State of Michigan warns Michigan businesses of scam

The State of Michigan has alerted business owners of a new scam designed to trick businesses out of $125.

The Michigan Licensing and Regulatory Affairs Department issued a release that reminds business owners that they are not required to send in annual minutes of meetings, and under no circumstance should you reply to correspondence received from the "Michigan Corporate Compliance Company". This is not a State of Michigan regulatory body, but is a scam set up by a company that is trying to defraud businesses.

The State also warns taxpayers and businesses to be diligent in their review of forms, noting that fraudsters are able to make these and other forms look very official. These types of scams are a new and growing business for fraudsters, so the State is reminding individuals to be hyper-vigilant.

ANY BUSINESS THAT RECEIVES A NOTICE TO HAVE ANNUAL MEETING MINUTES PREPARED AND PAY A FEE TO AVOID DISSOLUTION OF THEIR CORPORATION ARE ADVISED TO DO THE FOLLOWING:

1. Keep the notice, mailing envelope and return envelope.
2. Contact the United States Postal Inspection Service to report mail fraud at: (877)876-2455 or the following email address: https://postalinspectors.uspis.gov/forms/mailfraudcomplaint.aspx
3. OR contact the Michigan Office of the Attorney General at P.O. Box 30212, Lansing, MI 48909.

This correspondence should not be confused with the Michigan Annual Report, which is an annual filing required by the State of Michigan.

Significant tax changes for businesses in 2012: Part 2

This is part two, of the significant federal business tax changes occurring in 2011:

1. Energy Efficient Homes

For 2011, builders of energy efficient homes, qualified for a $2,000 credit per qualified home. In 2012, there is no deduction for these homes built.

2. Work Opportunity

In 2011 and prior there was a tax credit available for employers whom paid wages to several targeted groups. For 2012, the only group eligible for the tax credit are qualifying veterans.

3. Qualified Small Business Stock

Qualified Small Business Stock (QSBS) acquired during 2011 qualified for 100% gain exclusion, if certain holding period, and other restrictions were not applicable. In 2012, this gain exclusion is lowered to 50% of the gain, however, the same restrictions apply.

4. Domestic Production Activity Deduction (Section 199 QPAD)

The only major change to the QPAD is that Puerto Rico is no longer considered domestic production income, in the QPAD calculation in 2012.

Please note these items are likely to change throughout the year, as changes occur, I will not update this post, but will post subsequently! Please look for subsequent updates.

Significant tax changes for businesses in 2012

Nearly every year the tax code goes through significant changes. These changes are due primarily to the fact that political wrangling has trumped solutions to problems within this country. As a result, both political parties have figured out, that rather than solve the problems created by their own movements, and the harsh economic effects; finger pointing and delayed decision making, can insulate them from harsh criticism (preserving their own job = good for them). The result; rather than providing for long-term solutions to a snowballing problem of high government spending, coupled with lower government revenue, due to tax breaks to the highest earners and significantly lower actual earnings and employment levels for the lowest earners, we have a system where major changes to the tax code are nearly an annual occurrence. The only reason taxpayers have payed little attention is due to the fact, that by and large, Congress has swept through and extended nearly all the tax breaks from previous years, even if it does take nearly all year in some cases to push these tax breaks through (making tax planning a nail-biting endeavor).

Anyway, now that I have that out of my system I can focus on the real point of this post. Due to expiring tax breaks, 2012 and 2013 are very significant tax years. Without basic extensions of existing tax structure items, the tax landscape will be radically different in 2014. Here are some major tax changes in 2012, that will affect your business (unless Congressional action is taken):

1. Major changes to 179 depreciation.
A. Unlike 2011, there are no special depreciation provisions for the following types of property: Qualified leasehold improvements, Qualified restaurant property, and qualified retail property.

B. Also the expending limit and qualifying property thresholds are significantly lower in 2012. The amounts are now $139,000 and $560,000 respectively, down from $500,000 and 2,000,000 in 2011. Please remember these amounts still carry the normal income and other restrictions.

