DO NOT PANIC IF YOU GET A LETTER FROM THE STATE

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1 May 2015 Vol. 30 No.117 Editor: George Kallas, CPA DO NOT PANIC IF YOU GET A LETTER FROM THE STATE At the end of 2014, the State of Michigan switched over its sales tax and withholding system from using two ID numbers for each business the ME numbers, to a system going back to just using one number - your federal identification number. This switch-over has caused numerous problems here in The state computers are not able to match numbers for many businesses which is causing letters to be automatically generated. These letters state that you owe taxes. Do not panic if you get one of these letters. Fax, or mail it to Kallas. We are responding. In 99% of the cases all taxes have been paid. The state is just not able to match up the payments with the new number identification system. If you have any further questions on this matter, call your bookkeeper at

2 Everything the Bar and Restaurant Owner needs to know Tax, Legislative & Management Information of Interest to Restaurant and Bar Owners May 2015 Vol.30 No.117 Editor: George Kallas, CPA In This Issue BIG CHANGE COMING TO KALLAS LABOR AUDITS ON AN UPTICK AUDIT ISSUES TO BE CONCERNED ABOUT SEND US A CLIENT UPDATE ON THE ACA 8 BENEFITS OF THE KALLAS PAYROLL SERVICE WHY YOUR PERSONAL TAXES WERE SO HIGH IN 2015 The simple answer is taxes have been stealthily going up for several years now largely due to the ACA (Affordable Care Act) law that was signed into law March 23, This law was sold as a solution to health care even though it included $800 Billion in new taxes and 18 separate tax increases. In fact, it turns out to be one of the biggest tax increases in our history. I don t remember any debate on the huge tax increases before the bill was signed do you? It was snuck in (is that a word?) without debate in the middle of the night in a totally partisan manner by the democrats and President Obama along with the re-writing of our entire health care system. Here is a list of the new taxes that may have hit you in 2015: 1. The Shared Responsibility Payment. If you did not have minimum health insurance coverage in 2014 as defined by the ACA, you paid a penalty tax. The penalty tax was $95 per adult and $47.50 per child in your family OR 1% of your income (over a threshold amount), whichever is HIGHER. For a family of 4 with $70,000 income the penalty was $497. The penalty will go up in 2015 to $325 per adult plus $ per child or 2% of income whichever is higher and in 2016, it will be the higher of $695 per adult or 2 ½ % of income. 2. There was a new.9% surtax on wages and self-employment earnings over certain thresholds. The threshold for a single person is $200,000 and for people filing joint $250,000. There is an obligation for the employer to withhold on this additional amount OR BE LIABLE FOR THE TAX in addition to normal withholding penalties if the employee does not pay the tax on their individual return. This tax hit many selfemployed people in There is a new 3.8% Net Investment Income Tax. Net Investment income is income from interest, dividends, annuities, royalties, rents and net gain on non-passive properties. There is a threshold exclusion amount the same as the above.

3 May 2015 Insi der s R ep o rt Page 2 4. More people are getting hit with the Alternative Minimum Tax. This is a second tax calculation that has a higher exemption amount but eliminates many tax write-offs. Taxpayers pay the higher of their regular tax or AMT. According to Wikipedia; Now, some taxpayers who do not have very high incomes or participate in numerous special tax benefits and/or activities will pay the AMT. 5. The ACA added taxes yet to take effect like the tax on so-called Cadillac insurance plans which takes effect in Other ACA taxes don t effect taxpayers directly but will effect the cost or availability of important items such as medical devices as manufacturers have to pay a new tax on their products. 7. The health insurance deduction for selfemployed people is still available but now, business owners have to report their premiums on their W-2 and pay social security tax on the premiums. Prior to 2014 these premiums where not subject to social security tax. 8. The threshold for itemized medical costs went from 7.5% of income to 10% of income thereby eliminating medical deductions for many people. 9. There is a new penalty tax on charitable hospitals if they fail to meet new community health assessment needs, financial assistance, and billing and collection rules establish by appointed bureaucrats. 10. A new tax on health insurance companies based on the annual premiums they charge customers and a cap on executive compensation for health insurance executives. 11. And the biggy. The Employer Mandate for businesses with more than 50 full time equivalent employees. I have talked about this tax many times in this newsletter. The tax starts in 2015 for restaurants with over 100 employees and 2016 for restaurants between employees. The tax is $2000 per full time employee (defined as over 30 hours) over a threshold of 30 employees (80 in 2015) if the employer has not offered the employee health insurance. This tax requires new accounting systems to keep track of full time and part time employees and represents a potentially huge increase in cost of doing business for many industries and services with low-paid employees. SEND US A NEW CLIENT I have never been bashful about asking for new business. Heck, we have been successful for 69 years in a tough industry so we must be doing something right. I am not bashful about asking because referring a new client to us is a win-win-win for everyone. It helps you because by us obtaining new clients and handling their accounting and payroll needs efficiently we have been able to keep your fees minimal while at the same time improving and expanding our services to you. It helps the new client because from my experience talking to prospective and new restaurant clients, I can tell you that in many cases they are over -paying for inferior work. In fact, I am seeing more and more examples of non-specialized accountants and accounting firms who are just overwhelmed and cannot keep up with what is happening in the restaurant and bar industry. Don t be afraid to ask your restaurant or bar friend to take a look at us. You may be doing them a big favor. And finally, the win for me is that it helps me to keep an excellent, experienced staff on payroll. To make it an even sweeter deal for you, anytime you refer a new client to Kallas Restaurant Accounting you receive a gift certificate worth $150. Just go to the website and click the Referral Gift Program or simply give me a call. Thanks in advance.

