The IRS has long used information reporting as a tool to enforce compliance with the tax laws.  This is done in a variety of ways.  Information reporting provides the IRS with the ability to perform vast numbers of compliance checks using their computer system.  For example, Bank A issues a Form 1099-INT to Customer X and the IRS that reports the $1,000 of interest it paid to Customer X during the year.  The IRS then checks X’s tax return to see if the $1,000 of income has been reported.  The most commonly encountered compliance checks include the following: (more…)

The Department of Health Services and the Treasury Department have recently released additional guidance and details related to the health insurance coverage for a child under the age of 27.  Before the passage of the Affordable Care Act into law, many health plans and issuers could remove adult children from their parents’ policies because of their age, whether or not they were a student, or where they lived.  Under this new law, plans and issuers that offer dependent coverage will be required to make the coverage available until an adult child reaches the age of 26. (more…)

With the current economy, and not always knowing what lies ahead, most business owners and executives tend to be financially conservative and preserve the cash of the business.  This conservative approach frequently carries over to hiring activities, with many employers choosing to hire independent contractors/freelancers as opposed to full-time employees.  In doing so, they eliminate the cost of company benefits such as vacation, sick pay, health insurance and retirement funding.  Another big benefit is eliminating the employer’s matching share of Social Security and Medicare payroll taxes, not to mention the savings on unemployment taxes and worker’s compensation insurance. (more…)

In today’s tough job market, students seeking summer employment, young adults looking for full-time employment, and college graduates looking to begin their careers are finding it difficult to land a job.  The family business may be the only place for some family members to find work, even if only temporarily until another opportunity arises.  Financially, it makes more sense to keep the family employed rather than hiring strangers, provided of course, the family member is suitable for the job, and not all are. (more…)

Many clients have been asking about the status of the estate tax.  Regrettably, there is nothing new to report on this issue for federal purposes.  Presently, there is no federal tax on the estates of individuals dying in 2010.  Although many believed that Congress would reinstate the tax on estates in 2010, that has not happened, and the more time that passes the less likely it is that it will happen.  Meanwhile, some states whose estate tax laws were tied to the federal law grew tired of waiting for Congress to act and have passed legislation establishing their own estate tax rules.

Under present law, the federal estate tax will return in 2011, but with only $1 million of the estate’s value exempted from tax (down from $3.5 million in 2009) and a top tax rate of 55% (up from 45% in 2009).  Thus, without Congressional action, there will be a substantial increase in the number of estates subject to tax and the amount of estate tax that will be collected by Uncle Sam.  However, everyone is expecting Congress to step in and increase the exemption for 2011 and later years.  There has been talk of setting the exemption amount at between $3.5 and $5 million and capping the estate tax rate at somewhere between 35% and 45%.

Congressional committee members have indicated they are nearing a resolution, but are still looking for revenue offsets to abide by the pay-as-you-go rules.  Watch for further developments in this area.

Corporate officers will sometimes attempt to disguise what should be payment for services as distributions of cash, dividends, and loans as a means of avoiding payroll taxes on the income.  Because they are pass-through entities, Sub Chapter S corporations are especially prone to the misclassification of income attributable to a misunderstanding of the compensation rules or by deliberate attempts to reduce the payroll tax bite.  Hence, the IRS and Congress are placing an increased emphasis on “reasonable compensation” and the collection of additional payroll taxes from the business and additional withholding from the officer or owner. (more…)