2. Major changes to Bonus Depreciation.

The special depreciation rate (168k Depreciation, as it is otherwise known) is 50% for qualifying property placed in service in 2012. This is down from the 2011 rate, which was a much more favorable 100%, for qualifying property (with certain restrictions).

See part 2 of this discussion later on in the week...

Please note these items are likely to change throughout the year, as changes occur, I will not update this post, but will post subsequently! Please look for subsequent updates.

Business travel, proposed reg may apply rules for travel close to home

Prior to this year, business travel was always defined by the IRS under code section 162. In addition, under Reg 1.262-1(b)(5) the IRS defined business travel as travel away from home, and if you were not away from home, these expenses were not allowed.

However, the IRS has changed its stance in new Proposed Reg 1.162-31(b), which would allow for business travel expenses while you are not away from home if all the conditions are met:

1. The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function.

2. The lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter.

3. If the individual is an employee, his employer requires him to remain at the activity or function overnight.

4. The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit.

It is important to note that the IRS has also included specific examples whereby travel expenses would be allowable under the new Proposed Regulations. Some of these examples show important determinations by the IRS, with just as important implications. One example is particularly interesting:

In the example the employer has a large project with a tight deadline. This employer has requested that the employee stay at a nearby hotel for the night to work longer on the project, and also to alleviate the 2 hour commute this employee would have had to incur. This example is interesting because the IRS allows the employer to take the expense, but the employee also has to include the amount of the hotel stay as compensation. The IRS contends that the employee has received a benefit by avoiding the long commute. 

Identity Theft: A rapidly growing IRS problem

Whether you realize it or not, one of the larger issues the IRS has to deal with in recent years is identity theft. Overall, identity theft has increased significantly in the last three years, from just under 52,000 in 2008 to nearly 170,000 in 2009 to over 248,000 in 2010. Usually the theft involves individuals filing false returns, and cashing refunds of other taxpayers, but cases also include employment fraud. Most individuals find out they have been a victim of identity theft, when they go to file their return, and it is rejected due to a return already filed under their social security number. Usually fraud claims take quite a long time to iron out with the IRS, but there are a few changes the IRS has implemented in recent years to try to counteract fraudulent claims.

One major change the IRS has implemented is issuing special pin numbers to past victims of fraud. The use of these pin numbers can cut down on the incidents of fraud, because only the true recipient of the pin number will be able to e-file their return, and as an extra layer of security, the pin numbers are not issued or accessible by the IRS, so would-be fraudsters cannot gain access to this information. However, there is a small problem if a person who has been issued a pin number cannot find their pin. Since the pin numbers cannot be accessed by the IRS, if a person loses their pin, they will not be able to receive a replacement pin, thereby eliminating the extra security their return should have received.

These changes are good, but what can a person do to prevent their information from being stolen, and a false return being issued in their name? At the end of the day, the best practice is diligence. 

Do not provide sensitive information to unscrupulous sources. Destroy sensitive information appropriately. Try to secure your mail, to try and eliminate access to otherwise sensitive information. Be careful what type of information you make available through email and the internet. There are many ways you can help to avoid providing access to your personal information, but if you do have a false return filed in your name, try to rectify the discrepancy as soon as possible with the IRS, and be diligent in this task to make sure the IRS agent is following through with their promises and deadlines.

The information age can be a good thing, but certain information in the wrong hands can lead to headaches. 

Listening Skills: the most under-rated quality of a top performer

This article talks about truly listening to your business managers and shows specific examples of how listening to your business managers allows a CEO to make great business decisions. Even though, I do not run a Fortune 500 company I see the difference between talking and listening. Here is an example:

A small business owner comes in and talks about how they are not getting the results they thought they should be getting from their business. After talking to them for a short period of time, we come up with the real problem, they have been in business for a number of years, have been trying the same marketing and advertising strategy of only advertising in the phone book and have not seen the same results they were seeing only a few short years ago...Does this scenario sound familiar?! It seems like business owners fall into the same traps each of us do. When things are not working the way we would like them to work first we get mad then we get frustrated then we...Change (hopefully).

