Author: Jan Roberg

Posted on by Jan Roberg

Our Government Officials Should be Required to Pay Their Taxes: An Editorial

Treasury Secretary Tim Geithner

Photo by Talk Radio News Service at Flickr.com

I opened up my newspaper on Thursday morning and there it was on the front page, “New Tax Collector Hasn’t Paid Hers.”   Once again, someone in charge of making us pay our taxes doesn’t see to paying her own.  See link:  http://www.stltoday.com/news/local/metro/st-louis-county-tax-collector-owes-personal-property-taxes/article_08e2dd2a-f9e2-59f4-b1e9-a7d99fe01ed6.html.

 

It’s not that difficult to check if someone has paid their property taxes in St. Louis County.   You can check on real estate taxes here:  http://revenue.stlouisco.com/ias/ and you can check on personal property taxes here:  http://revenue.stlouisco.com/Collection/ppInfo/.  Would it really be that difficult for the county officials who do the hiring to check these things?  It’s really not rocket science.  (And yes, you can go to that website and check which of your neighbors has or has not paid their taxes as well.)

 

But it’s not just here in St. Louis County, it’s all over.  The example that still makes me angry after four years is Secretary of the Treasury, Tim Geithner.  If you recall, he was appointed to his cabinet position despite the fact that he had “erroneously” failed to pay his Social Security and Medicare taxes on income he earned in 2001 and 2002.  http://articles.businessinsider.com/2009-01-13/wall_street/30038796_1_imf-medicare-taxes-tax-audit

 

Now, I can actually understand that mistake, but he was audited for that same issue on his 2003 and 2004 tax returns, so it’s not like he didn’t know that he had done wrong here.  Granted, he did pay the tax after Obama’s team vetted him for the position, but being realistic, I’m pretty sure those taxes would never have been paid had he not been trying for the Secretary of the Treasury job.  If you want to be the Secretary of the Treasury—you should have paid all of your taxes before the president’s team asks you to.

 

It looks like Mr. Geithner will be leaving us soon and the Obama administration will need to appoint a new Secretary of the Treasury.  Is it really asking too much to want someone at Treasury who obeys the same rules that the rest of us are required to obey?  I don’t think so.

 

I’d like to see some type of rule that says a person running for public office needs to be in compliance with all their federal, state, and local tax laws before they’re even allowed to run for office.  I’d have a lot more confidence in our elected and appointed officials handling our taxes if I knew they took care of their own first.

Posted on by Jan Roberg

Employee or Contract Labor: How Do You Classify Your Employees?

Snow Plow

Photo by Will Merydith on Flickr.com

I’m an employer.  In addition to paying wages, I also have to pay payroll taxes and unemployment taxes as well.  I’ll be honest with you.  It can be a pain in the behind.

 

I’m guessing that a lot of employers feel that way.  Some hate dealing with payroll so much, that they don’t hire “employees” they just make everyone be “contract labor”.   Here’s the thing—misclassifying your employees as contract labor is illegal.

 

Seriously illegal!  Did you know that employers in Missouri who misclassify their employees as contract labor face penalties between $50 and $1,000 a day per worker and/or up to six months in jail per violation?  In addition to that—yes, there’s more—the employer could also pay a penalty of 25% of the amount that the state was defrauded.  (Yeah, they consider misclassifying employees to be a form of fraud.)   If the employer has no basis for classifying the worker as contract labor, he’ll also be held liable for the employee’s unemployment contributions.

 

Here’s the big one though:  Knowingly failing to insure workers’ compensation liability under the law is a class A misdemeanor, and is also punishable by a civil penalty of up to three times the annual premium the employer would have paid had it been insured or up to $50,000, whichever is greater.  (You got an extra $50,000 lying around?  I don’t.)

 

Do I have your attention yet?  If you mess around with labeling employees as contract labor when they should be employees, you’re risking huge fines and jail.   Suddenly, paying those payroll taxes doesn’t seem like such a burden after all.

 

So how do you know the difference between whether the person you hire should be a contract laborer or if you need to put him on the payroll as an employee?

