Discussions on payroll, business and life

Posts by: CPA Sam


4 Important Year-End Tasks

The most common question I hear from my small business clients is “what should I be doing at year end?” The answer to that question would be enormous. So here are the 4 most important items to consider. Get a W-9 from your eligible vendors. In order to properly complete the 1099 for your vendors, you need to request filing data about their company. This data comes from a W-9. You can download a W-9 from the IRS website here, https://www.irs.gov/pub/irs-pdf/fw9.pdf. You do need to send all 4 pages. If your vendor refuses to provide this data, you can withhold 28% from all future payments and forward it to the IRS on their behalf. This is specified on page two of the W-9. I always include a letter request with the form explaining the backup withholding rule. It normally gets the attention of your vendors. The earlier you can start this process, the faster you can comply with your 1099 filing rules. A better practice is to obtain a W-9 before ever paying a new vendor. Send out 1099 forms. By January 31, you must report payments made to vendors by your company if the dollar value exceeds $600 for the year. The information needed to report these payments comes from the W-9 discussed in item 1. This report is called a 1099. It goes both to the vendor and to the IRS. Payments made to vendors via credit cards are exempt from this reporting since it happens elsewhere. There are other specific rules in this process. It’s best to either consult with a tax advisor or read the instructions found here, https://www.irs.gov/pub/irs-pdf/i1099msc.pdf. Verify employee data. By January 31, you need to report all employee compensation to your employees...

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4 Reasons To Choose A Professional For Your Tax Returns

Why waste your time trying to figure out the byzantine tax system in this country when you could hire a pro who already understands it?

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What Does Filing Status On W-4 Mean?

Q. My payroll person told me that the filing status on the W-4 doesn’t necessarily mean the same thing as my marital status.  Is that true?  What is filing status? A. Yes, it’s true.  The filing status box on the W-4 and filing status on your tax return are not necessarily the same thing.  The Form W-4 is a document designed to tell your employer how to withholding federal tax from your paycheck.  The IRS issues withholding formula for each filing status each year.  There are only two to choose from: married and single.  The box you check on the Form W-4 determines which formula your employer uses.  In certain situations, people who are considered married for tax purposes and who choose this option on their W-4, will not have enough withholding at the end of the year.  This could be from both spouses working, having two jobs or even enjoying lots of non-wage income from investments or real estate.  By switching over to the single withholding formula, additional withholding takes place.  Check with your tax preparer or accountant for help if you can’t figure out how to complete the rest of the document.  On an interesting note, the IRS already accommodates people in this situation if the box entitled “Married, but withhold at the higher single rate.” Some companies use the Filing Status field on the Form W-4 to determine the marital status of their employees.  This is not a good policy. It is really none of the employer’s business what the marital status is of the employee.   From an HR perspective, this could lead to discrimination claims.  Also, if an employer receives a lock-in letter for a specific employee, he/she may be directed to withhold at...

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Where Do I Send My Withholding?

Q. Where do I send the Social Security, Medicare and Federal taxes that I take out of my employee paychecks? A. There are two important concepts to understand about remitting your withholding dollars to the IRS. First is to pay attention to the frequency that you are required use when depositing.  FICA, Medicare and Federal withholding taxes should be deposited according to the appropriate schedule assigned by the IRS. Employers with annual tax liability of less than $2,500 can report withholding amounts on Form 944 annually.  Of course, to use that form you must be filing and paying in a timely fashion.  Employers with more than $2,500 of annual tax liability would file a quarterly 941 return.  Payments would be made based on a “Lookback Period” of the July 1 through June 30.  Depending on your liability, you could be required to make federal deposits monthly, semi-weekly or daily schedule. All of this is discussed in Publication 15 in section 11, “Depositing Taxes.”  Late payments create penalties and interest.  Create a reminder in your calendar if necessary so you don’t forget your assigned schedule. The second part of depositing your withholding is to use the correct method.  By far, the easiest way to make your deposits is through EFTPS system.  If you utilize a payroll service provider, you are probably already signed up to have taxes paid in this manner.  The service provider will  take the money from the specified bank account and send to the IRS for you.  Ultimately, remember that you are responsible for paying the taxes.  If there is some kind of problem and your money never makes it to the IRS, you’ll to fix it, not the service provider. If you are a self-employed individual and are attempting to make estimated payments for your own...

