The audits, a component in the first statistical analysis since 1984, are designed to investigate the frequency with which companies misclassify workers in order to save money by not paying their share of FICA taxes, failing to pay taxes on fringe benefits such as bonuses and employee personal use of company vehicles and other payroll related obligations. IRS says that the companies will be randomly chosen.

“We think that businesses have changed significantly over the last 25 years,” said John Tuzynski, chief of employment tax operations at the IRS, in an interview on September 18, 2009. “This will help us find out where there are real issues that we have to address.”

Based on the 1984 data, the Treasury Department estimated in 2005 that US companies underpay employer taxes by around $14 billion annually. A particular area of concern is the classification of workers as independent contractors rather than employees.

Echoing the IRS’s sentiment, the Government Accountability Office said in August, 2009 that employee misclassification could be a significant problem with adverse consequences because it cheats the government out of tax revenue and employees out of labor protection. Typically, independent contractors do not qualify for benefits such as health insurance, overtime pay and unemployment insurance.

Mr. Tuzynski has aid that the audits are to be undertaken over a three year period and would also focus on S corporation officer salaries, company cars and corporate owned vacation properties. Most of the audits will be held in person; however IRS will also use internal information as a supplement. Mr. Tuzynski also said “We’re going to try to make it as least burdensome as we can.”

Employers are required to pay half of their employees’ FICA taxes which translate to 6.2% for Social Security and 1.45% for Medicare. These percentages are generally calculated using the employees’ gross wages. Employers are also required to pay both federal and state unemployment taxes on behalf of their workers. Independent contractors are required to pay the entire levy themselves.

The Bureau of Labor Statistics reported that 10.3 million workers, or about 7.4% of the workforce, were classified as independent contractors in 2005. It is unknown how many of these were misclassified.

Rizzolo Group has many years experience helping small business owners decrease taxes and improve profitability. You need the fight financial data and the right tax preparer who knows accounting bookkeeping, payroll services and gives you timely advice. Rizzolo Group does that!

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Many of the returns that included these wages were filed utilizing the taxpayers’ correct names and social security numbers or individual taxpayer identification numbers (ITIN’s). While this is predominant among illegal aliens, collections activities on the accounts of legitimate identification number holders can create considerable problems for both parties.

The TIGTA report concludes that the Internal Revenue Service does not currently have the resources or ability to identify this type of identity theft. TIGTA investigated this activity after it was apprised that numerous individuals, fraudulently utilizing other people’s Social Security numbers for wage earning purposes, had their wages garnished by IRS due to the delinquent tax accounts of the legitimate holders of said numbers.

ITIN’s are intended to provide tax identification numbers to both resident and nonresident aliens, but do not change an individual’s immigration status. Part of TIGTA’s investigation was to assess whether IRS has policies and procedures to effectively address collection issues relating to ITIN’s.

The analysis found that IRS lacks employee guidelines with regard to assisting the taxpayer whose wages are being attached or the legitimate Social Security number holder who almost certainly is a victim of identity theft.

TIGTA recommendations include updating guidelines for collection issues associated with ITIN’s, alerting taxpayers that their identities most likely have been compromised and matching ITIN returns with their related reporting returns.

Numerous benefits would almost certainly be derived from IRS adopting TIGTA’s recommendations; not the least of which would be the creation of another avenue by which authorities may detect and subsequently deport illegal aliens.

The adoption of said policies would also help prevent taxpayer identity theft, ultimately reduce the demand for IRS resources, reduce the comingling of taxpayer accounts and provide for greater accountability among non-citizens working in this country.

Another consequence of IRS’s seemingly lax oversight of ITIN usage according to the Center for Immigration Studies is the threat to homeland security by not adequately insuring that identification numbers are not issued to terrorist, criminals on the FBI database and those under deportation notices.

Additionally, the Center alleges that IRS subverts immigration law by failing to prevent illegal aliens from receiving tax benefits to which they are not entitled and withheld from public review data that is relevant to determining the economic contribution of illegal aliens to US society.

