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New Year’s Cleaning Rules for Your Business Records

All business owners would like to get rid of old records and free up space. However, before you fire up the heavy duty shredder, there are a few federal tax law rules you should know. Please be sure to read the whole article before you make a final determination of what to throw out.

Three-year paper records
Generally, for paper records listed below, you should hold these records for three years from the later of the date of filing a return or the due date of the return.
• Daily sales records
• Cancelled checks (for other business reasons, you might wish to hold longer)
• Bank deposit slips
• Auto mileage logs (but keep for the life of the vehicle, if longer)
• Paid vendor invoices
• Expense reports
• Entertainment expense records

Caution: Some state statutes exceed the federal statute by up to one year. So, if you want to be safe, consider at least a four-year holding period.

Permanent records
Unfortunately, there are records that you just should never get rid of, such as:
• Annual financial statements
• Tax returns and documents determining an income tax liability
• General ledgers and journals (including end-of-year final balances)
• Copy C of Form W-2
• Corporate stock records (including minute books and chartered bylaws)
• Real estate records

Special rules for corporate records
The IRS has special rules that require holding onto business records maintained on a computerized system. If your business has less than $10,000,000 in assets but you maintain items listed above on your computer, follow the paper record rules above. But if your business has more than $10,000,000 in assets, the IRS requires that your computer records be in a retrievable format. You must keep documentation for these data files, such as:
• System and program flowcharts
• Records formats
• Source program listings for programs used to create the files retained
• Label descriptions
• Detailed charts of accounts
• Evidence that the retained records reconcile to the taxpayers’ books and the tax return
• Evidence that periodic tests are performed on the retained records

Other things to consider
Please note that we are only considering IRS rules for record retention, and these recommendations are for the minimum period for retaining business records. In certain circumstances, such as potential litigation, you might consider a longer period. This tax alert should be considered only as a guide, and special circumstances can always apply. A good rule of thumb is that if you are not sure; seek a professional’s advice before you throw business records away.

Please contact us for further information. My Business Partner.us and 480-503-8904 or April@MyBusinessPartner.us

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New Crackdown on Employment Taxes

The IRS announced that it has teamed up with 29 states (with others joining soon) to crack down on employment tax violations. The primary focus is on which workers should be treated as independent contractors and which should be classified as employees. These agreements are part of the IRS’s Questionable Employment Tax Practice (QETP) initiative, which will provide a centralized, uniform means for the IRS and state employment affairs to exchange data, thereby leveraging resources and encouraging businesses to comply with federal and state employment tax requirements.

Caution: It is a common misconception that someone working part-time or earning less than $600 per year should be classified as an independent contractor. In fact, part-time status and the number of hours worked are generally not factors that determine whether a worker is an employee or independent contractor. Determining the correct result can be very tricky. Usually the outcome depends on control. If the business has control over its workers to such an extent that it can control what will be done and how it will be done, that generally means that the workers are employees, and payroll taxes and worker’s compensation must be paid by the employer.

Warning: If a company is treating a person as an independent contractor, but that person believes they are an employee, that worker can file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with the IRS. In this case, the worker only has to pay the employee’s share of employment taxes; however, if the company is treating this worker’s payroll improperly, it is responsible for the employer’s share of the taxes, plus penalty. Employers can also get in trouble if an independent contractor files for unemployment, telling the state that he or she believes they are an employee. In that case, a state could share such information with the IRS, indicating that the contractor might, in fact, be an employee.

Note: Employers think they save money by treating people as independent contractors, but beware. If an independent contractor gets hurt on the job, he or she is not covered by worker’s compensation. The company could be on the hook for a major legal liability. The general consensus is that treating someone as an employee is generally safer, for a whole host of reasons.

Determining worker status and filing and paying employment taxes can be a complex process. If you are a business owner who needs assistance, you should immediately call to discuss your particular situation.

Please contact us for further information:
Info@MyBusinessPartner.us
480-503-8904

Please feel free to forward this information to business associates who might benefit from this information.

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My Business Partner Merger

My Business Partner LLC is excited to announce the merger with Accounting 101 LLC! Nicole A. Rose brings her experience and skill along with her firm under our wing beginning October 15th, 2009. She comes to us with over 15 years in public and private accounting experience ranging from the hospitality industry to Real Estate and Construction. Raised in Pekin, Illinois she transplanted to Arizona in 2004 with her husband’s job transfer and has made this her home. She is a mother of two boys, Seth (6-1/2) and Noah (4-1/2), enjoys watching them grow and develop and in the small amount of spare time she has remaining is an avid reader. Her focus at the firm will be internal administration and Senior Accountant. You can welcome her at Nicole@MyBusinessPartner.us.

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Businesses Beware: Surrounding States Want Their Share of Your Tax Dollars

In today’s difficult economic environment, almost every state is looking for ways to increase revenues. One popular idea most states are pursuing is to aggressively seek revenue from out-of-state companies. The technique that states employ is to argue that out-of-state companies have nexus. Nexus means that an out-of-state company has some “connection” to that state, even though it might seem insignificant, that allows a state to subject the company to its tax laws. The biggest concern is that if a company has not been filing in a state for years for sales tax, as an example, income tax or franchise taxes for all prior years, plus interest and penalties, could be due. It is also important to note that states are now sharing more information. For example, many states have signed on to a more streamlined sales tax initiative program. There are many factors that could create this dreaded nexus, and we will touch on just a few.

Employees & Independent Contractors

One factor that can create nexus is whether you have employees working in another state, such as salespersons or independent contractors that sell goods in that state. Even having employees install or supervise installation of equipment in a state can create a nexus issue. Having employees in the state even for a short duration or short project will not avoid the issue of creating nexus.

Crossing State Lines with a Company Truck

It is possible that you do not create nexus by shipping goods by common carrier. However, even if you only occasionally deliver goods across state lines using your vehicles, nexus could be created. Aggressive states have agents on their border pulling over out-of-state trucks and, in certain cases, have even seized the vehicle and cargo.

What Should You Do?

If you are concerned with possible exposure and liability, there are steps to be taken. First, consider having a nexus study done by our firm to determine your possible exposure to taxes and penalties. Second, our firm can anonymously contact these states on behalf of your company and negotiate voluntary disclosure agreements.