As a CPA I have learned a lot of things outside of school, but the most important thing no one taught me was  how to listen. If you are not listening to others you are missing out on one of the most important, cheapest and easiest tools at you disposal. If you want to be great at what you do, or truly improve your business you have to listen; to your workers, your board and most importantly to your customers. If you listen to them analyze what they are telling you and improve your system you will have a limitless potential for success.

Here is a link to the article on the Harvard Business Review blog. 

Michigan is ahead of the curve...

According to data released by the US Department of Labor, their Bureau of Labor Statistics indicated that Michigan ranked 12^th among all states in the number of green jobs within the US in 2010.

According to the report nearly 80,000 green jobs are held by Michiganders. Manufacturing lead the way, followed by construction and natural resources and mining sectors. It is important to note that the number of green jobs only makes up a small portion of total employment in Michigan (approximately 2.1%), but this is a good sign for a Michigan economy that is still trying to recover and reinvent itself at the same time (not an easy task). 

The moral of the story here is, keep it up Michigan! If sustainable products and industries are the things of the future, Michigan should be in a good position to capitalize on this new and changing market.  

Never Received a W-2

Have you ever had this happen to you? It is the middle of February and you have not received your W-2 from your employer. Many taxpayers have probably been in that situation, but what if you never receive your W-2? What do you do then?

There are a few required steps you should take if it is past January 31, and you have not received your prior year W-2:

1. Contact your employer to find out about its mailing and verify the address they mailed it to.

2. If you have not received the W-2 by February 14^th you are encouraged to call the IRS directly and provide them with the employer’s information, dates of employment, and estimated wage information.

3. You should probably wait until the absolute last minute to file your return, to make sure you will not receive your W-2, but if you have not received your W-2 by the tax filing deadline you should file your personal return as normal, with an additional attachment 4852, or you can ask for a personal extension if you believe the W-2 will be provided to you.

4.  If you receive a W-2 after you file your return, you may have to file an amended return, if the information differs from your previously filed return.

So you do have a few options for taking care of your personal return even if you do not have a W-2 and you do not believe you will receive one for some reason.  

However, if you just lost your W-2, you should be able to ask your employer for an additional copy. They should be able to get you a copy of the original as they are required to maintain certain documents of this type for a long period of time. 

Barter Income

Every other year or so, the IRS releases a tax-tip or memo that covers barter transactions. It seems like when hard times come along, individuals and businesses try different strategies to keep the same level of income. The IRS recognizes the need to get creative in times of need, however, just because you may not receive cash as payment for goods or services does not mean that you have not completed a taxable transaction.

The IRS recently released a Tax Tip related to barter transactions, in which it reminds tax payers that barter transactions are usually reportable as some sort of income on their personal or business return. It also reminds barter exchanges of their 1099-B filing requirement (Tax Tip 2012-33).

If you have a situation whereby you receive property other than cash for goods or services, you have probably engaged in a barter transaction and should report this income on the appropriate income tax return for the year. If you have additional questions related to barter transactions, please consult this IRS publication, or your tax professional.  

Customer Loyalty Programs

Check out this interesting blog entry on the Harvard Business Review website, it talks about customer loyalty programs. It almost makes you question as a business owner if, you really believe in customer loyalty programs, or if you are not creative enough to come up with a better solution to create real customer loyalty...Check out the entry here

Michigan Legislature introduces bill to significantly increase minimum wage

There is an interesting article on M Live this morning about a bill introduced in the Michigan Senate that would significantly increase Michigan's minimum wage, taking it from its current level of $7.40 to $10 by 2015. The Senator that introduced this bill sighted increased inflation and its toll on minimum wage earners as the primary reason for this bill.