Rizzolo Group has many years experience helping small business owners decrease taxes and improve profitability. You need the fight financial data and the right tax preparer who knows accounting bookkeeping, payroll services and gives you timely advice. Rizzolo Group does that!

www.rizzologroup.net

One of the first places to look for information is in your accounting software. If your business uses an accounting software package to track your sales and expenses and banking that means that you have a wealth of information to work with to see how you can improve your bottom line.
This information will give you an accurate history of how you have been performing and from those previous trends you can get a better idea of where sales come from and what can be done to improve them. We will discuss some basic things that you can look at to see how you can start to improve your business.

Who are your top five customers in sales?
Most businesses will have a small number of customers that they deal with for most of their turnover. Do you know which customers they are? It could be the case that you will have customers that you will do a lot of work for but actually they may not get you much in the way of revenue. These customers may be a lot of work and at the end of the day not generate much profit. This means that they may not be as important as you think due to the amount of labour involved.

Who are your top five customers with regards to margin?
Businesses normally sell a range of products or services and they will have different price structures and costs, this means that some of your products will have a better margin. This mean that the gross profit you get from some sales will be a lot higher than others.

Looking at these two things could lead to insights that you may not have noticed about your business. Do you have customers that you spend a lot of time with but they do not purchase as much as other clients? This means that maybe you should spend some more time focussing on some of the other clients to see if you can improve their sales. If you have customers that buy a large amount without much encouragement from you could you increase the amount they buy by spending some extra time on them?

With looking at the margin of customers there may be some services that you offer that may give you a very low return. Are there other services or products that you could offer them that offer you a higher return? Are your prices a lot lower than other businesses and should they be increased to match what the market rate is?

These two aspects of who your top customers are and which ones have the best margin are very important tools for your business. They will offer insights into how your business is actually performing and who your most important customers actually are.

I am an MYOB software consultant helping businesses in Christchurch New Zealand get the most of their accounting software. With over four years experience in working with the software I can provide solutions on how to make the software fit your business and improve your productivity. Click here for MYOB Support in Christchurch

This is not something I would normally do but this client is a real estate investor and I could tell from my personal tax preparation interview with her that their return was not correctly prepared. I began comparing the numbers from their worksheets to the tax return.

It quickly became evident that I was not going to be able to complete the review that way that they wanted me to do it. Why? As a CPA with over 20 years experience in personal tax preparation, I have an intuitive feel for the way the numbers should come out. If something doesn’t look right to me, I go back and check the back-up calculations made by the software to see if the calculations make sense.

It turns out you can’t do this in Turbo Tax. At least, I couldn’t after over an hour of fiddling around with the software trying to figure out why the state tax refund was coming out wrong and why depreciation on their rental properties was not what I expected it to be. My conclusion, Turbo Tax is completely inappropriate for personal tax preparation that includes small businesses reported on Schedule C or rental properties reported on Schedule E or frankly, anything else even remotely complicated (which is basically the entire IRS tax code)

Here’s are the major differences between an experienced CPA preparing your personal tax return and using an off-the-shelf personal tax preparation software like Turbo Tax to do it yourself:

1. An experienced CPA uses judgment to determine where maximum deduction is available for expenses. It does matter where you put deductions on a return. Turbo Tax cannot do that.
2. An experienced CPA spends hundreds of hours a year keeping up with and applying new tax laws. A person trying to use Turbo Tax does not.
3. An experienced CPA can tell you if you calculated deductions like depreciation correctly. They know what to look for and can tell if you made an error. Turbo Tax cannot.
4. An experienced CPA knows how to audit-proof your tax return so that you eliminate the “red flags” that cause IRS tax audits. Turbo Tax cannot.

Overall, I found that my new client had made numerous mistakes trying to do their own taxes. They had misapplied a tax law to their benefit, they had doubled up some deductions, and they had calculated the cost basis of their rental property incorrectly. They were an IRS tax audit waiting to happen.

Even with those errors, all of which were to their benefit, I was able to find enough missing deductions and move some existing deductions to other schedules to get them a larger personal tax refund than the Turbo Tax return they had prepared. They netted an additional $1,000 even after my charge for re-doing their personal tax preparation was paid.

The moral of the story: minimizing and audit proofing your taxing Is a job for an experienced CPA and does not come out of a box!

Ted Lanzaro, CPA owns and operates Lanzaro CPA, LLC, a boutique tax strategy, accounting and IRS debt resolution firm with offices in Shelton, CT. He can be reached by phone at 203-922-1742 or via email at Ted@lanzarocpa.com. You can visit his website at www.lanzarocpa.com.

