How much sales tax should your company be paying?

Is your business paying too much in sales tax?  In many venues, products and services purchased as part of a manufacturing or production process aren’t subject to sales tax. 

For example, one company found that its propane purchases should have been tax exempt.  The correction saved about $5,000 per year. 

Tips:

• Get an opinion. Talk to your trusted tax advisor if the law isn’t clear.
• Contact suppliers. They may offer advice or knowledge and may be able to credit your account.  Issue resale certificates to suppliers if neccessary.

For more information about sales tax for your business, please contact us.

IRS Expands Use of Correspondence Examinations

The IRS has expanded the use of correspondence examinations of individual income tax returns. The IRS initiates a correspondence examination by mailing either Letter 566 (CG), often termed an initial contact letter, advising the taxpayer that a return has been selected and listing the items to be verified, or a CP 2000 notice, which contains proposed adjustments based on information documents issued by third parties, such as Forms W-2, Wage and Tax Statement; 1099-MISC, Miscellaneous Income; and 1098, Mortgage Interest Statement. The examinations are handled at an IRS Service Center or campus.

Please notify us if you receive correspondence from the IRS. Do not assume the change(s) proposed in any IRS correspondence is correct. Often, it is not! Let us review the correspondence and respond on your behalf.

When the IRS receives returns, it compares them against norms for similar types of returns. The IRS develops the norms from audits of statistical random samples of returns that are selected as part of the National Research Program, which the IRS conducts to update return selection information.
The IRS typically selects returns for correspondence examinations based on data indicating that the taxpayer has not reported income, claimed improper deductions, or claimed erroneous tax credits. Some typical items for which the IRS requests verification include alimony, moving expenses, various itemized deductions, casualty losses, employee expenses, Schedule C receipts and expenses, foreign tax credits, earned income credits and education credits.

Unlike a field examination, a correspondence audit is not assigned to a specific examiner. When the IRS receives correspondence, the file is assigned to an auditor. If there is no response from the taxpayer, the process moves through an automated system. After a certain period of time, the IRS issues a second notice, and if there is no reply, it will issue a statutory notice of deficiency or a 90-day letter.

The IRS has been having workload problems in timely responding to taxpayer or practitioner letters that provide the requested information or express disagreement with proposed adjustments. Often correspondence is not assigned to the auditor who reviewed earlier documents. Correspondence tends to not be reviewed for several months, resulting in the IRS sending letters advising the taxpayer that it needs additional time to review the correspondence. When the IRS finally issues reports, in some cases the proposed adjustments are not correct because proper consideration and evaluation have not been given to the documents and substantiation furnished by the taxpayer or his or her representatives.

If you have any questions, please call your contact at BiggsKofford at (719) 579-9090.

Surprises Are for Birthdays – Not Taxes

2010 Tax Relief Act

The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010″ is a sweeping tax package that includes an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment and a host of retroactively resuscitated and extended tax breaks for individuals and businesses.

Here’s a look at the key elements of the package:

• The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
• Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
• A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
• Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
• Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
• Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
• After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010’s or 2011’s rules.
• Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.
• Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

If you have questions about this tax law, please contact Greg Gandy or Mike McDevitt.

The Wrong Way to Choose a Small Business Accountant

To the outside world, accountants can seem like a strange breed. Spending most of our days buried under forms, spreadsheets and receipts, we can help make or break your business – not to mention your payroll and Schedule C.

Choosing the right accountant for your small business isn’t always as easy as it should be. There are a lot of us out there, and the right professional for one company can be a poor fit for another. With that in mind, here are the three worst ways to choose a small business accountant:

Waiting until the last minute.

It’s amazing how many people will show up at an accountant’s office with a stack of receipts in late March or early April and hope to get some top-shelf tax advice. It’s not that we can’t or won’t help them, but they’re making it difficult for us to do our jobs properly.

A good CPA will take an in depth look through your company’s finances, finding out where it’s healthy and which areas could use some improvement. Based on that info, we can not only help you run your small business more smoothly, but also make sure you’re getting every tax credit and deduction that’s coming to you.

The less time we have to do this, however, the more likely we are to miss something that could help, so try to see an accountant before it becomes an urgent issue.

Picking the first name out of the phone book.

There are hundreds of accountants in your local directory for a reason – some are better than others, and most of us have certain specialties and areas of expertise where we can be particularly helpful. Trusting part of your financial future to the first person who answers their phone isn’t likely to help you find the professional you’re looking for.

A better strategy is to narrow it down to two or three candidates based on their respective backgrounds. Ideally, you’ll want an accountant who is familiar with the kind of work you do, and has been recommended by a couple of your more successful peers. But speaking of recommendations…

Following referrals blindly.

It’s great that you’re golfing buddy has a good accountant that he or she trusts, but does that mean you should use them, too? Unless you’re in the same business (and maybe not even then), the answer could be a strong “no”.

Why? Because, even though it’s a good sign that someone you know and trust is recommending them, you don’t know enough about their background and skills to tell whether they’re a good fit for your business.

So how should you find an accountant? Visiting sites like this one is a good first step. Take a look through some similar articles and notice which professionals have clients with businesses like yours. Once you’ve identified a few that look like a good fit, schedule a meeting and find out more.

