“The great thing about working with ADP is our firm’s ability to capitalize on one of the best payroll systems available while having the control needed to give our client the unparalleled services they have always enjoyed from our firm”. – Fred Daus

Lower Payroll Costs
Since Fredrick James has such a large client base in and around Clearwater, the firm was able to negotiate price and service levels from ADP that would not normally be available to individual business owners. In keeping with the Fredrick James philosophy of “saving you money”, these savings are passed through to clients.

More Payroll Service Options
Fredrick James clients will now be able to choose the Payroll Service Package that fits their business model. ADP has systems that will allow clients to add on their payroll packages as their businesses grow and expand. Services such as Secure Web Control Access, Health Care, Retirement Benefits, Human Resource Management and Pay As You Go Workers Comp can be added as-needed. In addition, clients who choose to use the ADP system will receive the same great service they are accustomed to in the Fredrick James family of Accounting, Tax, Payroll and Consulting services.

Human Resource Options
The Human Resource Feature offers another dimension for our clients that would not be available to small businesses. The Human Resource Feature includes background checks for prospective employees, State and Federal Compliance Database (summary of employment laws), and unlimited access to a team of HR professionals.

Fredrick James is excited to be able to offer clients this opportunity. Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

The Bush tax cuts were passed in 2001 as the Economic Growth and Recovery Tax Act. This was in response to a beginning of a recession and 9/11. The cuts increased the child tax credit from $500 per child to $1000, the standard deduction for married couples was increase to eliminate the marriage penalty, contribution limits for savings plans were increased, and tax rates were lowered.

Later in 2003, The Jobs and Growth Tax Relief Act of 2003 added tax cuts to dividends and capital gain. The impact of the Bush Tax Cuts saved the country from a recession and allowed us to work past 9/11.

Tax Rates Before & After Expiration of Tax Cuts

What should you expect for 2013? As you can see from the Tax Bracket Chart above we will be paying more income taxes.

Dividend Tax Rates. Dividend tax rates were also cut, and the current tax rate on dividends is 15%. If Congress makes no additional policy changes this year, dividend rates will revert your ordinary tax rates listed above.  Long Term Capital Gains rates are also at 15% now. These will increase to 20%.

What else? The current child tax credit of $1,000 will be reduced to $500; the standard deduction will be lowered for married couples, and limits will be placed on savings plans.

Other increases in your taxes will be derived from the new tax law changes that take affect at the end of the year. Currently medical expenses can be deducted as an itemized deduction. Total medical expenses, doctor visits, co-pays and dental can be deducted if they exceed 7 ½% of adjusted gross income. The new change in 2013 will raise this limit to 10% of adjusted gross income. For example, your adjusted gross income was $100,000 for 2012 this means you would have to exceed $7,500 in medical expenses to add to itemized expenses. After 2012 with the same adjusted income you will now have to exceed $10,000 before you can include any medical expenses as part of your itemized expenses.

Lastly, is alternative minimum tax. More people will fall into AMT if congress does not extend the threshold amounts. Once you fall into AMT everything changes for a tax payer. Itemized deductions, exemptions, and credits become limited.

What actions should you take?  Schedule a meeting with Fredrick James Accounting for a tax forecast for 2012. Let us help you to lessen the impact of these expiring tax cuts and other tax changes by planning ahead!

The Bush era Tax Cuts were not designed to last forever, be prepared to pay more in taxes 2013.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Why is it taking so long to get my Tax Refund???

Your IRS refunds are going to be delayed by an extra week this year. The culprits are the fraudulent tax returns and the modernized E-File system initiated by the IRS in 2009

Fraudulent Tax Return filing has been on the rise for the last couple of years. There has been such an increase that the IRS had to implement a series of robust fraud filters to detect these refund returns.  The only problem is that the filters may have upheld a portion of the legitimately filled refund returns as well. Fraudulent filed tax returns and Tax Scams have become so pervasive that on February 16, the IRS posted a news article “IRS releases the Dirty Dozen Tax Scams for 2012″.

On the top of the list was Identity Theft. The IRS believes that over $1.4 Billion fell into the wrong hands in 2011. Identity theft is very complex and difficult to track down. For this reason, the IRS Identity Protection Specialized Unit has been setup.

In 2009 the IRS started to implement Modernized e-File (MeF) in three phases. MeF is an Internet-based real time transaction based system that allows for faster turnaround times of tax returns. MeF will replace current legacy e-file system that transmitted tax returns in several batches per day, rather in real time. At the start of 2012 will conclude the last phase of MeF rollover. Unfortunately, the IRS has experienced a few glitches in the new software and some sporadic system failures to the e-filling system.