The IRS has determined that small business owners filing schedule C have the most likelihood to be underreporting their income or overstating their expenses. This information is based on research done by the National Research Program (NRP), the arm of the IRS that collects data to measure taxpayer compliance.

The IRS has determined the following areas are where most of the “cheating” occurs. If this sounds like you, it’s time to stiffen up your record-keeping and documentation for 2010 in order to minimize the downside if you are audited by the IRS.

The primary audit areas are:

1. Income – IRS suspects are many small business owners are under reporting their income, not reporting cash income, and/or not properly reporting income earned from barters and cancelled debts.
2. Car & Truck Expenses – IRS suspects that many small business owners are overstating their expenses by either not reducing their costs by their personal usage or by overstating the number of business miles actually travelled every year.
3. Travel & Entertainment – IRS suspects that small business owners routinely charge personal travel and meals against their business. Only ordinary and necessary business related expenses for travel and entertainment are deductible.
4. Rents – IRS suspects that business owners that own buildings that are being rented from them by their business are overcharging their business for rent in order to avoid self employment taxes. Rents must be “reasonable” and reflect current market rents for the area.
5. Sham Businesses – These are write-offs by individuals who really are not operating a business but are trying to write off the expenses of their hobbies against their other earned income. Be sure you are operating your business like a business if you expect to get the write-offs that are available to a business.
6. Independent Contractors – the IRS suspects that small business owners are treating employees as independent contractors to avoid the payroll taxes associated with employees. If you have independent contractors that you are paying, be sure that you are in compliance with the rules that differentiate employees from independent contractors.

There are definitely steps you can take to minimize the risks of being audited in these areas. Proper documentation of deductions is the key. For example, proper receipts, business mileage logs, and independent contractor agreements play a big role as to whether the IRS allows you to keep your deductions during the audit. Another strategy would be to select a different entity to run your business such as a corporation, S corporation or partnership. The proper entity selection is based on your unique circumstance and should be discussed with your tax advisor.

Ted Lanzaro, CPA owns and operates Lanzaro CPA, LLC, a boutique tax strategy, accounting and IRS debt resolution firm with offices in Shelton, CT. He can be reached by phone at 203-922-1742 or via email at Ted@lanzarocpa.com. You can visit his website at www.lanzarocpa.com.

IR35 is legislation that is contained in Chapter 8 of ITEPA 2003 that says that if a worker who is supplying a service personally is a disguised employee of the client then the worker should be suffer tax and national insurance on the same basis as other employees.

So this legislation ignores the fact that the worker may be working for their own Limited Company and focuses on the arrangements under which the worker is supplied.

It does not make any difference if you are working through an Agency or Staffing Company either, the legislation interacts with Chapter 7 of ITEPA 2003 which basically says that if an Agency engages a worker then they have to apply PAYE unless the worker is engaged through a Limited Company.

This legislation applies when the worker is engaged through a Limited Company, and the worker (and their associates) has a shareholding of 5% or more.

If the worker is working with an Umbrella Company then they will not own 5% of the shares so IR35 does not apply, but the Agency Legislation does still apply.

In effect what this means is that any Professional Contractor and Freelancer who runs their own company should be aware of this legislation as it does apply for each and every engagement that you take on, whether direct for a client, or though a staffing company.

The effect of a contract being caught by the legislation is that the Intermediary (your Limited Company) is required to calculate a Deemed Payment, on which PAYE and National Insurance is applied.

So how you could be caught by this legislation is the thing that all UK Contractors and Freelancers need to understand in order to ensure that they are HMRC compliant. Contractor accountants can help and guide you with this.

Not being HMRC compliant means that you may face an unexpected tax bill, years after you complete a contract.

For a contract to be caught by the legislation it needs to be shown that:

“The circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.”

This is an important point to be remembered.

A contract caught by the rules is one where the engagement is one of employment.

This would be a contract “of service”

Therefore:-

A contract that is outside IR35 is one where the engagement is NOT one of employment.

This would be a contract “for service”.

For the sake of clarity there is no need to prove self-employment for the contract to be outside IR35, you need to just prove that the contract is NOT one of employment.

This difference is slight, but vital!

So all contractors and freelancers in the UK need to be aware of what tests will be applied to see if these rules apply to their engagement.