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Confusing Payroll Deductions on my Paystub

Q.  I see a lot of deductions on my paystub.  How can I tell what they are for? A.  This is a top 10 question I get from my readers.  In the interest of saving space or (maybe) laziness, employers and payroll companies often abbreviate deduction names on paystubs.  It causes angst for employees trying to decipher what those deduction codes actually are.  There are three basic deductions that are on most paystubs. Federal income tax – This will often be abbreviated as FIT or Fed.  You can change the amount of federal income tax withheld by adjusting the filing status and number of allowances on your Form W-4.  This presents a tax planning opportunity for those who get a big refund or who owe a lot of extra dollars at tax return time.  Your tax situation is affected by many financial choices you make in life.  Those choices are translated into allowances on the Form W-4.  Allowances increase (less allowances) or decrease (more allowances) your withholding for federal purposes. Social Security – Sometimes this is called SS, FICA, OASDI.  It all means the same thing.  For 2015, the calculation is 6.2% of taxable wages up to $118,500.  The only way to reduce this number is to make less money, or join the company Section 125 cafeteria plan. Medicare – Medi, HI are the most common.  This is calculated as 1.45% of all taxable wages.  There is an additional Medicare tax of .9% that gets added as part of the ACA when Married individuals reach $250,000 of wages and single individuals reach $200,000 of wages. Other common deductions include: State income tax – depending on your state this could look like SIT, or AZIT (in Arizona), or PIT, or state tax....

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Make It The Best Job Ever!

“I have the best job ever!”  Can your employees say that?  From an employer’s perspective, a company full of happily motivated employees is a dream.  Satisfied employees are more productive and produce better quality work than the grumblers.  What is it that moves an average employee performing average tasks to a high performer that exceeds all expectations?  About a year ago, I read a book entitled “The Three Signs of a Miserable Job” by Patrick Lencioni.  I was encouraged to read this book by a mentor since I was rather new to managing employees.  Mr. Lencioni suggests three things that limit the success of employees: irrelevance, immeasurement and anonymity.  The first and last are the main issues that hinder high performance from employees.  Overcoming those two issues can remove the obstacles to the best job ever. If employees don’t understand how their work fits into the organization (irrelevance), their job and the time spent at it becomes meaningless.  It becomes a means to a paycheck.  It becomes a daily drudgery.  That means that as a manager, I need to consistently provide activities for my employees that are meaningful and engaging.  But more than that, I have to show them how the entire organization depends on the successful accomplishment of those tasks.  As a payroll industry veteran, it is apparent that not everyone understands the importance of this idea.  When do most people contact their payroll representative?  Only when there is a problem!   An employer needs to show each employee how he/she fits into the organization, and, how everyone else is an integral part of the process. Secondly, if employees don’t feel understood or needed (anonymous), then there is no connection to the organization to make them want to do quality work.  This reminds me of the idea...

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Is It Your Passion, or a Job?

When I interview candidates for open positions at Symmetry Software, I always ask, “What is the perfect job for you?”  It’s interesting how few candidates are prepared for that question.  If I ask, “What do you do for fun?”, they will rattle off several things that really mean a lot to them when they are trying to relax or unwind.  The things you do for fun give a window into who you really are and what you care about deeply. Strangely enough, may people approach a career as simply an exchange of money for our time during the day. They’ll accept a second-rate job with nothing that keep their interest beyond the predictable paycheck. We’ve all heard the dreaded question when meeting someone new at a networking function for work or business.  “What do you do?”  How do you answer that question?  Without knowing it, the answer you provide helps the other person determine if your status is meaningful enough for them to continue taking time to know you better.  The question is often rooted in the comparison of economic status and not in the desire to really know the other person.  Is it enough for two people to develop some kind of working relationship because they both do the same job?  Not really! The “What Do You Do” question reveals that many people are NOT passionate about what they do. A normal week for the typical American starts on Sunday by sleeping in and maybe running errands or hanging out around the house loathing the start of the workweek on Monday. They despise what they do and who they work with and take great pains to drown the week of drudgery with parties on the weekends. What if instead of accepting the question “What...