4 May 2015 Insi der s R ep o rt Page 3 AUDIT ISSUES TO BE CONCERNED ABOUT No one has more experience in restaurant audits than Kallas. We have been representing restaurant and bar owners for 66 years in all manner of audit from IRS to State to city to landlord to insurance company to franchisors and courts. Some audits are routine and relatively painless. Other audits are worse than a root canal and proctology exam at the same time. It depends on the authority that is conducting the audit, the temperament of the auditor and of course, the completeness and organization of your records. The worst and most costly audits are IRS. From my years of experience in restaurant audits, I have developed the top 10 areas the IRS will concentrate their attention. 1. Deposits as compared to sales. This is a rich area for auditors because in many cases, the deposits that go into your bank account are more than what is reported as sales on your tax returns. This is a clear indication of underreported sales. If your sales is not reconciled to deposits as part of your accounting procedures by us, then we encourage you to talk to your bookkeeper to set up that procedure. 2. Bank account activity. Are unexplained deposits coming into your business or personal accounts? Are there transfers being made out to unexplained sources? Do the amount of deposits match with income reported on your returns? 3. Vendor and other payments used for personal expenses. It is fairly easy for restaurant owners (and other business owners) to sometimes pay A government big enough to give you everything you want, is strong enough to take everything you have. Thomas Jefferson If you don t read the newspaper you are uninformed, if you do read the newspaper you are misinformed Mark Twain a personal expense and run it through the business to get the deduction. IRS will question and demand proof of large samples of your expenses looking for non-business items. 4. Tip reporting. This is a lucrative area for IRS. It is simple for them to examine your credit card charges and compare the tips reported there to tips reported on form If your employees are under-reporting tips, you are the one who pays the tax and the taxes could be huge. 5. Hidden bank accounts. This is another area that has expanded in recent years. You can be sure if there is a bank account that you have not reported and they find it you are in big trouble. 6. Auto mileage. Because this is a deduction that is abused by many business people, more and more audits are demanding proof of business use of an automobile. The proof required is a logbook showing odometer readings on each business trip, description or purpose of the trip along with 3rd party odometer confirmation (oil change receipts with odometer mileage on the receipt). 7. Gambling winnings and losses. IRS has learned many taxpayers under-report their winnings and over-report their losses. The laws are strict on losses. They must be proven with receipts or casino records. 8. Credit card purchases. Many restaurant owners like to pay expenses using credit cards for convenience and because of the value of the points. Unfortunately, if that is your practice, you can be assured, IRS auditors will examine those purchases closely for personal items. And please be aware, the statements themselves showing the purchase is not sufficient proof. They will require actual bills.