As a result of the combination of fraudulently submitted tax returns and the rollover to the Modernized e-File system your Tax Refund could be delayed for 2012. Currently the IRS projects a refund to be deposited in your bank account within 10-21 days.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

What is a “tax audit”, really? Tax audits fall into two categories. The first category being the full scale audit where you meet face to face with an IRS agent, the “real deal” tax audit that everyone dreads. The second category is known as an unreal audit or paper audit. Basically, you get a letter from the IRS that you under reported income, had math errors, or that you did not file a tax return and the IRS has filed a substituted tax return on your behalf.

Who is going to be picked? This depends on the complexity of the tax return and the amount of adjusted gross income. Tax returns with adjusted gross income of $500,000 to $1 Million had a 2.9% chance for a full scale audit and a 9.4% chance for an unreal audit. On the other end of the scale your odds of being selected for an audit decrease with your income. Tax returns with adjusted gross income of $50,000 to $75,000 had just a 0.7% rate of selection for full scale audit vs.7.1% for unreal audit.

What triggers an audit? Some areas of concern that the IRS is looking at are tax returns with Schedule C an E income. On recent audits, the IRS has discovered that taxpayers were trying to take personal expense as deductions for businesses and rental property. This is not allowed. The NAICS number that is entered on Schedule C, 1120 forms, and 1065’s are tracked by the IRS. Through database analysis the IRS can gauge what your income and deduction ratios should be compared to industry averages.

Who is preparing your taxes? Another part of the database analysis that is rumored to be looked at is your tax preparer. The IRS can see how many tax returns have been completed by the preparer and how they break out by category. For example, if your tax preparer suddenly starts preparing a large number of low income tax returns with all large tax refunds this may be an area of concern.

What can you do? For the most part, audit risk can be reduced by simply verifying financial documentation. Check to make sure the correct social security numbers are reported, all income has been reported, and the math is correct. Of course, also ensuring that all of the correct forms are filed and properly completed is a requirement. It can be complex! From 2000 until 2010 tax law have seen over 4,000 changes. This, on average, is over 400 changes per year that taxpayers have to navigate to prepare tax returns!

The bottom line: the best way to lower your chances of being audited is to have your tax returned prepared by professionals at Fredrick James. We keep up with all of the tax code changes and will ensure that your tax return is accurate and properly filed to keep you out of trouble with the IRS!

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

How will this affect Small Business? The report indicates what you should already know: the IRS knows that corporations with a sole owner or a small group of shareholders provide opportunities for abuse of the system to understate tax liabilities. It also indicates that they’re going to be looking harder for these violations using every tool at their disposal. Of course, this means that if you’re a small business owner, you really want to do everything you can to ensure that you don’t get audited! And if you do get audited, you want to be sure you’re following all of the rules and regulations to the best of your ability to minimize your risk.

Several changes to audit procedures are scheduled for implementation in March 2012, just in time for the 2011 tax season. The most significant of these changes have to do with how returns are selected for audit and how that audit is initially researched and processed.

How will returns be selected for an IRS audit? The IRS has a variety of criteria for audit selection. A major source is the Discriminate Index Function (DIF). The DIF is an automated system that assigns scoring to returns. Once the DIF score of a return hits a certain threshold the return will be selected for audit. The higher the score, the more potential for a material tax change. The current version of DIF program dates back to 1988. Using results from a recent National Research Program study, DIF formulas are being updated for 2012. The IRS expects the revised DIF program to identify 2,500 Tax Year 2010 returns with assets of less than $250,000 for examination.

What will the IRS look for in an audit? Once a return is selected for audit the IRS examiner makes sure all prior and subsequent tax returns have been filed, as well as employment tax returns, information returns, international forms, and related tax documentation. Some of the areas that were identified as requiring increased scrutiny by auditors are:

• Significant differences between the amount of labor costs deducted in the corporate return and the amounts reported on employment tax returns
• Verification of proper filing of Form 1099 series forms
• Thorough investigation of Large, Unusual, or Questionable (LUQ) items
• Use of basic Integrated Data Retrieval procedures for online access to business returns, information reports and nationwide tax return data

Additionally, an IRS audit will always look for the following:

1. Large, Unusual, or Questionable items
2. Compliance with all Federal Tax filing requirements
3. Verification of reporting requirements for commissions, labor costs (cost of goods sold), subcontract, royalties, management fee, and consultant fees
4. Determine if the income from the related business entity was included on the shareholder/ partner’s individual return
5. Ensure that any loans to or from shareholders were not distributions of earnings, dividend income, or another form of taxable income
6. Potential for unreported revenue
7. International features and associated reporting requirements
8. Decrease in assets during the year
9. Correct classification of inventory

In closing, the IRS aims raise additional revenue through these procedural changes implemented in March 2012. The small corporate returns that will be selected for audit will undergo stickier guidelines and procedures for compliance. As a small business owner or shareholder, you should make sure that you are paying yourself a reasonable salary for your profession. Also, ensure that proper taxes are being withheld and remitted to the IRS on a timely basis. If you have any concerns at all about the risk of your Small Business being audited, Contact Fredrick James accounting immediately. We can help!