It is not just enough for the contractor to think their Agency or Client will know the rules and organize things in their favor. The contractor themselves can be personally liable for the unpaid tax if the contract is shown by HMRC to be inside IR35.

Apart from knowing what the rules are and how they are applied, it is a good idea to get your contract checked by an IR35 specialist.

Contractor accountants should be able to help you with this and they can guide you on your final decision as to how to apply the rules in your case.

Sally Fletcher is New Client Adviser with BFCA Limited Chartered Accountants.
Sally has been helping Professional Contractor and Freelancer Clients since 1994 and has a wide range of experience and knowledge in this sector. Accountants For IR35 & Contractors

It is a solid fact that the survival of your business greatly depends on the accountants, and with that known fact, you need to realize that bookkeeping is a firm step towards increasing your profits. Without sound bookkeeping, you are lost when it comes to your company’s true financial situation, and the bottom line with your business should be your finances. If you cannot keep clear and detailed records for any reason, looking into bookkeeping help is something you should consider.

There are numerous firms all over that offer bookkeeping help in several different forms. These firms are usually highly efficient and surprisingly cheap, much cheaper then you might think, and when you figure out the time you are spending on your books, it often is cheaper for you to hire someone to help.

There are so many different advantages to getting bookkeeping help. Hiring from a firm means that you do not have to pay them like you would pay an employee, and you do not have to worry about any of the bonuses a full time employee would ask for. As far as professionalism goes, most will be even more professional than if they were employed directly by you, because they realize that they are working with someone else. You really can get top quality service.

Another benefit of hiring from a firm is, you do not have to worry about choosing someone. Many companies find it difficult to keep a full time employee happy, when their job is to just go over records all day long. There is very little creative thinking that goes with this, so productivity is often low.

Considering hiring help? Take into consideration some very important things before you do!

You trust a company with your finances. This means that they need to have what it takes to handle the responsibility. Before you hire a firm, look closely at their profile, work experience, and past clients. Do not just base your choice on fees, because there might be a reason a certain company is charging a little less then another.

This is not something you can just toss around, so compare services provided before choosing, and see if you can get a personal recommendation or two from other business owners before you pick someone. If you can not, do your research and rely on the BBB (Better Business Bureau) to help guide you.

Inessa Khaykin is the president of KJ Accounting and Consulting Group http://www.mysimpleaccounting.com and author of My QuickBooks Quick Start http://www.myquickbooksquickstart.com. My goal is to help individuals and small/medium companies business owners with they accounting/bookkeeping needs.

First, throw out the traditional definition of debits and credits. No, a debit is not a deduction, and a credit is not an increase. They are the names of the columns on your bookkeeping ledger (99% of the time, debit is on the left, with credit to the right).

In bookkeeping, or double entry accounting specifically, the total of each column must equal the other. Basically, the total of all of the debits has to equal the total of the credits , ensuring this equality; you can eliminate any basic arithmetic error.

When making an entry, a bookkeeper makes an entry into the credit side of the ledger as well as on the debit side. Everything is in the positives (No negative numbers here).

But what goes where, you ask? Basically, the accounts that are your money increase with debits, and decrease with credits. Every other account increased with credits, and decreased with debits. It is a bit confusing, but as soon as you will start to do bookkeeping transaction as faster and better you will understand those terms.

So,what are your money accounts, anyway? They are the actual money, expense, and equipment and inventory that you have right now. Any assets are with this, as well as cash, and assorted expenses you have incurred.

Lets try a simple example, shall we? You open your own business with $20,000. Your very first bookkeeping entries would be to debit the account ?Checking Account, and credit the account for paid in capital.

Now, you have made a sale. Lets say $300. Not bad, for your first sale. You were paid in cash, which you obviously deposited in the business checking account. If you did not, there is another issue entirely we should discuss. Your bookkeeping entries for the day would be to credit the Sales with $300, and to debit the checking account with $300.

Now, it is the end of your very first month in business, time to pay the gas bill. In the bookkeeping ledger, you would debit the expense account for the bill, and credit the checking account.

Okay, probably not. Bookkeeping is not easy to get on first try, so do not feel bad if you are a bit lost. Take a look at your bookkeeping ledger closely to understand how it works, and remembers the basic principle; debits increase, credits decrease, when we are dealing with expenses, assets, and your money. If you remember that, you are on your way. The more you do it, the easier it will be!

