For years the IRS and taxpayers have been at odds over home expenses.  Which constitute repairs? Which should be classified as home improvements?  As CPAs know, for individuals with rental property and small business owners who own their own buildings, the distinction is an important one.

• Repair costs can be deducted from one’s taxes immediately.
• Improvement costs must be capitalized and written off over time.

All of the small business tax specialists in our Indianapolis CPA office are pleased to have a new, more thorough IRS treatise on the subject. We know you wouldn’t want to go through all 255 pages of the new temporary regulations. But for us as professionals, it’s fascinating reading, because it clears up the tax treatment of expenses paid to acquire, produce or improve tangible property.

What’s the IRS definition of repair? At Sapurstein & Associates CPAs, the way we explain it is that a repair keeps the property in good operating condition over its intended useful life. Replacing a broken window or re-roofing a building – those are repairs. Remember – repairs keep things operating.

An improvement, the IRS says, makes things better and

• extends the useful life of the property
• increases its value
• adapts it for a different use

Remember – improvements make things better, different, or longer-lasting.

New IRS regulations can become more complicated and nuanced when it comes to rental properties, to making lease-held improvements, and to moving and reinstallation costs.

When it comes to questions about property repairs or improvements, your best bet is to consult a CPA with experience in small business tax preparation. That way, your personal and business tax returns will not be subjected to any costly IRS “repairs!”

Sapurstein & Associates CPAs have a word to the wise about your tax preparation:

Not only are there new rules and updated regulations in place this year, but IRS audits are on the rise.

Caution is the word, the small business experts at Sapurstein & Associates advise, particularly if your business is one that uses a lot of contract workers. This practice is often closely looked at by the IRS, Sapurstein associates have learned, so be sure to file 1099 forms on all contract workers on a timely basis.

What do you do if you know you are flagged for an audit and want to file additional 1099 contract forms?

Doing this during the audit virtually guarantees steep penalties, and the CPAs at Sapurstein & Associates never recommend this practice. If, as a result of the audit, the IRS reclassifies your contractors as employees, penalties will apply.  Only if you can show the misclassification was unintentional is there a chance those penalties might be reduced.

The IRS penalty for misclassification is 1.5% of the contractor compensation paid. The penalties get significantly steeper – double, in fact – if 1099 forms were overlooked or simply not filed for the workers.

As Indianapolis area small business CPA specialists, we help our clients navigate the IRS audit process, which may reduce additional taxes and penalties. How? By staying abreast of IRS regulations and making sure our clients’ books are in perfect order. We advise our clients to take no chances with 1099 contract fillings in your small business tax and accounting practices. Audits may be on the rise, but with professional help, you won’t be part of that IRS statistic!

These days, who doesn’t need a tax break? Even small tax breaks for businesses can have a big and positive impact on a business’ bottom line.

All of us small business CPA professionals at Sapurstein & Associates are happy whenever we hear that the IRS is easing up on business tax regulations.  In this case, the easing relates to deducting low-cost materials and supplies needed for business.

In new IRS regulations taking effect this year, businesses will be able to write off “cost of doing business” items with a value of $100 or under, without having to depreciate them. This bodes well for small-to-medium-sized businesses, helping to simplify their accounting and bookkeeping methodologies.

Even better, larger-ticket business assets may also qualify in certain circumstances, according to the IRS. There are even new rules for determining whether repair costs are deductible business expenses.

To qualify for larger-ticket write offs without depreciation, companies must:

• Have a written policy to expense items over $100
• Have an independent auditor certify their financial statements
• Prove that their total write-off doesn’t exceed the lower of 2% of a company’s total depreciation deductions or 0.1% of its gross receipts.

When it comes to business taxes, every little bit of help the IRS provides benefits your business. Be sure you know what you can claim in the year ahead. A qualified CPA and federally authorized tax practitioner – especially one that specializes in tax work with small businesses – is your best bet. Remember – every dollar saved makes a difference to your bottom line!

As a taxpayer, you may believe you are doing everything right when preparing your business taxes, and still end up on the wrong side of IRS tax rules and regulations. Such was the case recently with a small business owner who tried to manage his own books and prepare his own taxes.

Mr. P, owner of a small business firm, pre-paid a lease and related service contract, thinking that would provide him with a current calendar year business tax deduction. It didn’t.