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

A little history. In August 2009 the Florida UC Trust Fund became insolvent due to the recession and the unexpected high volume of claims. The State of Florida had no choice but to borrow the necessary funds from the Federal Government to pay unemployment compensation benefits. The State of Florida has not yet been able to pay back its loan from the Federal Government. The loan amount is an astounding $1.7 billion!

Florida law requires an annual adjustment to the unemployment tax rates to maintain a balance in the UC Trust Fund. This adjustment was suspended in 2010, because the legislators did not want to burden employers further with an additional tax. Unemployment tax rates were kept at a lower rate than would have normally occurred. In essence, the legislators wanted to buy employers enough time for the economy to recover.

Additionally, Federal law requires automatic increases in FUTA tax, as well as annual interest payments related to the loan.

Tax Increase #1 – Unemployement Tax Rate. For 2012 the trigger has been re-engaged in calculating the unemployment tax rates.

2012 UC Tax Rates (effective January 1, 2012)

• Minimum Rate: .0202 or $171.70 per employee
• Maximum Rate: .0540 or $459.00 per employee
• based on annual salary up to $8,500 per employee

2011 UC tax rates were:

• Minimum Rate: .0103 or $72.10 per employee
• Maximum Rate: .0540 or $378.00 per employee.
• based on annual salary up to $7,000 per employee

Generally unemployment tax rates are first increased for employers that have benefit charges. The more claims paid the higher the tax rates.

Tax Increase #2 – Interest on the UC Loan. On June 30, 2012 Employers will also be responsible for paying interest on the Federal government’s $1.7 billion loan to the UC Trust Fund. The assessment of interest will be sent to employers from the Department of Revenue in February. The form is called UCT-27FI. This assessment will be calculated as follows $7,000 taxable wages X .0092 additional rate=$6.44 per employee.

Tax Increase #3 – FUTA Tax Rate. Lastly, Florida employers will pay an additional $21.00 per employee for FUTA (Federal Unemployment Tax Act). Every year that the loan is not repaid FUTA will go up by $21.00 per employee. See our previous blog about the FUTA Tax Rate Increase.

The Bottom Line. As a result of all of this, 2012 will cost businesses owners an additional $127.04 per employee at a minimum. Even if you’re not a business owner, you should expect that these additional costs will no doubt be passed along to consumers. Economic recovery comes at a price.

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Part of the law that gives us this tax cut is a “recapture” provision to help the government get some of that money back from those who earn more than $110,100 per year. Since this only applies to the first two months of the year, that is prorated to $18,350. If you earn more than $18,350 during the first two months of 2012, you’ll have to repay that 2% in the form of an income tax increase on income earned during that period when you pay your 2012 federal income tax.

If that didn’t click, read it again. What it means is that if you pay yourself $9,000 per month during the months of January and February, you’ll save about $360 in Social Security tax and avoid the recapture that would require you to pay it back. So, if you normally pay yourself more than that, it would benefit you to be sure to pay yourself less for that period. And if you normally pay yourself less than that, you’d get the benefit by paying yourself more for that period. How much you pay yourself for the remainder of the year will not have an affect on this.

Aside from this small quirk, employers need to implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31. For any Social Security tax over-withheld during January, employers should make an adjustment in workers’ pay as soon as possible but not later than March 31.

If you have any questions or need help with your personal or business taxes Contact us Today. We serve clients throughout the world through our virtual office. Read more about our Virtual Office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

What is a 1099-K and why am I receiving it?

The 1099-K is a new form for 2011 for reporting payments to the IRS that are received by a person or a business from a Merchant (Visa, Mastercard, American Express, Discover) and/or a Third Party Network, (PayPal, Google Checkout, etc.) when the total gross payments are greater than $20,000 and there have been greater than 200 transactions.

For those who exceed those criteria, the IRS now requires Merchants and Third Party Networks to report all gross amounts paid, defined as “the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts”. What does this mean you ask? This means all sales are reported on accounts which exceed $20,000 and 200 transactions.

