QuickBooks 2010 Has Arrived!

Just received my copy of QuickBooks 2010 today. It is now available for ordering or download. Can't wait to check it out and see what new features are available. Stay tuned...

Houston Unemployment

Well it appears that the recession has finally made its way to Houston. It has just been reported that unemployment is at 8.4%. I believe it because I can see it and clients are definitely feeling it. Texas employers, get ready for your unemployment tax rates to go up at the first of the year.

Seems like one of the few industries unaffected right now is health care. Anyone affiliated in any way to the health industry seems to be doing okay. This may change however if Congress is irresponsible and passes sweeping health care legislation. Doctors really don't need another excuse to quit and young brilliant minds don't need another reason to avoid medicine as a profession.

NASA seems to be okay for now; United Space Alliance employees are affected because of the impending shuttle retirement and not because of the recession. There has been a pretty massive layoff here and I have a friend whose last day is October 9. This has to be the absolute worst time to begin looking for a new job.

Indirect Investors of Madoff Left Out in the Cold

Here is an interesting article in today's Wall Street Journal. It discusses how people who were invested in so called "feeder funds" - funds that were invested indirectly in Madoff's firm - are out of luck as far as declaring theft losses on their investments and making a claim with the SIPC.

Employer Question: Temporary Employment = Contract Labor?

These are definitely not the same thing.  The question posed is this:  An employer is hiring a person in a low-level position who was laid off from his previous high-paying job and the new employer knows that this person is going to be looking for permanent employment elsewhere.  If that person is probably only going to be working for the company temporarily, can the employer keep things easy and pay that person as contract labor?  The answer is a definite NO.  There is no period of time of employment that enters into the decision of contractor versus employee.  Regardless of the amount of time that person works for you, if he meets the definition of an employee, then he should be set up as such.  

IRS CP2000 Notices

It is the time of year for the IRS to send out CP2000 notices for tax year 2007.  This type of notice is generated when the IRS computers find a discrepancy between what was reported on the tax return versus the documents filed by various sources (1099-INT, 1099-R, etc.).  If you fail to report for example a 1099-R that you received for an early retirement distribution, the IRS will discover the discrepancy and you will eventually receive a notice.  It takes about a year from the time that the tax return was filed for the IRS to catch any discrepancies.  This is why you will see many CP2000 notices being sent around the time period of March, April, and May. 

If you receive one of these notices, do not panic.  It is not an audit.  The IRS simply wants you to respond to the discrepancy.  Also, do not just blindly send them a check for the amount due.  Read the notice carefully to see what the IRS is describing as the discrepancy.  It is possible that a mistake was made by the creator of the source document.  Here is an example that I just dealt with recently:  someone in the business of making mortgage loans accidently prepared a 1099-INT for interest income rather than a Form 1098 for mortgage interest paid.  This triggered a notice because the IRS was looking for the taxpayer to report interest income.  Rather than the originator having to file a corrected 1099/1098, the IRS simply required a letter signed by the originator acknowledging the error.  We attached a copy of that letter as a response to the notice.

If upon examining the notice you do discover that the IRS is correct, you will have 30 days from the date of the notice to make the payment.  If you need additional time for research, you can request an additional 30 days by calling the IRS.  There will just be additional interest assessed for the extra time.   The fact that it takes a year for the discrepancy to be found, unfortunately means that interest and penalties have accrued on the balance for that period.  It is possible to have the penalty abated, if you feel that you have a good reason.  Sometimes it is worth a shot.  Simply attached a letter explaining the reason you feel that the IRS should consider your request for penalty abatement.  All they can do is deny it.  Don't bother to try and abate the interest.  The IRS sees that as a time value of money issue (you had the use of the funds and not them) and therefore I have never seen them agree to abate interest.

If you are unable to pay the full balance, then the IRS will allow you to set up an installment plan.  You should find an installment plan application included with the copy of the notice.

IRS Audits Contract Labor

A CPA colleague contacted me yesterday to let me know that one of her clients is being audited by the IRS for paying contract labor.  This particular issue is emphasized by one of my prior posts.  The IRS and the state unemployment commissions do not like the contract labor classification, and it is a difficult position for an employer to defend.  If I hear any more detail regarding this case, I will post it here.  

Pitfalls of the Obama Tax Credit

Be aware that there are certain situations where your tax credit may be reduced or eliminated, yet the withholding tables do not account for this.  Review this article to see if you fall into any of these scenarios and need to adjust your withholding.

Question: Can I Do A 1031 Exchange With Foreign Property?

As tax season rolls along, I am posting real and of course compelling questions that I will field from clients during the season.  The answer is that yes you can do a 1031 exchange with foreign (non U.S.) property as long as the property you are exchanging to is also non-U.S. property.  A 1031 exchange refers to a section of the tax code that allows the tax-free exchange of investment or business real estate for other investment or business real estate as long as the property received is of like-kind as the property that is given up.  Therefore, in order to meet the definition of "like-kind" foreign property must be exchanged for other foreign property.  1031 exchanges are complicated and must abide certain time constraints in order to qualify.  For more information on the excellent planning tool of 1031 exchanges, this Wikipedia article is a good resource of how the process works.  

Quality Control In A Single Preparer Practice

Not long ago, I was asked by another CPA who works for a large accounting firm how I handle tax return quality control as a sole practitioner?  In his company, a partner reviews every return that he prepares.  I must admit that it is a challenge to make sure that I have accounted for everything in a tax return...there is so much that can be missed especially in the more complicated ones.  I was mentored early on by another sole practitioner CPA in the local area who has been practicing on her own successfully for probably close to 30 years.  The strategy that she uses and that I have implemented as well is this:  First, do an initial return preparation by inputing all the data into the tax software.  Then, set aside that return for several days, maybe even a full week.  Work on other tax returns or projects in the meantime.  Then, after that time has elapsed, go back to that tax return and review all the entries.  This has been effective for me because many times there are items that I did miss, or I will discover something that I need to ask the client about for further clarification.  I absolutely hate the "fast food tax preparer" mentality such as H&R Block for instance where you go in and 15 or 30 minutes later walk out with a completed tax return.  I just don't think enough time and attention is spent.  That works fine on the simplest of returns, but I just think it is dangerous on ones that are even slightly more complicated.

Offer from QuickBooks

QuickBooks is offering a free copy of QuickBooks Pro 2009 (a $199.95 value) with the purchase of QuickBooks Enhanced Payroll (cost=$349).  If you do your payroll in-house, you might want to consider this.  Or, receive a free copy of QuickBooks Premier 2009 (a $399.95 value) if you sign up for QuickBooks Assisted Payroll (cost=$720).

With Enhanced Payroll, you generate your paychecks in-house, but QuickBooks performs all the payroll calculations and creates the payroll reports for you.  All you have to do is print them.  It also calculates your tax deposit amounts. 

Assisted Payroll is similar to using an outsourced payroll service such as ADP or Paychex, but as I understand it, at a significantly lower cost.  With Assisted Payroll, you still generate the paychecks in-house, but QuickBooks will transmit the tax deposits and file the payroll reports for you.  

This offer is good until March 16!!  Click here to learn more and take advantage of the offer.