Here’s the story:

Mr. P’s business, whose accounting is based on the calendar year, entered into a one-year lease for a production asset from July 1 through June 30, and a one-year maintenance plan for the same period. Mr. P’s company prepaid both contracts on July 1, and expected to sign similar leases and service contracts in later years.

But when it came to listing these expenses on his taxes, the IRS said a special rule allowing taxpayers to write off the cost of recurring tax items up front didn’t apply in this case. Even though Mr. P. had paid all the money up front, the IRS said the payments were to be deducted ratably over the term of his lease and his service contract, meaning spread out over the two tax years (Rev. Rul. 2012-1).

Mr. P’s thinking was reasonable, but he didn’t consult a small business CPA before preparing his taxes. If he had, his tax outcome would have been better, and he wouldn’t have had to deal with the IRS Tax Court.

Are you doing everything for your small business? Leave accounting and tax preparation for the small business experts. CPA work doesn’t have to be expensive. Find out how to put the small business expertise of Sapurstein & Associates to work.  That way, you can work smarter, not harder!

If you are trying to manage your growing business and doing the financial accounting and tax preparation by yourself, you are burning the candle at both ends.

At Sapurstein & Associates, we know. This past year in particular, there have been all kinds of changes to business law and IRS regulations. With all the new legislation, not to mention new state mandates and special tax exemptions, our small business accounting clients tell us it’s next to impossible to cope with all that information and stay on top of running their business.

2012 may be the year where getting help from an experienced small business CPA pays for itself.  How? In tax savings.

Is this your profile?

• You’re falling behind on filings
• You’re making late tax payments
• You’re not sure about special tax rules for a Sub-S corp

Allow us. As small business tax and account professionals for more than thirty years, we can honestly say there have been few years as challenging for small businesses in Indiana. Since we specialize in offering bookkeeping and accounting services to small-to-medium sized businesses, Sapurstein & Associates is resolved to do our part to do ease the 2011-2012 burden.

CPA services don’t have to be expensive. Accounting or bookkeeping can even be quarterly or even occasional. And some of the work can even be done remotely, saving you even more. Ask about setting up a free consultation — don’t wait until you get a letter from the IRS to ask for help.

Most corporations believe they are in compliance with the Department of Labor (DOL) overtime regulations, but many actually aren’t.

January is an ideal time of the year to be sure you know the US Department of Labor’s rules defining which white-collar employees are eligible for overtime pay, and make any needed adjustments.

It is a good idea to be sure your company is in compliance. Business Week has reported that overtime litigation has “exploded nationwide.” In fact, the DOL has added 250 new investigators to pursue wage and hour violators, a 33% increase in enforcement muscle. Not surprisingly, US companies are now paying out more than $1 billion annually to resolve those claims.

The landmark Fair Labor Standards Act (FLSA) regulations have made it simpler for corporations to decide which employees are exempt from overtime pay and which are nonexempt.

Word to the wise:  It’s cheaper to review compliance on your own before the DOL or an attorney forces your hand.

The biggest FLSA mistake employers make, Sapurstein & Associates has learned, is to classify nonexempt employees as exempt. An employee earning $23,660 or less is the new threshold for overtime pay.

If you are unsure of how to classify an employee, give the CPA’s at Sapurstein & Associates a call, 317-706-0958.

As Christmas, holiday and year-end bonus time approaches, it is common practice for employers to distribute cash, gifts or bonuses to employees. The CPAs at Sapurstein & Associates want to make sure you understand the ways in which the IRS looks at employee gifts:

• All cash gifts given to employees in the form of cash, check or gift certificates, are subject to all payroll taxes. These gifts of cash need to be entered in the employer’s payroll records and “grossed-up” for at least FICA and Medicare taxes.

• Some small non-cash gifts to employees are not taxable if they are “de minimis”, or immaterial in amount. The IRS considers an immaterial gift as one whose fair market value is less than $100.00. Non-taxable employee gifts include Christmas turkeys or hams, occasional entertainment tickets (but not season tickets), and similar items.

• Is an employer-provided cell phone, iPad or laptop a gift? IRS Notice 2011-72 states that an employer-provided electronic device is considered a working condition fringe benefit IF the primary intent of the item is for business purposes rather than compensatory for the employee.