 

Here’s a very over-simplified answer:  control.  Who has control of the employee’s work?   Do you set the time and location of the person’s work?  Do you provide all the tools and materials?  That sounds like you have an employee.  Does the worker also work for other companies doing a similar type of work?   That sounds like contract labor.  The quick and dirty analysis is—if you’ve got complete control over the person’s work—then that person is an employee.  If the person does the same work for other people, controls pricing, etc., then they’re contract labor.

 

It’s not always easy to determine.  Like I said, I just gave an oversimplified answer.  The state of Missouri has a free booklet out that explains it pretty thoroughly.  Here’s a link to get it:  http://www.labor.mo.gov/DES/Forms/M-INF-310-AI.pdf .

 

If you have any questions about whether your contract laborer should be reclassified as an employee or not, then you need to read the whole booklet.   It’s not a hard and fast “rule book” but rather guidelines of twenty areas that you can look at to see whether your worker falls into the employee or contract labor category.   If you read the pamphlet and you’re still unsure about how you should classify somebody, call the Missouri Department of Labor and talk to one of their representatives.  The main switchboard number is:    573-751-3215.  I had to call them and they were friendly and helpful.

 

It’s really important to classify your employees properly.  Missouri has the tools you need to make sure you do it right.  If you’re still confused, they’re willing to help.  There’s no excuse for messing this up.

Posted on by Jan Roberg

2012 Refunds: What You Need to Know

Sloth

Photo by Thowra_uk at Flickr.com

So what’s with the sloth?  Refunds are going to be late this year.  If you’re charging up a storm for Christmas and expecting to pay off your credit cards with your tax refund in January, you may be in for a rough go of it.  Here’s what you need to know for this coming tax season:

 

  1. The first date that e-file will be open is January 22nd, that’s already a little later than usual.  Couple that with the fact that Congress is still messing around with 2012 tax issues and that could hold up the filing season even more.
  2. The IRS is no longer providing a refund schedule.  Instead, they are saying that most people can expect their refund within 21 days if they e-file, and longer if they mail in their return.  While there’s a possibility that some refunds will be faster, you can’t count on receiving any faster than 21 days.
  3. Most refunds are expected to arrive within 21 days, but some refunds can be expected to take 75 days.  That’s not a typo, I said seventy-five days.

 

How will I know if I should expect a 21 day or a 75 day refund? Basically, if you’ve ever had an issue with claiming a dependent, or if you’ve had an identity theft problem, you’re going to fall into the 75 day category.  Let’s say your ex claimed your daughter on his return last year and he shouldn’t have.  You fought it and won.  This year, he tries it again.  The IRS snags his return and it’s held up for 75 days.  And that’s a good thing, he’s cheating on his taxes and this time it won’t work.

 

Here’s the down side.  You go to file your taxes the right way, but the sneaky ex’s return is already in the system.  Now you’re automatically flagged and your return is also getting held for 75 days also.  So even though you’re the good person doing the right thing, your tax return can be delayed for up to 75 days because someone else illegally tries to claim your child.

 

So, be prepared for a late refund and plan accordingly.

Posted on by Jan Roberg

Can I Claim EIC if I Don’t Have a Job?

EIC with no income

Raising a child is a big job, we just don’t get paid for it. In order to qualify for EIC, you need to have what the IRS considers to be “earned income” which comes from a paying job.

 

 

The short answer is no.  But I’ve had about 10 phone calls or emails this week with this question, or something similar anyway, so I figured I should post something about it so people will understand it better.

 

First, EIC stands for the Earned Income Credit (or some people call it EITC for Earned Income Tax Credit, they’re the same thing.)  The key phrase here is “Earned Income”.  You earn income from a job—like working at Target, or you might be self employed like me.  I own my business so I don’t get a W2 but I still earn income.

 

Social security, welfare, child support, food stamps, VA benefits, SSI, and gifts from friends or family—none of those count as earned income.  Neither does bank interest, stock sales or dividends, or rental income.  As far as the IRS is concerned, these things do not count as “earned income” for EIC.  (I know those Smith Barney commercials say they “earn” their income, but if you’re making money in a Smith Barney account—it doesn’t get you anything for EIC either.)

