them to the check stubs or taping it to your calender. A quick note on the receipt saying who/what it was for or to would also be a good idea, this may clear up any questions regarding it's relativity later.

Also, talk to your tax preparation professional to find out which receipts they need to complete your tax forms. As a preparer, they do not need to see every one, you wouldn't want to pay them that much to sit and go through all those receipts. But they will need some for back up in their records. Contributions is a more recent important receipt that will be needed by your tax professional due to changes in the recent tax laws.

Always keep in mind, an IRS agent will automatically delete any expense you can't prove so it is extremely important to keep your receipts and keep them in an orderly fashion for easy retrieval for this purpose. If you are ever audited by the IRS, your receipts are imperative. So be diligent and organized when it comes to receipts and work closely with your tax professional to save expense and time in the long run.

Time to order forms

It's Nov. and that means the year end is right around the corner. Don't forget to order all the year end forms and corresponding envelopes to finish your calendar year tax filing requirements. Various businesses need more of some and less of others to meet all the requirements set forth depending on their activities. Some basic forms you may need are:

Federal 941: Employer's Quarterly Tax return
Federal 940: Annual Federal Unemployment
W-3: Transmittal summary sheet that accompanies the Copy A pink forms of the ...
W-2: All copies. You have to send out recipient copies and the pink Copy A's as well as keeping a Payer Copy. Don't forget the envelopes to accompany forms W-2 to employees for their personal tax filing information. Reminder: The deadline for postmarking W-2 forms to employees and the IRS is January 31st.
1099's: There are various 1099's according to what type of monies have been paid. The most common will be the'1099 Misc' used for box 7, Nonemployee Compensation paid to self employed sub contractors and the like. Oh, also box 1, rents paid. Make sure you have the correct spelling and full information for each recipient including their Social Security number or Federal ID number. Don't forget to order window envelopes for the specific style of forms you purchase.
1096: Transmittal summary form to accompany the Copy A to be sent in to the government.

Don't forget to order early, sometimes you can save a bundle on your supplies. And be conservative when ordering, these forms are year specific and cannot be used in later years (or prior years either). January is normally a very hectic month trying to do inventory and keeping up with other various year end reporting as well as staying on track with current regular duties, shopping for year end forms at the last minute and hoping they arrive on time to complete and send in can be more of a hassle than necessary. Order early and your supplies will be waiting for you!

As always, seek professional help if you have any questions or need assistance completing your forms and filing them timely. You may even decide to have an accounting and payroll professional prepare all of your forms for you by providing the final figures to them. This is also a good time to seek a local trustworthy tax and accounting professional in your area in order to secure the help you need. Chances are, they will have their hands full if you wait til the last minute to seek help and you may end up paying late penalties and interest if you do that.

3rd Quarter Filing reminder

For those of you who will need to file payroll forms & taxes, sales tax returns and use tax returns for the 3rd quarter 2008, remember this Friday October 31st is your postmark deadline.

All tax deposits to be called in using EFTPS systems will need to be called in on Thursday October 30th for withdrawal on Friday October 31st.

Bonus!
Some states offer discounts for the timely filing of tax reports and payments. The state of Missouri, for instance, offers a 2% discount on State withholding on payroll as well as sales tax amounts due. In other words, if you are paying your MO state withholding payment and have for example, $200 in withheld funds, making your payment timely will save you $4 and you will only have to send in $196. Pay timely, save money.

Tax deadline reminder!

Don't forget, tomorrow (10/15/08) is the deadline for filing tax returns which will still qualify for the stimulus package from the IRS. If you do not file your taxes until after this deadline, there will be no way to get the free money the IRS is handing out to you.

So what are you waiting for? Get ta filing!!!

"Your donation is tax deductible"

Beware of ads claiming your donations are 'tax deductible'. Not everyone can itemize their deductions and itemizing is the ONLY way to claim donations of any kind. Keep in mind, if the value of the donation along with the other allowed deductions bump you up to a higher amount than your standard deduction, your higher amount will allow you to itemize where otherwise you might not be able to. I think they should change their ads to say, "Your donation could be tax deductible."

Standard Deductions vs. Itemized Deductions

When filing your personal income taxes, you have 2 options when claiming deductions: Standard Deduction OR Itemized Deductions. First, lets define 'deductions'. Deductions are allowable subtractions from your adjusted gross income that the IRS gives before applying your tax rate and determining how much tax you will owe.

Alot of factors determine which type of deduction plan you can take*. You can only claim donation amounts if you are able to Itemize your deductions. To determine if you can Itemize, using IRS 1040 form Schedule A, you would compile your totals for the various acceptable deductions according to the Schedule A instructions. When you arrive at a Total of Itemized deductions on line 29, compare this to the Standard Deduction according to your filing status (single, married filing joint, head of household etc.). If the Total of Itemized deductions is higher than the Standard deduction amount, congratulations, you can itemize!

But for those of us who don't have enough Itemized deductions to rise above the Standard, continue to contribute and give donations of all kinds! They still benefit the recipients, you just can't take if off of your taxes.