Handling IRS Disputes & Avoiding Audits

Getting your tax return right the first time is something all business owners and individuals strive to achieve. However, an incredibly complex and ever-changing tax system means we all make mistakes, even the IRS!

According to this MSN Money article – “Don’t panic if the IRS sends you a letter*” – the IRS sends more than one million letters to people each year simply because they forgot to sign their returns.

While it’s impossible to address the countless number of human and computer errors that can impact business taxes, this article sheds some light on how to correct common tax mistakes, while providing guidance for handling tax disputes and tips on preventing an IRS audit.

Taking Care of Mistakes Before the IRS Contacts You

If you know that you have omitted information from your tax return, made an error, or missed a filing deadline, it’s always best to take care of it before receiving a notice from the IRS – which can result in unnecessary interest, penalties and other complications.

Here is some guidance on common business tax errors and the process of fixing them:

• Correct Information about Total Earnings and Withholdings – To correct any mistaken information filed about total employee earnings and withholding for the year, you’ll need to complete Forms W-2C and W-3C. This can be done online at the Social Security Administration Web site here.

• Overpayment or Underpayment of Employment Taxes –If you have made an error that has led to overpayment or underpayment of employment taxes you will need to file an amended employment tax form. The IRS provides links to the appropriate forms for you needs here. Read more about your employment tax obligations from Business.gov.

• Individual Tax Return Errors – Any mistakes on your individual tax return should be corrected using Form 1040X. If you owe tax, send the amount owed with this form to stop penalties and interest from accruing on the additional tax owed. 

• Mistakes on Partnership Returns – If you made a mistake on your business partnership return, check the box for “amended return” on Form 1065 and give each partner a copy of amended Schedule K-1. 
• Mistakes on S Corporation Income Tax Returns – To correct an error on a previously filed Form 1120S, file an amended form by checking “amended return” on page 1 and follow the instructions. Then provide each shareholder a copy of the amended Schedule K-1. 

• Mistakes on Corporation Returns – Use Form 1120X, and send any owed tax with the form. 

• Corrections on “Information” Forms 1099 and 1098 – If you have made a mistake on an information return (always prefaced with 1099 or 1098) just refer to the instructions that come with the forms.  

Don’t Ignore Notices from the IRS

If you do receive a notice from the IRS, whether it’s requesting payment or seeking additional information regarding your business tax return – open it and act on it. Putting off contacting the IRS, especially in the case of notices requesting payment, can increase the amount you owe because penalties and interest keep accruing.

Whether or not you agree with the notice, call or write to the contact person listed or visit yourlocal IRS office before the deadline. There is a also additional IRS contact information on the IRS web site.

Avoid a Tax Audit

Although less than 1% of taxpayers are selected for a tax audit, business filings that report year-after-year losses, large charitable contributions, or claim large tax deductions may raise red flags for the IRS. Read “When Avoiding a Tax Audit – the Best Offense is a Good Defense” for guidance on how to file your tax return in a way that minimizes your chances of getting audited.

Appeal a Tax Dispute

If you are unable to resolve tax mistakes with the IRS or dispute how the IRS has determined your tax status, you can file an appeal with the IRS Appeals office. The Appeals process operates independently of any other IRS office and is intended to be a fair and impartial way to settle tax disagreements without you having to go to the Courts for a formal trial. This Appeals Guide from the IRS explains what the Appeals process can do for you and can help you determine if it’s right for you.

If you feel that you are being unfairly audited, over-regulated or penalized by the IRS or any other federal, state or local government agency you can file a complaint with a small business Ombudsman. Read more about the process and what it can do to help you here: “Is the Government Regulating You Unfairly? - Contact an Ombudsman”.

Gustavo A. Viera, CPA

        

5 Hot Small Business Summer Marketing Tips!

It may only seem five minutes ago that most of the country was deep in snow, but wouldn’t you know it, summer is just around the corner.

And whether your small business serves the millions of vacationers that hit the nation’s parks, beaches and other vacation spots during the summer months, or you find that most of your customers head out of town for the duration – here are some tips (some of them tax deductible) to help keep your business booming all summer long.