Not sure where your gifts fall? Call Leanne or Barry to discuss fair and IRS-appropriate reporting of year-end gifts and bonuses to your employees. Sapurstein & Associates are small to medium size business experts. We’ll make sure you enjoy your giving, knowing you are following IRS regulations, so you can rest assured you are in compliance.

The CPAs at Sapurstein & Associates are familiar with tax codes, regulation and IRS appeals court findings, and pays close attention to tax changes the IRS makes so we can help our clients with their finances and business taxes.

Right now, the IRS is actively looking for retirement plans that haven’t been filed or improperly filed Form 5500s. The IRS is eyeing retirement plans that haven’t filed required paperwork to pull them into compliance – and look for inconsistencies. They are actively sending out letters to sponsors of plans for which the IRS has no record of a filed Form 5500.

Plans that have failed to file are extremely likely to be subjected to close scrutiny by the IRS, and further inquiry by the labor department.

If you are out of compliance or not sure about your Form 5500 filing, let the small business CPAs at Sapurstein & Associates help you get back on track – before you are hit with fines, penalties or worse.

Give Barry or Leanne a call with your concerns (317) 706-0958.

The CPAs at Sapurstein & Associates have been blogging about Section 3091 of the Housing and Economic Recovery Act of 2008 (HERA). HERA that went into effect for tax year 2011, requires that third party payment processors such as banks and payment processors for credit cards, report customer transaction amounts to the IRS.

In order for payment processors to successfully prepare this form, they will need a valid taxpayer identification number from your company. Your taxpayer identification number (TIN) must match IRS records or merchants are required to retain backup withholding taxes on those payments. Merchants will not want to run the risk of non-compliance with the IRS, and will likely insist on getting your information prior to working with your business.

Despite the fact that the law was passed several years ago, the IRS is still resolving a number of issues related to its implementation. Here are three steps you should take to make sure Section 3091 doesn’t hurt your business:

1. 1. Debit card cash back: Since customer “cash back” with a debit card payment is common, that amount must be captured as part of payments received since it is not income. Be sure to track and record these amounts and show them “minus income” on your books “card returned cash”. Thereby not paying tax on overstated income.
2. 2. Taxpayer Identification Number mismatches: According to the IRS’s E-Services On-Line TIN Matching Program, the TIN mismatch rate for 2009 was 29.5 percent. Although most mismatches are resolved, the 2 percent that aren’t represent nearly one million mismatches. Correct any mismatches on your 1099-K information that is processed by the payment merchant.
3. 3. Payment processing fees: Financial institutions are seeing restrictions on some of their more profitable services. If implementation of this law turns out to be burdensome, it may lead to increased payment processing fees.

Expect further acts related to HERA in the coming months. Have more questions about how HERA affects your bottom line? Ask Barry and Leanne, the CPAs at Sapurstein & Associates. We are up to date on the issues effecting small-to-medium-sized businesses. Give us a call the first hour is free.

Are you familiar with the Housing and Economic Recovery Act? You should be. It had far reaching implications for the entire country, many of the provisions still yet to come into effect. One that is now in effect is Section 3091. Section 3091 of the Housing and Economic Recovery Act of 2008 requires that third party payment processors report customer transaction volumes to the IRS with a 1099-K form. The provision was enacted to ensure that business owners file accurate tax returns.

Here’s how it works: If your company generates $500,000 in credit card sales in 2011, which is processed by a merchant services company, HERA section 3091 requires that the processor inform the IRS of your $500,000. This report is transmitted to the IRS through a form (1099-K) with another copy sent to your company.

The law went into effect for tax years beginning after December 31, 2010 which means that we are now well into the first reporting period. Big Merchant Processing has until February 28, 2012 to transmit this information to the IRS (extended to March 31 if they file electronically). Unlike other 1099 forms that simply require annual totals, the 1099-K requires a monthly breakdown of payments processed.

Be sure you and your accountant are prepared this tax season. Your records must match those from your processor. Got a question related to business taxes? Ask the experienced small to medium sized business CPA professionals at Sapurstein & Associates. They have the answers or can obtain them. The CPAs at Sapurstein & Associates recommend beginning to plan for this provision if you haven’t already done so.