It might be tempting to take one of the quick ways to find an accountant, but you’ll only be shorting your own business in the long run.

Feel free to contact me if you have any questions about BiggsKofford and if we could be the right firm to serve you and your business.

November Entrepreneurial Corner Presentation – Tax Planning

This morning’s presentation on tax planning for individuals and businesses was led by Gregory L. Gandy, CPA, and Michael E. McDevitt, CPA.

You can find the PowerPoint presentation here.

If you have questions about specific tax areas where your business might need an extra focus or about the presenation, please contact Greg Gandy or Mike McDevitt.

Interested in attending our future events? Contact Stephanie Johnson.

An Overview of the New Healthcare Law | BiggsKofford’s Entrepreneurial Series

BiggsKofford’s Entrepreneurial Corner on April 22, 2010, covered the topic of Healthcare Reform and how the current law could potentially affect your business.

Moderated by:
Chris Blees, CPA, CM&AA, CEO of BiggsKofford

Panelists:
Michael E. McDevitt, CPA, CFF, CFE, Director, BiggsKofford
Jeff Ahrendsen, Benefit Resources
Bill Lueck, Executive Director, Parkside Cardiology

A copy of the presentation handouts can be found here:

BiggsKofford, P.C. Entrepreneurial Series, April 22, 2010

If you are interested in attending or sponsoring a future Entrepreneurial Corner, please contact Stephanie Johnson at (719) 579-9090.

PTAC Comes to Colorado Springs

Original article published January 22, 2010 at Colorado Springs Business Journal

In case you haven’t heard, Colorado was recently awarded a Procurement Technical Assistance Center (“Center”) in September 2009.  The Center’s office is located right in Colorado Springs, at 6 South Tejon.  Getting a Center in Colorado was a long, difficult two year process led by several key members of the local business community.  I have the honor of serving as the Chairman of the Board of the Colorado Center, and I wanted to tell the community more about who we are and what we do.

What is a PTAC?

You’re thinking, ‘Okay, great.  Colorado now has a Center, but what is it and what does it do?’  Procurement Technical Assistance Centers (PTACs) are offices (over 300 nationwide offices) that form a nationwide network of procurement professionals working to support small businesses seeking federal contracts from the Department of Defense and other government agencies.

During the 1980s, Congress became concerned that small businesses were not able to compete effectively against larger businesses for federal contracts.  The Procurement Technical Assistance Program (PTAP) was authorized by Congress in 1985 in an effort to expand the number of businesses capable of participating in the Government Marketplace.

PTACs are the bridge between buyer and supplier, bringing to bear their knowledge of both government contracting and the capabilities of contractors to maximize fast, reliable service to our government with better quality and at lower costs.  PTAC counselors have backgrounds in government acquisitions, and virtually all receive ongoing training to keep pace with continually evolving acquisitions procedures and policies.

Colorado PTAC

Our Colorado PTAC is a non-profit entity, and operates under an agreement between the federal agency that administers them nationwide, the DLA, and Colorado’s Office of Economic Development & International Trade (OEDIT).  Both the DLA and the OEDIT allocated funds for the operation of the Colorado PTAC.  Additionally, several El Paso County local businesses funded the remaining required amounts to operate the PTAC for its initial year.

The Colorado PTAC’s mission is to provide Colorado small businesses with training, support, and counseling, on government contracting, with the ultimate goal of assisting these small businesses in being awarded federal contracts.  In addition, the Colorado PTAC will also help small businesses do the same for Colorado state government contracts and local government contracts.  The Colorado PTAC is organized to provide this support to small businesses throughout the state.

Why is the Colorado PTAC important and how will it impact the local community?

The small business community here in Colorado that sought to do business with the federal government have been at a distinct disadvantage for many years.  Small businesses in other parts of the country that have PTACs have been receiving support from their local PTAC and were better prepared to win federal contracts.  Our Colorado small businesses were left without this critical support, trying to compete with small businesses outside our state that had PTAC support.

One of the reasons the Colorado PTAC was located here in Colorado Springs was the understanding of how important government contracts are to the local community.  The business community in El Paso County relies heavily on federal contracts.  The critical assistance provided to local small businesses by the Colorado PTAC will help increase the number of federal contracts awarded to them, by making them better able to compete with small businesses outside the state and win these contracts.

The Colorado PTAC also helps large government contracting businesses.  These businesses often need to partner with small businesses as part of the contract requirements they are awarded by the federal government.  So, they need small business partners who understand government contracts, have experience with government contracts and can help them meet their contract requirements.  The Colorado PTAC helps these large businesses by training and supporting their small business partners.

The director and counselors at the Colorado PTAC are experienced government contracting experts.  They are providing invaluable government contracting support to our local small businesses.  They have been in operation for only a few months, but their results so far have far exceeded targeted expectations.  We fully expect their results to continue to exceed targets, meaning local small businesses will be better at getting government contracts.

If you think the Colorado PTAC can help your business, call (719) 434-3470 or stop by their office.  They are ready and waiting to help you meet your government contracting goals.