“If the World Series were held on Election Day, the networks would project the winner after three innings.”
IRS Audit Guide for Small Retail Businesses
Some readers may have a second small business of this kind, or even a primary retail business. As usual, these IRS audit guides, while intended as instructions to their own auditors, also provide valuable guidelines and warnings for every retailer. Here is a brief overview of what is ponderously called: “IRS Market Segment Specialization Audit Technique Guide — Retail Industry.”
Small retailers tend to be cash intensive. The IRS auditor is looking for controls over … Read the rest
I urge many of you readers, whose first reaction is “this doesn’t apply to me” to: (1) read on and be surprised, and (2) save this article for future use. Like many IRS threats, it could happen to you — and, often, when least expected.
Many closely held, small and medium-sized business owners are probably not even aware that the IRS can challenge their compensation as being “unreasonable.” (This attack can only be launched against C corporations and not S corporations.) If their challenge is successful, your company will lose the deduction for that compensation, suffer severe financial costs, … Read the rest
“They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” — Benjamin Franklin
Business Loss Prevention Tips (i.e., “Stealing”)
Here is a brief and excellent summary of some basic ways to help prevent business thefts:
- Right now perform a background check on all employees working in check preparation and signing — and on all new employees in the future.
- Segregate duties. Ideally, different individuals should perform check preparation; check signing and bank reconciliations.
- Have someone other than the check preparer open bank statements and review them. (For very small firms we recommend
… Read the rest
“Yogi Berra: Where have you been? Wife: I took Tim to see Dr. Zhivago. Yogi: What the hell’s wrong with the kid now?”
With the proliferation of spas almost everywhere you turn, it seems like the entire population is getting refreshed over and over. SO, we thought we would add to your refreshment, but of a different kind. We do hope you will feel great after the treatment in this financial and tax spa….
Home Office Deduction — A Brief Refresher
If part of your home is used for business purposes — you may be able to take a home … Read the rest
“Wall Street has correctly predicted 11 out of the last 5 recessions.” (Old street saying)
Independent Contractors (ICs) — Bad News
As I have written about, perhaps 100 times over the years, there is a continual fight between the IRS and many businesses — over whether an individual is an “employee” or an “independent contractor (IC).” The major difference in costs to the employer is, of course, all the related payroll tax costs — plus the extra expense of reporting individuals as “employees.” For example, even at the highest levels, there is a current fight over the status of delivery … Read the rest
“Of course the truth is that congresspersons are too busy raising campaign money to read the laws they pass. The laws are written by staff tax nerds who can put pretty much any wording they want in there. I bet that if you actually read the entire vastness of the U.S. Tax Code, you’d find at least one sex scene.” — Dave Barry
Tax Preparation Firms
You hire a doctor or lawyer, although you have no technical knowledge about the practice of medicine or the rules of law. Many of you hire your tax preparer just as blindly — and … Read the rest
“All progress is based upon a universal innate desire on the part of every organism to live beyond its income.”
More Leaky Tax Shelters
You will recall all the troubles that befell the national CPA firm of KPMG, for very aggressively designing and selling “tax shelters” that the IRS later ruled were fraudulent. After paying a fine of well over $400 million, KPMG is still in business. Related to such organizations, were the law firms that gave legal opinions that these tax shelters (“more likely than not”) would be approved by the IRS. WRONG!
Among the more prominent was the … Read the rest
While these tips apply to 2008 tax returns (both calendar and fiscal year), some suggestions must actually be implemented before the year-end, while others can be done next year, when your actual tax return is being prepared. So don’t just use this to line a bird-cage when December 31st rolls around….
Tax planning primarily concerns the timing and the method by which income is reported and deductions and credits are claimed. The basic strategy for all year-end tax plans is to time your income so that it will be taxed at a lower rate — and to time your … Read the rest
“The only reason most American families don’t own an elephant, is that they have never been offered an elephant with no down payment and easy monthly payments.”
Your Safe Deposit Box Contents
Over 250 banks had their safe deposit boxes flooded and the contents damaged or lost during Hurricane Katrina in 2005. Also, over 1,300 box holders lost their valuables on 9/11/01 when a Chase vault in the World Trade Center was destroyed. The Federal Deposit Insurance Corporation does not insure the contents of boxes. Unless they are insured under your homeowner’s policy—the contents may not be insured at all! … Read the rest
“Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.”