I think all legislators should be required to have a college degree with a major in economics if they are going to have the power to influence the economy, maybe that should be the next bill introduced!

Let me know what you think....

Here is a link to the news article on M Live, have a great Friday! 

FBAR Reporting: A simple tool to use

In the last couple of years the Internal Revenue Service has really advanced its fight against offshore income, the initiative called FBAR, or Foreign Bank Account Reporting. In connection with the FBAR, it has implemented a few additional filing requirements for individuals and entities (usually businesses and trusts/estates) that have offshore accounts beyond certain low thresholds. As is usually the case, these additional filing requirements have also given rise to many questions. For this reason, the IRS has created a simple chart that breaks down the similarities and differences between the two new reporting requirements.

For this reason, if you believe you may have a filing requirement for an offshore account, check out this link. After reviewing the FBAR reports, if you still believe you have a reporting requirement, contact your CPA or attorney. 

Great Blog Article!!!

For those of you who do not know, the Harvard Business Review is a great resource for business people. They have interesting articles about a lot of different subjects. Also, for those of us who would like to sample the Harvard Business Review without the cost, you can sign up with them, and gain access to their blog entries, as well as a limited amount of their online content with little more information than your business email (a fair trade indeed)!

This is a great article about the pitfalls associated with always saying yes to your clients and/or taking on projects that do not fit perfectly with your business model...

http://blogs.hbr.org/schwartz/2012/06/the-art-of-letting-go.html

Home Office: Corporations

Please remember that we are answering the following question on this post:

What if I have a corporation that does not have a formal office space, can I take an expense for the business use of my home (office)?

Unfortunately there is not a clear cut yes or no answer to this question. However, there are a few interesting ways to get the same or similar expenses on your personal return (potentially).

Sometimes in the tax code, it seems like we are back in the wild west, for that reason I will introduce you to the good the bad and the ugly...

The Good:

Corporations pay rent to those persons, or entities whom they occupy space from. With that in mind, under the right set of circumstances, it would not be out of the question for the Corporation to pay an individual for the exclusive use of a space for business purposes. There are a few pitfalls in this strategy, so before you go paying yourself rent, please contact your accountant or attorney to go over the legal and business ramifications of this decision. However, if your Corporation uses the space and would like to reimburse you for that use, this may be the best tax position for both the individual and business.

The Bad:

Corporations have employees, often the business owner happens to be an employee of the business entity. For this reason, if the business owner were an employee and had to use his home office exclusively for the needs of the business as an employee and was not reimbursed for this use. This employee may be entitled to a deduction for unreimbursed home office expenses on Schedule A. The amount of the deduction would be limited by 2% of AGI, but sometimes a reduced deduction is better than no deduction at all.

The Ugly:

This plan is not advisable, and has been shot down more times in court than I would be comfortable recommending. But, some Corporations have tried to introduce an expense reimbursement plan that would reimburse employees for specific expenses. One of the expenses they included in this plan was a reimbursement for business use of home office expenses. This plan is riddled with problems, and is not a good idea, but it has been tried in the past. 

Home office: Partnerships

Please remember that we are answering the following question on this post:

What if I have a partnership, the partnership does not have office space and therefore, I must use space in my home...

The rules for partners to expense the business use of their home is fairly straightforward.

Please note the following issues, there may be limitations on the amount you are able to expense.Also, you should not include the expense amount on form 8829, because this form is to be used for Schedule C filers specifically. If you do not know what this means, you should ask your accountant, and not try to take a deduction for these expenses on your own! 


Also, if you receive Rental payments from the partnership you may not deduct home office expenses, because you would be deemed an employee under the "rental-to-an-employer" rule found in IRC Sec. 280A(c)(6).


Now that we have that out of the way, we can go back to the task at hand. Partners can take a deduction for their home office expenses if the space is used regularly and exclusively for partnership business and at least one of the following three tests is passed:

1. The home office is used as the partner's principal place for conducting business.

2. The home office is used as a place where the partner meets or deals with clients or customers of the partnership in the normal course of business.

