Wednesday, August 18, 2010

Incentives to Hire and Retain the Unemployed

In an effort to confront high unemployment, the Hiring Incentives to Restore Employment (HIRE) Act provides incentives for hiring and retaining unemployed workers. Under the HIRE Act, a qualified employer's 6.2 percent share of OASDI Social Security tax liability is forgiven for new hires, and a general business credit is allowed for each retained worker that satisfies a minimum employment period. 

Payroll Tax Forgiveness for Hiring Unemployed Workers. The HIRE Act provides relief from the employer share of OASDI taxes on wages paid by a qualified employer with respect to certain covered employment. Covered employment is limited to service performed by a qualified individual in a trade or business of a qualified employer, or in the furtherance of the activities related to the purpose or function constituting the basis of the employer's exemption under Code Sec. 501. This provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010. 

Although a qualified employer does not include the United States, any state, any local government, or any instrumentality thereof, a qualified employer may include a public higher education institution. 

A qualified individual is any individual who: 

1.      Begins work for a qualified employer after February 3, 2010, and before January 1, 2011;

2.      Certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins;

3.      Is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and

4.      Is not a related party.

Employers who qualify for the OASDI forgiveness in the first quarter of 2010 will receive the benefit through a credit toward general second quarter 2010 OASDI liability. After the first quarter, however, the employer does not pay the 6.2 percent tax as wages are paid. 

A qualified employer may not claim the Work Opportunity Tax Credit (WOTC) on wages paid to an individual during the one-year period beginning on the hire date for the same wages used to qualify for the forgiveness of payroll tax. However, an employer may elect to not have payroll tax forgiveness apply. 

Business Credit for Retention of Certain Newly Hired Individuals.  Under the HIRE Act, an employer's general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period. The new credit can be claimed for any qualified employee (as defined for purposes of the payroll tax exemption) once the employee is employed for 52 consecutive weeks, so long as the employee's wages (as defined for income tax withholding purposes) for the last 26 weeks of employment equal at least 80 percent of the employee's wages for the first 26 weeks of employment. An employer may claim the new credit for a qualified employee even if the employer has also claimed the WOTC for the same employee. 

Because payroll taxes are deductible as an ordinary and necessary business expense, employers may have a correspondingly smaller business expense deduction on their 2010 tax returns. By combining the benefit of the business credit for new hires with the forgiveness incentive, employers in the highest brackets will realize a net tax benefit of just over four percent of wages paid to qualified new employees, up to the $106,800 social security maximum wage base. Therefore, for the maximum $6,621.60 tax forgiveness for a new hire, a net benefit of approximately $4,304 would be realized. 

Posted by Accounting World @ 10:58:22 AM in Economy

Tuesday, August 10, 2010

Scary lack of effort from the IRS

Here is an interesting article from Forbes.com telling about how the IRS is not doing a very good job of notifying individuals of tax liens being filed against them.

As always, if you ever have any problems with the IRS, don't hesitate to contact our office and speak to one of our highly trained staff today!

Posted by Accounting World @ 3:35:13 PM in Back Taxes

Last updated on Tuesday, August 10, 2010 @ 3:40:58 PM

Tuesday, July 13, 2010

We've Moved!!!

Hello everyone.  If you haven't already heard, our office has moved just up the street to a new location.  The new address is below, and visit our Contact Page for a map if you need it.

Accounting World CPA & Consulting, PLC

13430 N Scottsdale Rd., Suite 201

Scottsdale, AZ 85254

Posted by Accounting World @ 3:47:02 PM in Updates

Tuesday, June 22, 2010

Wealth Taxes? Changes On The Horizon

Unlike some proposed changes our current lawmakers are considering, there are some significant tax changes that, as a result of health care reform, are in place and are approaching fast.  Most of these new taxes will be felt by high-income taxpayers (with investment income) and taxpayers with real estate investments that are not considered "real estate professionals."  So, what are these new taxes?  Here's a nice article posted in the Finance section at Yahoo! with a nice "Q & A" summary of them.  Time to plan!  Remember, to stay current with tax law changes as they head our way, go and sign up for our Monthly Newsletter.