 

Alimony—does not count as earned income for EIC, but it does count as taxable income and can affect how much EIC you can get.  Don’t confuse child support with alimony.  Child support ends when your kids grow up.  Alimony lasts forever or has an end date that has nothing to do with children.  Most people get child support, alimony is pretty rare these days.

 

So if you have a job that gives you a W2—you’re set because the W2 proves your income.   But if you’re self employed—proving your income is harder.

 

The IRS is demanding that tax preparers have proof of your self-employment income before we can file your EIC tax return.  We’ll be fined  for not having proper information.  So if you don’t have good records of your income,  you might get turned away by your tax preparer.

 

So the obvious question is—what records do you need to prove your income?  The IRS has a list that includes the following:  a business license, 1099MISC forms, records of gross receipts, income summary, expense summary, and bank statements.

 

The 1099MISC is really the best proof of income if you receive those.  1099MISC is given to anyone performing work for a small business that got paid over $600 during the year.  If you’re like me, you don’t get 1099MISC forms.  Most of the work I do is for individual people, not businesses so I need to prove my income another way.  But I’m an accountant—I have all the bank statements and business records and a license to back up my income.  It’s what I do for a living.  Not everyone is going to have my kind of records.

 

What do you do if you just clean Mrs. Jones’ house for $50 a week?  Or, maybe you helped paint Mr. Anderson’s garage for $200 last spring.  It’s all cash, you’re just helping out.  Those don’t seem like they’re really jobs but they are.  If Mrs. Jones gives you $50 a week for the whole year, then that’s $2,600.  Add Mr. Anderson’s $200 and you’ve got $2800.  It’s not much but it’s something.

 

If you’ve been doing odd jobs like that, you’ll need to get some kind of documentation.  Put it in writing and have the people you worked for sign it.  In the future, you should keep a log of every place you work:  the date, the location, the person you worked for, and the type of work you did.

 

You can’t make stuff up!  That’s illegal.  And remember, EIC returns with self-employment are an audit target—if you lie about this stuff there’s a really good chance that you’ll get caught.

 

But, if you really did work and you really do deserve to claim EIC, then you should be claiming it.  You just need to make sure that you’ve got your documentation in order so you can prove it.

 

The IRS has a website full of information about EIC.  Check it out:  EIC Home Page

Posted on by Jan Roberg

Time to Get Your Mileage Log Ready

 

Claiming mileage on your taxes requires a good mileage log.

                                  If you claim mileage for your business, your mileage log is your most important tax document!

 

 

Do you claim auto expenses for your business on your taxes?  If the answer is no, you should probably skip this blog post.  If the answer is yes, this is exactly the post you want to be reading.

 

I do a lot of audit work.  Lots of audit work.  Every audit that I’ve ever worked on where the taxpayer claimed mileage the IRS asked to look at the mileage log.  Every single one!  Small business owners are more likely to get audited than wage earners and most small business owners claim mileage.  So—if you’re a small business owner, you need a mileage log.

 

So here is your new mileage log.

mileage log

 

All you have to do is fill it in with the miles and the appointments.  It’s all set up and formatted as an Excel spreadsheet.  There’s even room for other auto expenses in case you’re using your actual costs instead of mileage.

 

 

Did you know that you have to keep track of your miles even if you are claiming your actual expenses?  It’s true.  Often, people come to me with their auto receipts and I can’t do anything for them without their mileage.  Whether you claim mileage or actual expenses, you must have a mileage log.

 

In order to do your mileage log correctly, you’ll need your odometer reading from the beginning of the year and from the end of the year.  I like to take my readings on New Year’s Day during the Rose Bowl Parade.  I started 2012 out with 81 miles on my car (I got a new car at the end of 2011.)  Now I’m up to 8903.  I should reach 9700 by the end of the year.    Of those miles, about 5,000 of them are for business.

 

If I’m claiming straight mileage, I would take the 5000 miles times the 55.5 cents per mile that I’m allowed to claim for a deduction of $2,775.   (The mileage rate for 2018 is 54.5 cents per mile.)