3. The home office is a separate structure (such as a converted garage or barn or other stand-alone building) and is used for any purpose in connection with partnership business.

If you have follow-up questions or clarification questions as to specific situations contact your accountant, or send me an email. 

Home offices: lessor known facts about a lessor known subject

When people come to our office, usually we talk tax, for this reason we talk a lot about the same or similar subjects, "how much is the standard maximum federal business mileage rate (usually our clients just call it the mileage rate, because I think only people in the industry and IRS agents care about the technical name)?"

One topic that also comes up fairly often are expenses for the business use of your home, usually call the home office deduction. 

Usually this expense is taken for a person with a home based business, filing Sch C. This year I fielded a few interesting questions:

1. What if I have a corporation that does not have a formal office space, can I take an expense for the businesses use of my home (office)? 

2. What if I have a partnership, the partnership does not have office space and therefore, I must use space in my home... 

For the answers to these questions, please see my posts titled:

Home offices: Corporations

Home offices: Partnerships

Mileage rates hold steady for 2012

The IRS has held the maximum allowable reimbursement rate for business mileage at 55.5 cents per mile for 2012. All businesses should take note of the mileage rate for the year.

In addition, employees should also take note, as you may be entitled to unreimbursed employee deductions if you incurred business mileage, but were not reimbursed at the maximum allowable rate for the year. A word of caution, the deductibility of these amounts are limited by a factor of overall income for the year, so not all people will have a deductible expense, plus all people whom would be better served by taking a standard deduction for the year, would not be entitled to a deduction for these amounts...

Also note that the medical and moving mileage rate decreased from 23.5 cents per mile at the end of  2011 to 23.0 cents per mile in 2012.

MBT Repeal Continued

Although I have included many articles relating to the Michigan Business Tax (MBT) repeal.

This article will cover the last remaining nuances relating to the effective close out of the Michigan Business Tax.

As I noted in my previous articles, the Michigan Business Tax has been repealed as of December 31st, 2011. This date is a hard tax date.

For this reason, if you are a business with Michigan sales, and you have a year end other than December 31st. You may have an additional tax filing for the period ending December 31, 2011.

The calculation for whom is required to file, is a little less than straightforward, for this reason, you should consult with your tax advisor on this matter.

However, all businesses who are required to file a Michigan Business Tax return, are required to file a final return by April 30th, 2012 (unless your business has elected to continue to use the MBT return, due to expiring tax credits).

Partnership formation: almost too easy

Usually accountants shy away from legal topics, but one topic keeps coming up in our profession.

The creation of partnership agreements.

This is a particularly interesting topic now that the IRS has significantly increased late-filing and non-filing penalties for partnership returns...

Most people don't realize it, but a partnership is easier to create than most things in life. In most States, a partnership can be formed between two individuals with a verbal agreement. This means if you are in business, you may have a partnership formed and not even know it. In practice this creates many problems. I will give you one real life scenario:

Ryan and Matt are best friends they decide one day to open up a bicycle repair shop, out of Ryan's garage. They begin by fixing their friend's and family's bikes on the weekends. Before long their word of mouth business is making so much money that Matt and Ryan cannot keep up and perform their normal 'jobs'. For this reason, Matt quits his job and takes up the business full time.

While they are still in business together Matt and Ryan have very different definitions of who is entitled to the income and how they will split it. So they have a lot of problems, problems that could have been solved with a formal partnership agreement. One of their biggest problems, relates to how to filed their returns for 2008. Both Matt and Ryan included income on their personal returns equal to their share of the combined 'entity'. When Matt was audited on his 2008 return in 2010. The auditor working on his personal return founds something interesting, there was no partnership return completed for 2008 and 2009. For this reason, the IRS issued a failure to file penalty for the tax years 2008, and 2009 for failure to file partnership returns. These penalties were in addition to the items found on Matt's personal return. The penalties for failure to file in 2008 and 2009 amounted to over $2,100.

