The IRS is facing budget cuts and is looking for new ways to shift the reporting burden to the taxpayer.  Currently, the IRS matches gross proceeds information received from brokerage firms with what is reported on Schedule D of individual tax returns, while basis is tracked by individuals and their brokerages.  Due to law changes, brokerages must now provide the gross proceeds AND cost basis to the IRS on stock sales. The IRS has developed a plan to help them continue their computer matching program.  Starting in 2011, the IRS is proposing a new form be filled out to record the sale of securities in addition to Schedule D. Form 8949 will report the sale of all securities and the totals will flow through to Schedule D. The new filing requirement is in connection with the new basis reporting rules that went into effect for securities purchased after 2010. A separate 8949 will be required for sales of securities where the basis is reported by the brokerage firm, for sales where the tax basis isn’t reported and for the sale of securities where no information is reported to the IRS. Depending on the different classification or reporting of sale of securities you may be required to file up three different 8949, one for each classification. It will be up to individuals and their tax preparers to discover what information brokers actually sent or didn’t send to the IRS. The requirement is to make it easier for the IRS to cross reference the basis reported on the return with the information reported by the brokerage house. The IRS has not finalized the instructions or the use of the form. We will keep you updated as we move closer to the 2011 tax filing season and more information is available regarding what this means to you. ...read more

Do you have individuals working for you as independent contractors? Do you know the requirements that determine how an independent contractor is classified? For many businesses, it is time to come clean.  If you have issued 1099’s to individuals who provide work for you and have met the IRS’s definition of independent contractors you have no problems. If on the other hand you are trying to save a buck by treating employees as independent contractors, you could be in trouble. If audited, you could end up owing back payroll taxes plus interest and penalties.  If you have not properly filed 1099 forms, the IRS will also subject you to a 28% backup withholding tax plus penalties&interest.  Fortunately, the IRS and State of Florida are providing an amnesty program. The burden of proof is on the taxpayer to prove that the people they pay as independent contractors are in fact not employees.  The IRS and state governments are itching to reclassify those contractors and have a great deal of flexibility to do so.  Reclassification of workers can raise all sorts of problems.  For example, The federal government and the states share information, so if one reclassifies your contractors as employees, there is a good chance the other will catch on before too long. Even though the law requires that an individual report all their income, the IRS holds employers responsible for properly filing a 1099-Misc for any individual who you pay more than $600 to during the year.  If you didn’t file the 1099-Misc, you could be facing backup withholding at 28%.  In other words, the IRS will charge you 28% of that contractor’s compensation, whether they paid taxes on their own individual return or not.  Of course, once the IRS has done that, they can put additional penalties and interest on top as well. Even if you properly classify all your employees, you are still responsible to withhold and pay the proper amount of tax, social security and medicare on employees, include employer matching, remit payment timely in the manner the IRS requires.  Are you using EFTPS by telephone or online?  If you are still making tax deposits by paper coupon, you will be receiving penalty notices from the IRS for that as well.  If you withhold wages for taxes and fail to pay it, the IRS can change you with a trust fund penalty that will follow you personally even if the business fails, so don’t think of your payroll liability account as an opportunity for leverage. That is a lot of bad news.  Fortunately, we have some good news for you too: On Sept. 21 of 2011 the IRS launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit. This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.  Florida already has a parallel voluntary disclosure program for Unemployment Compensation Tax. There are requirements to be allowed into the “Fresh Start” program. 1) You must have consistent treatment of workers as independent contractors. 2) You had to have actually filed the 1099-Misc Forms for the past three years. 3) You must not be currently under examination (Audit) by the IRS, Department of Labor or a State Tax Agency. Many other states also have a voluntary disclosure program to allow employers to come clean and reclassify contractors as employees.  This can help you avoid monstrous penalties.  It will require laying out funds for back taxes, but the amount of money you will save over the penalties incurred in a reclassification from an audit could be the difference between the life and death of your business. If you need clarification or have questions about how to come clean we will be glad to help. ...read more

The IRS, after being bombarded with public comments, has decided to reverse their decision to eliminate the High Low Method of calculating per diem deductions.  We had written about this previously this year, and at the time the IRS had not received public comments regarding their plan to eliminate the method.  Since then they have been flooded with public comments and reversed their decision.  This is proof that the IRS actually does listen.  Here are the details: Under the High Low Method, and employer could use two rates published by the IRS to substantiate travel costs instead of using CONUS rates set for over 400 locations by the General Service Administration.  The Conus rates provide travel/lodging and meal rates for every major city in the United States and around the world, while the High Low Method provided a rate for high cost areas and low cost areas. In addition to reversing the elimination of the High Low Method, the IRS has also increased the rate for high cost regions by $9.00 and increased the rate for all other regions by $3.00.  Businesses can continue to use the old rates until January 1st, 2012, or they can start using the new rates as of October 1st, 2011.  You can find information on per diem rates online at the GSA website or download their smartphone app.  You can also contact us for any additional questions on per diem rates, how to record them and when it is appropriate to use them. ...read more