1. Take Part in Summer Festivals and Fairs

Sponsoring or participating in local festivals, carnivals and fairs is not only great for your brand, but it  can help introduce new and potential customers to your products and services.

Start by identifying events that are the right fit for your business and have a track record of success – local newspapers, community flyers, city or homeowner association Web sites, as well as your local Chamber of Commerce can help point you to upcoming events in your community.

For more tips on how to make the most of hosting and sponsoring events take a look at this excellent quick read – “Marketing Your Business with Events” from small business expert, Rieva Lesonsky.

2. Take Your Customers Out!

It’s normal in the corporate world for executives to head out on a Friday afternoon for a round of golf with their customers – why not treat your best customers just as royally? Whether you host a grill out at a local park, have a day at a winery, or charter a boat for an afternoon of fishing – your customers will surely appreciate the gesture.

And remember, you can claim customer entertainment expenses (including meals) as a tax deduction (as long as there is a clear business purpose for them) and substantial business discussions are held before, during or after the entertainment. The tax deduction is generally limited to 50% of the expenses incurred.

If you take customers to a show or sporting event (to promote business) you can deduct the cost of the ticket as an entertainment expense. If you buy them the ticket as a gift but don’t accompany them, the cost is deductible as an entertainment expense (50% limit) or as a gift (subject to the $25 maximum), whichever is more advantageous. (Read more about business tax deductions  from Business.gov).

And don’t forget your business partners and vendors – you want to keep them happy too, so schedule some quality time with them.

3. Take your Business on the Road

Go where the vacationers are! If you operate a food business, have you thought about taking a concession stand on the road? Whether you position it at fairs and festivals, sports events or even certain roadside locations (within the law) a concession stand can extend your customer reach, supplement your core revenues and increase your brand reach.

These two articles can help you understand how to start-up a concession business: How to Start a Food Concession Business: An Entrepreneur’s Checklist - Part 1 (for some fundamentals about getting started) and Part 2 (which delves into licenses, permits, location, health and safety, and marketing practices).

4. Run a Contest

Summer is fun after all and literally any business can run a contest, which also makes for great publicity.

Brainstorm with your employees and gather up some ideas – and always try and tie the “prize” to something that incents people to frequent your business.

Restaurants could run food eating contests or host cook-offs. Landscaping companies could launch a “Worst yard in the neighborhood contest - submit your yard and win a free landscaping makeover”.   Pet stores, grooming salons or veterinary hospitals could host pet shows with prizes for “Best in Show”!

Whatever you do, be sure to market it correctly (and pay attention to truth in advertising laws). Use a blend of traditional (email marketing, newspaper ads, flyers) and new media (Facebook, Twitter, blogging) to get the word out, and follow-through with the results of your contest by posting pictures of the winner to Facebook or your Web site.

5. Dress up Your Website

Last but not least, why not dress up your Website for the season. Many businesses do this for the winter holidays, but adding a summer graphic here and there can keep your Web presence seasonal and relevant.

What summer marketing tactics have worked for your small business? We’d love to know!

Gustavo A. Viera, CPA

        

Employee Benefit Plans: What’s Law and What’s Optional

Whether you are looking to hire employees for the first time or are already an established employer, you must face the reality that your business is now a collective effort and only as good, or successful, as the team that staffs it.

Employee benefit programs are the cornerstone of the American work place. If you can’t offer your employees the basics, you may as well hang up your recruitment and retention hat and continue as a one-man band.

Yet, knowing where to start compiling a comprehensive benefits program for your small business can be overwhelming.  You must be able to understand and comply with the laws that govern employee benefits. You also have to be able to choose healthcare insurance providers, select retirement benefit plans, and institute softer benefits such as employee incentive programs.

As way of an introduction, here is an overview of the basic employee benefits that the law requires you to provide, as well as guidance on setting up a more comprehensive plan.

Required Benefits vs. Optional Benefits

You may be surprised to know that what are often perceived as required employee benefits, such as vacation leave benefits, are not actually mandated by federal law.