 

If I’m claiming actual expenses, then I’d take the 5,000 business miles I drove and divide that by the  9610 actual miles I drove during the year  to get the percentage of my expenses that I could deduct.  5,000 divided by 9610 = 51.98%.  So I’d total up all my gas and maintenance expenses and figure the depreciation and multiply that all by 51.98% to get the right dollar amount.

 

So you see, you can’t claim your actual expenses without having the mileage to figure the percentage.

 

 

Feel free to use it.  Copy it.  Give it to friends.  It’s okay.   We left the year off so that you can use it for multiple years if necessary.  We’d like you to use it when you have us do your taxes, but if you use someone else’s, that’s okay.  You can always use our mileage log.  The point is that it is very important to have a mileage log for your taxes that we don’t care who uses it.  It’s free.  We’re not even asking you to sign up for anything.

 

If you’re claiming auto expenses on your tax return this year, you need to use a mileage log.  If you don’t already have one, here’s one for you.

 

mileage log

 

Posted on by Jan Roberg

What’s New with the Earned Income Tax Credit? You Need to Know This


If you usually claim the Earned Income Tax Credit (EIC) then you need to know about the new rules.  Although the dollar amounts of the EIC have remained the same, the reporting requirements have changed dramatically.  If you have your taxes done by a professional—then you need to be prepared for the additional paperwork.

 

So what’s different?  It’s the new page 4 of Form 8867—Paid Preparer’s Earned Income Credit Checklist (http://www.irs.gov/pub/irs-pdf/f8867.pdf).  That’s the form that tax preparers have to fill out and send in along with your tax return.  The quick and dirty summary is:  if a tax preparer doesn’t ask enough questions and fails to get enough information before submitting your EIC tax return, she’ll be subject to a $500 fine.  Ouch.  That’s $500 per tax return.  A few bad tax returns can put your tax preparer out of business.

 

So what’s on this page 4?  Well the first item is proving that the child you’re claiming EIC for really lives with you.  Here’s what you can use to prove your child lives with you:

 

  • School records or statement
  • Landlord or property management statement
  • Health care provider statement
  • Medical records
  • Child care provider records
  • Placement agency statement
  • Social service records or statement
  • Place of worship statement
  • Indian tribal official statement
  • Employer statement

 

You don’t need to have all of these things, but you’ll need at least one thing to show your child lives in your house.  The school records are probably the easiest if your child is of school age.   For me, as a tax preparer, I would accept your child’s last semester report card as evidence of residency as long as the report card has your home address on it.

 

If you are claiming a disabled child, you’ll need to prove the disability.  Here are the documents for that:

 

  • Doctor statement
  • Other health care provider statement
  • Social services agency or program statement

 

So with a disability, you have a double issue—proving residence and the disability.  Although to be quite honest, I suspect that these statements would also include a home address on them and serve a duel purpose.

 

And if you’re self-employed, you’re going to need to prove you really have some sort of business with the following records:

 

  • Business license
  • 1099MISC forms
  • Records of gross receipts
  • Income summary
  • Expense summary
  • Bank statements

 

These records are pretty standard for anyone who is self employed anyway so this shouldn’t be a burden.   Bottom line here is—if you have a business, you need to run it like a business and keep proper business records.

 

In addition to the new paperwork requirements, of course you’re still going to have to show you and your children’s social security cards.  Also, if you’re getting a bank product (where you pay for your tax preparation out of your refund) you’ll need to have a driver’s license or state ID card with your correct current address on it.

 

The IRS has already announced that people can expect their refunds to be delayed this year.  For the fastest possible refund, you want to make sure that you’ve got all of your paperwork together before you even head to the tax office.

 

Be sure to check out http://www.eitc.irs.gov/central/main/ to answer any EITC questions you may have.  Or call us and we would love to help.

Posted on by Jan Roberg

Top Tips to Prepare 1099-MISC Forms on Your Own

1099MISC

You can prepare your own 1099 MISC forms. All you need are the right forms.

 

The 1099-MISC form is what you need to give to a contract laborer if you pay them over $600 in the course of the year.  There’s a whole new emphasis on reporting and so many more businesses are finding that they need to be issuing 1099s.  But there’s a lot of confusion about how.