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How Many W-4 Allowances?

Q. Can a person claim more dependents or allowances on their W-4 in order to increase take-home amount and then declare an accurate number on 1040?  If over payment is expected and then a refund is due, can he simply handle it this way and get the cash during the year instead of as a refund?  Is this legal? A.  I’ve talked about this in other blog articles but this is one of the most frequently asked questions I get from my clients.  There are two ways to look at your question. 1. Dependents claimed on your tax return are often not the same as allowances on the Form W-4.  Allowances on the W-4 are designed to reduce your income by the amount of non-taxable income calculated on your tax return.  For instance, a single person not supported by someone else who has one job and rents an apartment alone with no investment income or self-employment income would be allowed to claim a dependent allowance for themselves on the 1040 form.  They would also be allowed to claim a standard deduction.  For 2015, the standard deduction is $6,300 for singles.  For 2015, the allowance value is $4,000.  For this scenario, the individual would claim (6300+4000) 10,300/4000 or 2 allowances on a W-4 form.  For those who itemize and have additional dependents, the calculation still requires someone determine the income not subject to tax (itemized deductions, student loan interest, dependents, etc.) and divide it by the value of an allowance.  The object is to get your tax withholding from your paychecks to match what you actually owe which is calculated on your 1040 form.  You don’t want a big refund, and you don’t want to have a big additional tax bill. 2. Following...

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Debits and Credits Revisited

One of my passions is helping people understand that accounting is really not that difficult.  When presenting financial information during board meetings, or to a CEO, or to one of my small business clients, I get one of two reactions.  First is one of fear that what is being presented comes from numbers that they won’t understand.  Second, is a response of wishing that they had paid attention in accounting courses back in college.  AskCPASam blogs are designed to make all of this understandable. After a recent “Payroll Accounting” workshop, I was approached by one of the attendees who described her confusion over the words debit and credit.  She explained that the use of those two words by her bank made it confusing to keep track of which one goes to which side in accounting.  This entire post came out of that discussion.  I don’t have the name of that aspiring payroll professional in Minnesota, but this blog is for you. First, let’s lay some ground rules.  In accounting, like algebra, everything must balance.  In case any of my readers are unfamiliar with it, this is a “T” account.  Values in both sides of the “T” accounts used in a transaction must add up to the same number. Debit simply means “left.” Anytime something is debited or has a debit balance, you are dealing with the left side of the accounting equation or the left side of a “T” account. Credit simply means “right.” Anytime something is credited or has a credit balance, you are dealing with the right side of the accounting equation or the right side of a “T” account. In order to speak the language of accounting, these two words are the most fundamental.  The accounting equation looks like this:  Assets = Liabilities + Equity.  That equates to what you own...

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Finally! A Taxpayer Bill of Rights.

Last week, the Internal Revenue Service adopted what it is calling the “Taxpayer Bill of Rights.”  The themes found in the list exist throughout the tax code created by Congress.  Essentially, the IRS has grouped all of these into a single document and adopted them as a guide for their treatment of taxpayers.  This is a major step forward for this agency that gets so much bad press.  The pendulum continues to swing back and forth between better service and better enforcement which seem to be mutually exclusive.  Heavy-handed collection techniques and policies get bad press and funding cuts which leads to weaker policies and better customer service.  I’m not sure why the agency can’t do both.  Whatever the case, the National Taxpayer Advocate office has been calling for this for several years.  If you have any dealings with the IRS, it will be interesting to see how quickly their training actually makes it down through the levels and out to the common taxpayer. The list adopted by the IRS follows: The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are: The Right to Be Informed The Right to Quality Service The Right to Pay No More than the Correct Amount of Tax The Right to Challenge the IRS’s Position and Be Heard The Right to Appeal an IRS Decision in an Independent Forum The Right to Finality The Right to Privacy The Right to Confidentiality The Right to Retain Representation  The Right to a Fair and Just Tax System All of these positions will be published and posted with new posters in the coming months in IRS offices....

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