Here is a breakdown of what you are required to include in your employee benefit program and what you are not:

1. Required Employee Benefits

All employers must pay in whole or in part for certain legally mandated benefits and insurance coverage including the following:

• Social Security

As an employer, you must pay social security taxes at the same rate paid by employees (the current rate for social security is 6.2% for employer and employee, plus an additional 1.45% each for Medicare). eHow offers a great step-by-step explanation on How to Calculate Weekly Payroll Taxes; How to Calculate Employer Payroll Contributions; and How to Deduct Social Security Payments.

You can also get information here from Business.gov on how to file an employer W-2 form, how to hire employees not covered by social security, and more employee benefit information.

• Unemployment Insurance

Unemployment insurance is mandated at the state level, so the law is going to be different wherever your business is located. You can find out what law applies in your state on Business.gov here. If you are required to pay this tax in your state you’ll need to register your business with your state’s workforce agency.

• Workers Compensation

Commonly known as "disability benefits", workers compensation provides benefits to workers disabled by occupational illness or injury. Again, this insurance is mandated differently by each state. Currently, you are required to purchase disability insurance if your employees are located in any of the following locations:  California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island. If you employ workers in states other than these, you have the option of providing private insurance to your employees.

• Family and Medical Leave

While regular vacation leave is not a required benefit, employers with 50 or more employees are required to provide leave under the Family and Medical Leave Act (FMLA).  This provides 12 weeks of job-protected, unpaid leave during any 12-month period to eligible, covered employees for reasons including birth and childcare, immediate family care, or care for the employee’s own health condition. 

These resources provide employers with information on how to comply with FMLA.

• COBRA Benefits

Companies who had 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). COBRA provides continuation of health coverage at group rates for former employees, retirees, spouses, former spouses and dependent children. Read more about Handling Employee Layoffs as a Small Business Owner and COBRA.

2. Optional Employee Benefits

You’ll notice that the list of required benefits does not include much of what the average employee today would expect from a competitive benefits program.  Benefits such as healthcare insurance, life insurance, retirement plans, diverse leave policies, etc. combine to make a comprehensive benefit plan that is often considered an integral part of a total compensation package for many employees.

Now that you know what you are required to provide by law, take the time to understand what optional employee benefits makes sense for your business economics as well as your current and future employee needs.

There are a range of resources in Business.gov’s Small Business Employee Benefits Guide that help explain the types of health and retirement plans that your business might consider and provide tips on setting up an employee benefits plan.

Gustavo A. Viera, CPA

        

SBA and Google Launch "Tools for Online Success" Partnership

SBA and Google Launch "Tools for Online Success" Partnership
U.S. Small Business Administration (SBA) and Google announced a new partnership and unveiled "Tools for Online Success," an array of online resources and training designed to help small business owners harness technology to grow their businesses. The site features tutorials, video testimonials, and tips from savvy small business people who have leveraged the web to become more efficient, more cost-effective, and more successful.

Tips for Success

• Highlight important contact details in your listing, such as address, phone number, and email address.
• Use local listings and a website to build your representation on the web. Local listings help your business display details, while a website is your virtual store front.
• Complete every available listing field to give your customers even more information.
• Post as much information about your business as possible on your website, including location, contact information, and description.
• Upload high quality photos and videos to show your unique offerings.
• Make your website user friendly
• Build pages that are easy and simple to navigate.
• Benchmark sites you like and try to incorporate the best elements of each on your site.
• Brainstorm ways to show your customers what you do well offline, on your website. Be creative.
• Use social media to ask your customers what they think about your business. Gather all the feedback and improve where ever possible.
• Post as much content as possible to inform of specials and promotions.
• Find where your customers are online and engage them.
• Utilize free marketing to announce specials, deals, and changes to your offerings. Be as clear and specific as possible.
• Build a relationship with your customers by listening to what they are saying online.
• Reach people beyond your local area. Decide who you want to reach and use free marketing to target and engage them.
• Produce original content specific to your offerings and industry.
• Use free marketing to teach and engage the community. It doesn't have to directly lead to a sale to be effective.
• Ask your customers how you can help them learn more about you and what you offer.
• Complement your traditional advertising with paid online advertising to reach consumers while they are in front of their computers.
• Search and display advertising are highly customizable. You have full control over keywords, creative, and your budget.
• Design creative specific to your services and offerings.
• Web Analytics allows you to measure and track how your customers interact with your website.
• Analyze your web analytics account to determine how you can improve your site layout and attract new customers.
• Once web analytics isimplemented, you can see where customers came from, how long they stayed on your site, and where they clicked.