 

A few years ago I was at the IRS office near my house asking if they had any of the new 1099-MISC forms that I could have.  “What do you want them for?”  The IRS agent asked me.  So I explained to her that I was teaching a class about 1099s and wanted to have the actual forms to hand out to the class.

 

“Oh thank God!”  She said.  Now, I work with the IRS a lot.  I do audits and debt resolution, and although I genuinely like most of the agents I get to work with, I can assure you that “Oh, thank God,” is not a phrase used when the IRS is dealing with me.   (Unless it’s used as “Oh thank God she’s gone now, but that’s about it.)

 

So I asked her why she was so excited that I was teaching a 1099 class and she told me about all the mistakes that they see and the problems they have with bad 1099s. “Somebody’s got to teach this stuff,” she told me.    So I figured it would make for a good blog topic.

 

The Basics

 

Here’s a link to see the 1099-MISC form.   1099MISC       If you’re the business owner, you need to issue the 1099 to the recipient by January 31.  New for 2017 – you must submit the 1099 to the IRS by January 31 also.

 

My directions here are just an overview; here are the official IRS directions:   IRS 1099 Directions  If you have questions, that’s the best place to look.

 

The Quick and Dirty

 

Generally, when you prepare a 1099-MISC you’ll put the dollar amounts in box 7 for non-employee compensation.  If you’re preparing a 1099-MISC for any other reason, you should check the rules to make sure you’re using the right box.  I’m talking about non-employee compensation.  Write in the white part of the box, not the red.

 

Payers name, address, etc, is you.   Recipient is who you paid.  I recommend using EIN numbers instead of Social Security Numbers whenever that’s an option for safety.

 

You put the whole amount of money you paid the person into box 7.  For example, let’s say I hired Brad the Painter to do some work in my offices.  I paid him $600 for the labor, $75 for the paint, and $25 for his parking.  If I paid that money to Brad, even though part of it was for supplies not labor, I give him a 1099 for the whole $700.  Brad will write off the $75 for paint and $25 for parking as his business expenses.

 

Mail your 1099MISC with a transmittal form.  1096 Transmittal Form   

 

The filer is you (or your company.)  The forms being reported is the 1099-MISC.  The total amount reported on the 1096 is the total of what you paid the 1099 contract laborers.  Here’s a clue—that number you put in box 5 should also go somewhere on your business tax return as a 1099 contract labor expense.

 

The IRS’s Biggest Complaints

  1. People are supposed to use the red forms.  You have to use the real form; you can’t print it off the computer, even if you have a color printer.  Those forms are scanned so it has to be the right paper.  You can order your 1099-MISC and your 1096 transmittal from for free from the IRS.  Here’s the link:  IRS Forms Order
  2. Don’t cut the copies.  Leave all the pages whole.  If you only have 1 form to issue, just leave the second one blank.
  3. Don’t staple the returns.  Don’t fold, spindle or mutilate them in any way.  They have to go through a scanner so leave them plain.
  4. That means you have to mail them in the big envelope.  I keep getting asked about that.  Don’t fold means use a big envelope.

 

Smaller Complaints

  1. Do not use a $ sign when typing in the amounts.  It’s already on the form.
  2. Do use a decimal point and cents.  So I didn’t pay Brad $700 I paid Brad 700.00
  3. Do not put 0’s in spaces, just leave them blank.
  4. Do not use # signs.  For example, on the form 1096 where it asks for the number of forms, I would write 1, not #1.

 

A note about handwritten returns:  Handwritten returns are more likely to have errors than other returns.  Usually it’s a Taxpayer Identification Number and name mismatch.   If you are using a person’s name—use their social security number.  If you are using a business name, use the EIN number.  That’s a common mistake.    Be sure to use block print and not script.  Yes, I need to say, print neatly.

 

If you are typing it on a typewriter, you need to use black ink and 12 point courier font.

 

The 1099-MISC reporting rules have a lot of people confused, but you don’t have to do this alone.  We can prepare 1099-MISC for a fee and we e-file them with the IRS.

Posted on by Jan Roberg

What’s the Fiscal Cliff?