Matt and Ryan would have been in a better position had they filed accurate returns for 2008 and 2009, however, most people are not aware of the ease at which they can create a partnership. But, now you have no excuses!

Rebuilding: Is the economic free-fall stabilizing?

In the last year the US economy, as well as economies of specific states, have seen marked improvement. The most recent figures put the seasonally adjusted unemployment rate nationally at 8.2%.

Here in Michigan we have seen similar improvements in the unemployment rate as the most recent figures put the seasonally adjusted unemployment rate for the state at 8.5%, this is down significantly from the same figures a year ago, which were a whopping 10.5%.

When you look at the improved jobs picture in the last year, you can see some interesting changes.

The workforce in Michigan can tell a tale of two major changes, in the federal economy as a whole. When you look at Michigan's recovery you will notice that there were three sectors that drove the improvement. These sectors were:  manufacturing, professional and business services, and education and health services. During the same time period, retail trade jobs and governmental jobs have actually declined. Also, the total labor force has declined in Michigan for the same one year period.

Real improvement takes time.

As a State and a Nation we should also be wary of sounding the drum of improvement, as the improvements seen in unemployment recently are tender and soft. If you assume that a “healthy” level of unemployment is somewhere between four and six percent there is still a long way to go toward improving our foothold. However, improvements as large as this have to start somewhere. I guess we would say that we are cautiously optimistic that recent changes are the foreshadowing of better times ahead.

Interesting Article in Accounting Today

Accounting Today is a publication that highlights a lot of interesting topics within the accounting industry (for those of you that are not accountants, yes we do find these articles interesting).

Every once in a while they will also have an interesting marketing piece, or general interest piece that can be applied to other industries. An article released this week, highlights how small businesses are under utilizing their accountants. Since they surveyed both United States and Canadian small businesses, I will assume they are just talking about the Canadian Small Businesses...

Unfortunately, though this is not the case. Small business owners acknowledged that accountants were critical to their success, but still under utilized their services.

http://www.accountingtoday.com/news/Small-Businesses-Accountants-Sage-62440-1.html

Social Security: A program on the brink...

A quote from Michael J. Astrue, Commissioner of Social Security seems to say it all:

               

This year’s Trustees Report contains troubling, but not unexpected, projections about Social Security’s finances.  It once again emphasizes that Congress needs to act to ensure the long-term solvency of this important program, and needs to act within four years to avoid automatic cuts to people receiving disability benefits.

Particularly troubling facts:

The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance Trust Funds (OASDI), what we commonly call Social Security benefits, will be exhausted in 2033.

The Disability Insurance trust fund will be exhausted by 2016.

2010 was the first year since 1983 that there was not sufficient non-interest income to cover program costs. Projections calculated by the Social Security administration office show that this trend will continue through the entire 75 year long-range period.

In 2011 the OASDI trust funds paid out a total of $736 billion in benefits and fees to administer the fund. Of this amount, $725 Billion was paid in Social Security benefits to an estimated 55 million beneficiaries.

To cover the short-fall and fully fund the OASDI over the entire 75 year long-range period would require $8.6 trillion in present value dollars (or 2.27 times the entire government budget for 2012).

Synopsis:

 Social Security as it is currently structured is dying a slow death. Major reforms are needed to solve not only the solvency issue, but also reform the system for the long term. Congressional action is the only recourse to provide stability to this system, however Congress men and women who are more interested in their own Congressional seats have some incentive to leave hard decisions up to someone else. One fact seems to be clear; the current Social Security system is in peril. When will it be fixed? Who will fix it? Is it a system that can be fixed? I guess not enough people care, otherwise it would be bigger news; at least the news covers weather a minimum of three times every half hour, so we will know whether it is going to rain tomorrow.

*             Information contained in this article was taken from a longer news release linked here. Also if you would like more information regarding Social Security benefits there is a much longer and more in depth discussion of the matter here.