Google's innovative search technologies connect millions of people around the world with information every day. Google is a top web property in all major global markets. Its targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia.

The Small Business Administration recognizes that small businesses are critical to our economic recovery and strength, to building America's future, and to helping the United States compete in today's global marketplace. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

Gustavo A. Viera, CPA

        

IRS Outlines Additional Steps to Assist Unemployed Taxpayers and Others

VideosOwe Taxes But Can't Pay? English
Unemployment Compensation: English | Spanish
Job Search Expenses:  English | Spanish | ASL
For these and other videos:  YouTube/IRSVideos

The Internal Revenue Service today announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.

The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.

“Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain,” IRS Commissioner Doug Shulman said. “We continue to make adjustments to key programs and expand ways for people to get help. We’re doing everything we can to help ease the burden on struggling taxpayers.”

New Flexibility for Offers in Compromise

For some taxpayers, an offer in compromise –– an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed –– continues to be a viable option. IRS employees will now have additional flexibility when considering offers in compromise from taxpayers facing economic troubles, including the recently unemployed.

Specifically, IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayer’s earnings in prior years. This new step provides greater flexibility when considering offers in compromise from the unemployed. The IRS may also require that a taxpayer entering into such an offer in compromise agree to pay more if the taxpayer’s financial situation improves significantly.

These immediate steps are part of an on-going effort by the IRS to ensure the availability of the Offer in Compromise program for taxpayers.

Hundreds of Saturday Open Houses to Resolve Taxpayer Issues

In addition, IRS will hold hundreds of special Saturday open houses to give struggling taxpayers more opportunity to work directly with IRS employees to resolve issues. The offices will be open on March 27 and three additional Saturdays in the spring and early summer. Dates, times and locations will be announced shortly.

During the expanded Saturday hours, taxpayers will be able to address economic hardship issues they may be facing or get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, including the:

• Homebuyer tax credit
• American Opportunity Credit
• Making Work Pay credit
• Expanded Earned Income Tax Credit

In addition to these special Saturdays, taxpayers can take advantage of toll-free telephone assistance and regularly scheduled hours at local Taxpayer Assistance Centers. Taxpayers can find the location, telephone number and business hours of the nearest assistance center by visiting the Contact My Local Office page on IRS.gov.

Special Outreach Efforts to Unemployed

The IRS is working and coordinating with state departments of revenue and state workforce agencies to help taxpayers who are having problems meeting their tax liabilities because of unemployment or other financial problems.

These coordinated efforts may include opportunities for taxpayers to make payment arrangements and resolve both federal and state tax issues in one place.

Special Section of IRS.gov Created

Taxpayers who are unemployed or struggling financially can find information on a new page on the IRS Web site, IRS.gov. This online tax center has numerous resources including links to information on tax assistance and relief to help struggling taxpayers

Other Options Available for Taxpayers

The IRS will continue to offer other help to taxpayers, including:

• Assistance of the Taxpayer Advocate Service for those taxpayers experiencing particular hardship navigating the IRS.
• Postponement of collection actions in certain hardship cases.
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals having difficulty paying.
• Additional review of home values for offers in compromise in cases where real-estate valuations may not be accurate.
• Accelerated levy releases for taxpayers facing economic hardship.

In addition, the IRS will accelerate lien relief for homeowners if a taxpayer cannot refinance or sell a home because of a tax lien. As previously announced, a taxpayer seeking to refinance or sell a home may request the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. The taxpayer may also request the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

Gustavo A. Viera, CPA