Posted by Accounting World @ 9:11:04 AM in Income Tax Tips

Last updated on Thursday, June 24, 2010 @ 3:09:30 PM

S-corporations and Reasonable Salaries

We all love the S-Corporation for its numerous tax advantages: its ability to pass its losses to its shareholders, its single, shareholder-level income taxation, its self-employment tax savings, etc.  Typically, an S-Corporation is a great choice for an owner of a small business.  But it does have its pitfalls and when not administered properly there can be unwanted tax consequences.

For instance, it is important for s-corporations to remember that an s-corporation can only have one class of stock.  All shareholders are created equal!  Additionally, all items of loss, income and, maybe most importantly, shareholder distribution payments, must be made on a pro-rata basis.  If any special allocations of these items are desired than a partnership may be the only choice.

In an effort to make up for recent tax cuts, congress has changed some of the penalties for s-corporations and partnerships and they've stiffened enforcement of rules and regulations that govern these entities.  For instance, every s-corporation that has a shareholder who is also an employee must pay that shareholder-employee a reasonable salary.  What, exactly, is a reasonable salary?  Unfortunately, there is no easy answer.  It's a subject that is hotly debated and argued by tax professionals and small business owners.

One of these areas that the IRS has stepped-up enforcement on is this concept of "reasonable salary."  Witness this recent case involving one of the eponymous owner of David E. Watson, P.C.  In this case, Watson had an employment agreement that paid him an annual salary of $24,000.  At the same time, he was issued distribution checks in the amount of $203,651, $118,159 and $221,577 in the years of 2002 and 2003.  The IRS re-characterized these distributions as wages subject to employment taxes, claiming that Watson's salary of $2,000 month -- insufficient to cover his monthly living expenses -- was unreasonable.

With congress and the IRS clamping down on the rules and regulations that govern s-corporations it becomes increasingly important that small business owners work closely with a tax professional that they trust to help them monitor these issues.  If you?re in the need of someone you can trust, give Accounting World a call.  We have a smart, experienced staff and would love to help you navigate these often troublesome waters!

Posted by Accounting World @ 8:58:05 AM in Income Tax Tips

Last updated on Thursday, June 24, 2010 @ 1:25:31 PM

Monday, June 21, 2010

Monthly Newsletter

Just a reminder if you didn't already know.  On our website we have a Monthly Newsletter that you can easily sign up for to keep current on recent news in the world of tax and accounting!

Posted by Accounting World @ 2:05:36 PM in Income Tax Tips

Last updated on Tuesday, June 22, 2010 @ 9:25:06 AM

Wednesday, May 26, 2010

Can you believe that the first half of 2010 is almost over?

Tax season was very challenging this year because so many of our clients were dealing with the affects of this recession economy.  The Phoenix Metropolitan area was one of the worst hit by the recession due to the real estate marketing coming to a screeching halt.  Many of our clients were in real estate sales, development and contracting.  Because of this, a large portion of our clients were dealing with foreclosures and bankruptcies.  I have never seen this much devastation of client's net worth; let alone the effects on their person life.  Bankruptcy attorneys are thriving in Arizona.  It is such a shame. 

 I hope the end of this recession is near; but I have my doubts.  It's hard to believe that a home worth $280,000 is now only worth around $150,000; especially when the mortgage is $250,000.  The hard working American middle class has just been wiped out. 

The one real hope would be if the U.S. government would wake up and realize that it is the small businesses that make this country great and employ the most people.  They will never get it though; but if loans were available to the small businesses, new jobs would start immediately.  They give loans to the big corporations that specialize in paying outrageous salaries to their executives (that have run their companies into the ground) and continue to cut employees so they can make ridiculous profits.

The small business community has no voice.  If you think he does, than who represents him.  The Supreme Court just allowed big business to make political contributions.  So it just gets worse for middle America.

The great news is that this is still the best country in the world to be in.  I can prove that because look at how many people want to live here throughout the world.  But get ready for the big tax increases.  They are on their way.  Thanks for listening.  JP

Posted by Accounting World @ 5:29:37 PM in Economy