This can get a little fuzzy in some cases. Like, if you charge a customer credit card for $500.00 for merchandise and the customer comes back and returns $100.00 of merchandise 3 days later, then “the total dollar amount of aggregate reportable payment transactions” is $500.00. The IRS is going to leave it up to you to keep good enough records to prove “adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts”. So, if this new requirement is likely to affect you, you need to be sure that you have an adequate record-keeping system.

So what do I do now that I have this Form 1099-K?

There won’t be a specific line on 2011 tax forms for recording 1099-K amounts, however, the IRS requires that the person or business report any income reported to you on Form 1099-K along with any other income on Line 1b (Form Sch C, Form 1120S, Form 1120, Form 1065 ). Reporting the “adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts” should be done on line 1d (Form Sch C, Form 1120S, Form 1120, Form 1065 ).

If you have any questions or need help with your personal or business taxes Contact us Today. We serve clients throughout the world through our virtual office. Read more about our Virtual Office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

How are they collecting, and how does it affect Florida business owners?

The current Federal Unemployment Tax Act (FUTA) tax rate is 6.0%** for the first $7,000 of wages earned by each employee. This rate is modified by a 5.4% credit for those employers who pay their FUTA tax on time. What is changing is the amount of that credit, reducing it by a 0.3% “reduction rate” from 5.4% to 5.1%, so it will directly affect (increase) the amount of FUTA that businesses must pay per employee.

Simply Stated:

Currently, the 6.0% FUTA rate less the 5.4% credit results in an actual 0.8% FUTA rate. Calculating 0.8% of $7,000, that’s $56 per employee. The decrease in credit results in an actual 1.1% FUTA rate, which raises the tax paid to $77, an additional $21 per employee!

New tax form to be aware of! To help you correctly calculate the amount of your FUTA “credit reduction”, the IRS has added Form 940 Schedule A. If you are using QuickBooks, you can find this form in Federal Forms under Payroll Forms. Contact us if you need help.

QuickBooks users BEWARE!

QuickBooks has a major flaw in its calculation of FUTA tax in the payroll module! The makers of QuickBooks (Intuit) did not update the program to calculate the additional tax credit reduction of .3%. We contacted Intuit and reported the issue on 1/13/2012 and were told that there is no fix for the problem in the works. What this means is that you may have paid your FUTA tax in the payroll module but when you print the 940 report it will show an amount due! Don’t ignore this amount due, you MUST pay it or suffer the IRS consequences of penalties and interest. Here is what you do in QuickBooks and EFTPS:

1. Preview your 940 in QuickBooks and make a note of the tax due on line 14
2. Make a Payroll Liability Adjustment in QuickBooks
3. Make the additional 940 payment through the EFTPS government website
4. Make the payment in QuickBooks

Looking ahead

This 0.3% FUTA tax credit “reduction rate” (a convoluted way of saying “tax increase”) will increase by another 0.3% each year until the debt is paid. So, Florida businesses will likely see a similar increase in actual FUTA tax paid at the end of 2012. (another $21 per employee)

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

* States affected are AR, CA, CT, FL, GA, IL, IN, KY, MI, MN, MO, NC, NV, NJ, NY, OH, PA, RI, VA, WI & VI.
** In addition to this changing credit amount, the FUTA rate itself changed from 6.2% to 6.0% mid-year in 2011, this change appears on the 2011 Form 940.

• Business Miles: 55.5 cents per business mile
• Charitable Miles: .14 cents per charitable mile
• Medical Miles: .23 cents per medical mile
• Moving Miles: .23 cents per medical mile

It is important that you document the following items for all mileage that you intend to deduct for tax purposes.  There are 6 pieces of information needed to document your mileage and tax deduction:

1. Who: The client’s name that you drove to for business purposes. The charity’s name that you drove to for charitable purposes. The company’s (new employer) name that you drove to for moving purposes.
2. What: What was the business purpose of the miles? What was the charitable purpose of the miles? What and who did you move for your new job?
3. Where: Where did you go for business purposes? Where did you go for charitable purposes? Where was your old job located. Where was your old home located? Where is the new job located?  Where is your new home located?
4. When: What date did you drive the business miles? What date did you drive for charity? What date or dates did you move?
5. Beginning and ending mileage
6. Receipts (if any, for additional documentation and deductions): Tolls (additional deduction to the miles), Charitable Letters (to prove you were a volunteer), Moving Receipts (fuel, meals, storage)

With the documentation listed above you will have everything you need to claim your tax deductable mileage and make your tax accountant smile.

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!