The IRS publication of a new audit techniques guide for their auditors is both reason for celebration — and panic. On one hand, it provides a perfect roadmap of exactly what the IRS auditor is looking for, and how he or she will go about doing so. Which, in turn, tells you what you can do, what not to do — and how to do it. On the other hand, publication of such a guide virtually assures you that … Read the rest
“If all the economists were laid end to end, they would not reach a conclusion.” — Warren Buffett
By now almost all of you have heard about this tax act, hurriedly passed in the waning hours of 2007 — and a few of you may even really understand it. Unfortunately, a number of of you may have been caught in the sub-prime adjustable rate mortgage debacle and bumped up against the provisions of this law. And some of you have found out to your absolute horror that this high-sounding law would not be of the slightest help to you! The … Read the rest
“Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” — Bill Gates
Retirement Plans and Bankruptcy
The new bankruptcy act contains different protections for various retirement plans of a bankrupt individual:
- Funds held in an employer-sponsored qualified retirement plan (ERISA) are immune from creditors’ claims in an unlimited amount.
- Funds held in a conventional IRA or Roth IRA are immune from creditors’ claims, but only up to $1 million.
- Funds held in a rollover IRA from an employee sponsored qualified retirement plan are immune from creditors’ claims in an unlimited amount.
CAUTION: None of the … Read the rest
In our house we have all the necessary supplies in the event of a terrorist attack — a flashlight, bottled water and a salami. What else could we need?
Religious School Tuition
The Tax Court said “no” to an attempt to claim part of the tuition and fees paid for a taxpayer’s children’s religious school education as a charitable contribution. The court rejected their argument that their payments were similar to the tax-deductible payments allowed by the IRS to Church of Scientology members for their “auditing and training” expenditures (M. Sklar, 125 TC, No. 14).
Delinquent Student Loans
The U.S. … Read the rest
“The best computer is man, and it’s the only one that can be mass-produced by unskilled labor.”
The use of e-mails for fraudulent means has increased tremendously. After all, it’s easier to steal personal information while sitting home at your computer than sifting through garbage for credit card slips, stealing credit card applications from your mail, etc. So these crooks don’t just use fake IRS notices to get all your personal information, but every kind of important-looking notice you can imagine! In fact, many of them actually appear to be from credit card companies themselves.
Here are the … Read the rest
“Your most unhappy customers are your greatest source of learning.” — Bill Gates
Small Business and Work Opportunity Tax Act of 2007
This is another one of the almost countless tax acts that add layer upon layer to the already incredibly complex Internal Revenue Code, without any attempt at overall simplification. One of the major provisions is the final change (apparently) in the so-called “Kiddie Tax,” that we somewhat explained in the November 2007 issue of “Financial Fax.” Here are some more changes:
- The favorable Section 179 write-off is generally increased to a $125,000 immediate federal tax deduction, for normally
… Read the rest
“Under the English legal system you are innocent until you are shown to be Irish.” — Ted Whitehead
Audit Information and Misinformation
Many taxpayers seem to believe that if the IRS doesn’t call them in for an audit within six months after their return is filed, they are home free. WRONG!
- The IRS has, at least, three years from the date your return was filed or due, whichever is later, to audit your return.
- If you omit more than 25% of the gross income from your return, the statute of limitations is raised to six years.
- There is a further
… Read the rest
“The avoidance of taxes is the only intellectual pursuit that carries any reward.” — John Maynard Keynes
Tax planning primarily concerns the timing and the method by which income is reported and deductions and credits are claimed. The basic strategy for all year-end tax plans is to time your income so that it will be taxed at a lower rate — and to time your deductible expenses (and any tax credits) so that they can be claimed in a year in which you are in a higher tax bracket. The tax planning rules are simple (while their execution may … Read the rest
“You can marry more money in five minutes than you can earn in a lifetime.”
A buy-sell agreement is frequently the key document in a company’s business continuation plan and the owners’ estate plans. These agreements establish a fair price for an ownership interest in a closely-held business and ensure an orderly business transition. They usually provide that the business (or a portion thereof in the case of multiple owners) will be sold (or offered for sale) at a specified price and under certain circumstances, which are detailed in the agreement. The primary circumstances (“triggering events”) are: death, disability or … Read the rest
“The scientific theory I like best is that the rings of Saturn are composed entirely of lost airline luggage.” — Mark Russell
Not only may this be one of the most significant actions of your business life, but one that is also riddled with various complex tax ramifications. Since the vast majority of you do not often engage in such transactions, even the most sophisticated and successful businesspersons are frequently caught off-guard by all these brand new (to them) rules, angles, restrictions, implications, outcomes — and, above all, the tax costs.
You can either sell the stock … Read the rest
“E-file will cut many months off the audit process and will allow us to develop sophisticated analytical tools to better select areas of audit inquiry.” — IRS Commissioner Mark W. Everson
Would You Like to Pay Your Payroll Tax Deposits — Twice?
Both the IRS and the courts have taken the position (and won) that if you give money to an independent agent to pay an obligation of your business, and they do not do so — you still owe the money! This recent case is not the first one involving payroll tax deposits and outside agents. Outsourcing payroll functions … Read the rest