Category Archives: The IRS

What Small Businesses Need to Do for Obamacare Before Oct. 1 – Businessweek

The health insurance marketplaces created by the Affordable Care Act will open on Oct. 1. Most small employers—those with 50 or fewer full-time employees—are not required to offer health insurance coverage under the Affordable Care Act. Even businesses with more than 50 full-time employees have gotten a one-year reprieve from penalties if they don’t offer insurance. But all companies, regardless of size, are required to notify their employees about the Obamacare marketplaces.

The state and federal insurance exchanges are websites on which individuals and small businesses can shop for health plans. Though the deadline is less than a month away, many small businesses don’t know they have to notify employees, says Keith McMurdy, a benefits partner in the law firm of Fox Rothschild in New York. He has spoken to dozens of small business groups around the country in the past year and says most small business owners are unaware of the requirement or are under the misconception that it doesn’t apply to them because they’re too small to be governed by the health-care reform law’s mandate. McMurdy says it’s not clear how the requirement will be enforced, but penalties for businesses that don’t comply could reach $100 per worker per day.

“An employer with 10 employees typically says, ‘I don’t have to worry about it, because I don’t have to offer insurance.’ A lot of them are going to miss the deadline and be unpleasantly surprised when they do,” he says. The notification requirement applies to any business regulated under the Fair Labor Standards Act, which covers all companies with at least one employee and $500,000 in annual revenue. “There are no exceptions for small employers, which means nearly everybody has to get out this notice to their employees. We have been getting a lot of questions about it from small business owners,” says John Barlament, a lawyer in the employee benefits group at Quarles & Brady in Milwaukee.

The U.S. Department of Labor has posted information about the notification requirement on its website and has provided model notices that can be used both by employers who offer insurance (PDF) and by those who do not offer insurance (PDF).

The one- to three-page model notices can be downloaded, filled out, and printed, either for distribution in the office or for mailing to employees’ homes, McMurdy says. Employees who come on board after Oct. 1 must get the notice within 14 days of their start date with the company. “People ask me what’s the safest way to do this, and I always say, if the government gives you a model, use it. Or make yourself a comparable form, modified the way you need it, and use that. The safest route is to put it in the U.S. mail or follow the instructions for distributing it electronically,” he says. “The employer obligation is met at that point. I don’t see any requirement that you have to get signatures saying your employees have received it or maintain proof of the fact that you gave it out.”

The second and third pages of the model notices are optional, Barlament says. He is encouraging his small business clients to include the upper portion of page 2, which describes the insurance coverage provided by the company, but to leave off the rest of that page and page 3, which he feels could be confusing.

Sending out this notice is another in a long list of compliance issues for business owners around the ACA, McMurdy says, and most that he speaks with resent the extra work. However, he is starting to sense “general acceptance of the misery” and is hearing more employers say they expect to get used to the major provisions of the law when they go into effect next year. “It’s kind of like when COBRA came in and business owners said, ‘This will kill us, this is insane,’ and before long they got used to the idea.”

via What Small Businesses Need to Do for Obamacare Before Oct. 1 – Businessweek#!#!#!.

Rules for 2013 Summer Hiring

Obtain W-4s from all summer employees, even the owners’ children, students working part-time and foreign students.

 Withhold FITW from all employees, including the owner’s spouse/children, unless a W-4 claims exempt.

Withhold FICA from all employees, even high-school students and those who receive SS benefits. Exception: Employees under 18 working for sole-owner parents.

Pay overtime for hours actually worked over 40 hours in the workweek. You are not required to include as hours worked paid time off (holidays, vacation days). Do not substitute paid nonwork hours for work hours to make all hours straight time, thus avoiding overtime pay.

Example: Eric works 12 hours a day, 4 days of the workweek. He is off the 5th day, a holiday, but is paid for 8 hours. He is correctly paid 40 hours’ straight time + 8 hours’ overtime + 8 holiday (nonwork) hours. Eric’s employer is not allowed to substitute the 8 hours’ holiday pay for Eric’s 8 hours of overtime to avoid paying the overtime rate.

Paid holidays and vacations

Under federal law, paid holidays for part-time and summer help are always optional, but check state laws.

No paid vacation is required—but if you provide paid vacation, some federal and state laws apply.


For temps and part-timers, benefits are optional; if offered, they should be explained in a written benefits plan.

–The American Institute of Professional Bookkeepers (AIPB)

Keep Track of Your Receipts!

auditKeep track of your receipts!

Businessman claimed he ran a proprietorship and filed a Schedule C showing a substantial loss for the year. The IRS denied most of the deductions on the return because the taxpayer lacked sufficient records to support them. The taxpayer appealed to the Tax Court.

Held: Mostly for the IRS. Under §162, Trade or business expenses, a taxpayer must prove that the expense was ordinary and necessary for carrying on a trade or business; and the expense was paid.

For many of the expenses, the taxpayer proved one of the elements but not the other, providing bank statements showing checks written to office supply stores and the USPS — but no  detailed record of items purchased  and how they related to the business. For other expenses, the taxpayer had invoices showing the amount due and how these items related to the business —but no proof the invoices actually were paid.

Acceptable proof could include receipts, cancelled checks or credit card statements. The court ruled the evidence provided by the taxpayer was so scant that the court could not even estimate deductions under the Cohan rule.* The court denied most of the deductions because the taxpayer did not prove both key elements for each deduction.

* The Cohan rule lets the IRS and courts use other sources to estimate expenses and amounts, if the evidence is both credible and sufficiently detailed to verify the deduction and to make a reasonable estimate of the amount.

More requirements: Some expenses, such as travel, meals, entertainment and auto expenses, require more proof under §274, Disallowance of certain entertainment, etc., expenses. The IRS and courts have no flexibility on these items and deny deductions unless all of the substantiation required by the regulations is provided. [Fleming v. Commissioner, T.C. Memo. 2010-60]

–American Institute of Professional Bookkeepers

Payroll Taxes and Personal Liability

Problem: Although the employer is responsible for depositing federal and state taxes, the person who actually remits the taxes can be held personally liable for monies withheld but not deposited.

In other words, personal liability can be imposed upon the person “responsible” for paying them to the government, including, in certain cases, the bookkeeper.

Internal Revenue Code Sec. 6672(a), referred to as the “100% penalty,” is used to recover employer payroll taxes from bookkeepers responsible for withholding and paying them.

Even check-signing authority not involving payroll or payroll taxes can trigger personal liability if the signer’s job includes paying creditors and tax authorities deem that such funds “came from” payroll taxes withheld and therefore “belong” to them.

If the IRS thinks it can’t recover from a firm, it may sue the employee. The IRS may even sue the employee before (or instead of) attempting to recover from the firm, because anyone responsible for withholding and paying taxes is as liable as the employer.

Solution: Don’t be the only signature on checks. Authority to sign a check represents authority to disburse funds and can trigger personal liability if withheld taxes are not paid. You are protected against the liability of “final authority” if your firm requires all checks to have a second signature of a supervisor or corporate officer after you have signed it.

Note: If you have to sign paychecks, temporarily (an owner is out of town) or permanently (you are at a remote location), your only protection may be to have your employer give someone else “final authority.”

–AIPB Bookkeeping Tips