Inessa Khaykin is the president of KJ Accounting and Consulting Group http://www.mysimpleaccounting.com and author of My QuickBooks Quick Start http://www.myquickbooksquickstart.com. My goal is to help individuals and small/medium companies business owners with they accounting/bookkeeping needs.

If you are indeed starting out, the idea of even hiring a bookkeeper seems expensive. Think of this article as a to-do list as a bookkeeper. Why hire one when you can do it yourself until you really get your business moving?

The Very Basics

Like most people who are starting a business, you probably have one thousand and three things going on inside your head of how to run your business best. You have so much to do that you just do not want to deal with the little things, like keeping records of exactly what was spent where, and when. You want to get on it now, and really start to make money.

Slow down a few steps, this is not a race, and in the business world, there is no finish line. If you do not plan your bookkeeping, and figure out exactly what financial aspects of the business you want, and need, to keep track of, you are going to find yourself in six months not knowing if your business is wonderfully successful, or if it is failing miserably!

When properly completed, bookkeeping can and will give you an exact measure of how well you are doing in your business. It provides all sorts of valuable information so you can see your financial success, and make corrections to improve any short coming the business might be having.

Basically, bookkeeping is your best friend for managing the financial aspect, so do not think for a second you can put just a few minutes into it and be done. The best thing, if you are going to be your own bookkeeper, is to set up a system with your accountant before you ever open your business doors or make your first sale.

What Accounting Method is best?

There are two basic account methods that you are going to have to choose from when you decide on your bookkeeping system? cash based, or accrual. The main difference in these two is when you record your purchases and your sales. With accrual accounting, you make your records when it is completed, no matter if cash is exchanged or not. However, with a cash based accounting, you only make your records when money changes hands.

Let’s try a simple example. You purchase software, but you do not actually have to pay for it for a month. If you were using cash based system, you would not record this transaction until you paid that company in a month. However, with accrual accounting, you make your records when the transaction happens, and you also record the future debt.

Inessa Khaykin is the president of KJ Accounting and Consulting Group www.mysimpleaccounting.com and author of My QuickBooks Quick Start http://www.myquickbooksquickstart.com. My goal is to help individuals and small/medium companies business owners with they accounting/bookkeeping needs.

Just to add in a little more confusion, there is a large number of other accounting related companies that would like to get your business as well: companies such as American Express, which are trying to grow their business base by increasing services that it provides to small businesses.

Like many different industries, the accounting business is changing rapidly. Things like tax returns have become highly commoditized with major distinguishing features simply being price; for many CPA’s, that is a tough position to be in.

With all this confusion and noise in the market place, then how do you select the right accountant? Our recommendation is start with the following set of guidelines:

* What is their reputation?: Talk to friends and business associates that have utilized their services…. believe me, they will have an opinion regardless if good or bad. One of the questions to really ping them on is does their accountant work with throughout the year in tax planning or is this just an end of the year relationship?

Another interesting question to ask is if your friends and business associates needed a different accountant, whom would they choose? Believe it or not, a firm’s reputation with non-clients can be critically important as well. Generally, people in an area know who has a good reputation but they may, or may not, have been able to switch to use their services.

* Qualifications: Believe it or not, there are some unscrupulous operators out there who did not obtain the right credentials and are not even licensed. Simply do your homework with your state to make sure the CPA that you are considering does not fall in this category.

* Size: One thing to ask yourself is if the 1 v 1 relationship of a small firm is important to you? The good side of this is that the principal of the firm will know your situation inside and out. The bad side of this is that a small firm may not have some of the specialized services you may require now, or in the future. Really, this is a personal choice.

* Specialization: Small firms may not have all of the accounting specialties covered. Today, accounting is a wide profession with a ton of sub-specialties. For example, there are some firms that specialize in handling the accounts of businesses involved solely in real estate investing. Some of the tactics employed by these niche firms can be very foreign to a general purpose firm with a small staff.

So, depending upon your exact needs for your business and personal taxes, there is a wide latitude of options available to you. However, no matter who you decide to use, make absolute certain that you ask for referrals and other people that think highly of their services.

Chris Anderson is a long time writer in the accounting industry. In addition, he is an advisor and writer for Fort Walton CPA .com.