Cliffs of Moher 3

Photo by mith_y on Flickr.com

I was watching my Sunday morning news program and some talking head said the term “fiscal cliff” 10 times before I quit counting and started on the crossword puzzle instead.  I really wasn’t going to write about it—I figure that plenty of more important people are talking about it and certainly plenty of better writers are explaining it.  ­­­­

 

But my son talked me into it.  Not with, “Oh Mom, it will make so much more sense if you explain it,” of course not.  He said, “Yeah, Fiscal Cliff sounds like a Highlights series.  You know, Fiscal Cliff saves all his receipts for his taxes and, Irresponsible Andy writes bad checks.”

 

While I realize that everybody knows that Fiscal Cliff is not a real cartoon character (well almost everybody anyway) I guess I should spell it out just to make sure you know what’s going on.

 

The fiscal cliff is like a one two punch to the American economy that basically involves tax hikes and government spending cuts that are going to happen if Congress and the President don’t get off their doofusses and come up with a better plan.

 

First the taxes, this is what will happen starting January 1:

  1. Bush tax cuts expire and taxes will go up for most Americans
  2. The temporary 2% payroll tax cut expires
  3. The AMT patch is not extended

These tax issues are expected to make everybody’s taxes go up from between $2,000 to $3,000 a year.

 

Next, we have the immediate reduction in government spending that hits on January.  Some of the budget cuts include, but are not limited to:

  1. a $55 billion reduction to the Pentagon’s budget
  2. a reduction of payments to physicians participating in Medicare
  3. substantial cuts to FEMA
  4. and substantial cuts to the Department of Education

The combination of tax increases and government spending cuts are expected to take $800 billion out of the U.S. economy.  That could be devastating to us.

 

So—what’s next?  You tell me and we’ll both know.  It’s not like Congress and the President didn’t know it was coming.  These issues have been in the works for quite some time.  The idea of punting until after the election seems to be standard operating procedure for our elected officials.   Now that the election is over, they don’t have a lot of time to fix this mess.

 

I don’t know what the right solution is, but I do know that this is what’s going to be the headlines for the next few weeks.

Posted on by Jan Roberg

Small Business Owners: Are You Claiming Too Many Deductions?

Photo by Herkie at Flickr.com

The short answer:  probably not!

 

This is a sentence I hear at my tax desk every year, “I bought this for my business or I did that for my business but I’m not going to claim it because I have too many deductions!”   Seriously?  No you don’t.

 

I guess I should back track a little on this—if you’re claiming stuff you shouldn’t be claiming—that’s another story.  But if you own a business and you have a legitimate business expense—then claim it.

 

Often times, small businesses, especially in the beginning, have losses.  On your tax return it’s called a net operating loss or NOL.  If you have an NOL, you carry that back two years and use it to offset income that you had two years ago.  If you still have a loss, you can carry it forward for another 20 years!

 

Now sometimes you have an expense that gets limited if your business doesn’t have enough income—like a section 179 deduction or a home office expense.  That doesn’t mean that you can’t claim these things, they just get carried forward to be used to offset your future income.

 

Don’t skip your deductions!  I can’t stress this enough.  Often, at the “big box” stores, they’ll skip your home office deduction because they’re “saving you money by not claiming it” since they charge you for each form.  But it’s like that old expression, “pennywise and pound foolish.”  Sure, you save a few bucks by not filing the 8829 form, but you just lost the carry-forward of a few hundred dollar deduction.  This is especially important this year with taxes most likely going up next year.  Even if your deductions won’t help your tax return right now—do not just leave them off.  Otherwise, you would have to amend your prior returns to carryforward the deductions which will cost even more money in the end!

 

It’s still November, you have plenty of time to round up your receipts, review your mileage log, and make sure that you’re doing everything you need to be doing to maximize all of your deductions.  Obviously you can’t claim stuff that’s not a real business expense.  But you can claim everything that is a legitimate expense for your business.  Not only can you claim it—it’s the right thing to do.

________________________________________________________________________

For those of you who do not have a home office, these posts will help get you started:
http://robergtaxsolutions.com/tag/home-office-deduction/
http://robergtaxsolutions.com/2011/07/how-to-boost-your-home-office-deduction/