5 May 2015 Insi der s R ep o rt Page 4 9. Passive vs non-passive deductions and limitations. This is a technical and complicated area of tax law that your accountant or tax advisor needs to monitor. If done improperly, can cost you tax dollars. 10. Shareholder and partner basis issues. This is another technical and complicated area of tax law that IRS will look at and is an area your tax advisor needs to monitor and explain. Basically, it requires your accountant to maintain records of the money you invest and the money you take out of the business. In my many years I have come to a conclusion that one useless man is a shame, two is a law firm and three or more is a congress. John Adams UPDATE ON THE ACA Single restaurants or multiple restaurants with common ownership and over 100 full time equivalent employees are liable in 2015 to provide health insurance or pay a penalty. Kallas Restaurant Accounting has been in touch with all our clients in this category and have instituted strategies to minimize or avoid the penalty. We are monitoring hours also for the required year end reports. Single restaurants or multiple restaurants with common ownership and over 50 full time equivalent employees in 2015 will be liable in 2016 to provide health insurance or pay a penalty. Kallas is monitoring the hours of these clients and will have reports coming to them around mid-year to instruct them on their responsibilities and how to avoid or minimize the penalty. Until then, if you have any questions, please call our ACA hotline at ext Leave a message and we will get back with you. LABOR AUDITS ON AN UPTICK The State of Michigan and the Federal government have been devoting greater resources meaning auditors into labor issues in the last year. Remember, it only takes one anonymous complaint from one employee that they got short-changed on overtime pay one time to get a labor board auditor knocking on your door. If you have multiple locations, the auditor will look at all of them. Labor auditors will pour over your books and records including time-cards or POS time reports. They can, and will, question employees. If they discover that you have not been paying overtime properly, they can go back three years to estimate what you owe. If they find you have paid straight time when you should have paid time and a half, they will require you pay back wages to each employee on a pay check. If the employee cannot be found, you pay into a labor board fund. We are seeing more Federal Labor Board audits as well as Michigan Unemployment audits. They will be looking for people working off the books or off the payroll, indications of over-time not being paid, student or youth employees not getting breaks or working with dangerous equipment, paying people as contractors instead of employees, owners not being paid a reasonable salary and instances of minimum wage infractions. This is a good time to remind you that overtime is required after 40 hours per week not 80 hours if you are bi-weekly. And as I have said many times to my clients, playing games with employees to save money is a high risk gamble. It only takes one phone call and there is always at least one witness besides yourself. I don t make jokes. I just watch the government and report the facts. Will Rogers

6 May 2015 Insi der s R ep o rt Page 5 BIG CHANGE COMING TO KALLAS RESTAURANT ACCOUNTING After 69 years in the landmark Penobscot Building in downtown Detroit, Kallas is moving. We have purchased a single tenant office building on Haggerty Road just north of 9 mile located in Farmington Hills on the Novi/ Farmington Hills border. It is an ideal location, on a main road close to all expressways with free parking to our As we come closer to the move date, we will be sending notices to you regarding new mailing procedures customers just a few steps from the front door. We think it will be easier for our clients and customers to visit. And, as in all years in the past, George or others in the office are available to come to your location if the need arises. The move is set for the last week of August. In the meantime we are doing extensive remodeling which will include state-of-the art security for your records. As we come closer to the move date, we will be sending notices to you regarding new mailing procedures and how to obtain free return envelopes. 8 BENEFITS WITH KALLAS PAYROLL SERVICE BENEFITS EITHER NOT AVAILABLE OR COSTLY WITH OTHER PAYROLL SERVICES 1. You talk to a payroll restaurant specialist immediately whenever you call Kallas Payroll. No voice mail or a return call from a clerk two days later. 2. You can call in your payroll. Many services do not allow you to call in if you want to. 3. You call one number for both payroll and bookkeeping. No need to be put in the middle when a problem occurs and your payroll company and your bookkeeper are pointing the finger at each other. 4. Kallas Payroll stores your records for 7 years at no additional cost to you. No need for you to have to dig in boxes to find a W-2 for 2012 for an employee that needs it. 5. Kallas monitors your UIA account for any unusual activity at no additional cost to you. Other payroll companies charge for this service 6. Kallas responds to UIA notices and separation reports when someone quits at no additional cost to you. Other payroll companies charge for this service. 7. Our W-2 fees are the lowest in the industry. 8. Kallas expertly handles your workers comp and Labor Board Audits at very low cost to you. Other services provide a non-expert service or a very generic service at high cost to you. Insiders Report is intended as an informational tool for Restaurant and Bar owners. Insiders Report is a quick source for new and changing tax laws, legislation and practical management strategies the restaurant and bar owner need in today s highly competitive food and beverage service industry. Insiders Report is published quarterly by Kallas Publishing, Inc as a free service to Kallas Restaurant Accounting clients. For information or subscription rates, contact: Kallas Publishing, Inc 645 Griswold St., Ste 1500 Detroit, MI (313)

7 Calendar for June, July, August 2015 June 15 Individuals outside the U.S.: File 2014 Form Individuals: Pay the second installment of estimated tax for Corporations: Deposit the second installment of your 2015 estimated tax. Corporations: Taxes due for March year end corporations. Corporations: Estimated Taxes due for corporations with fiscal year ending March, June, October or December. June 20 July 3 Michigan Sales, Use and MBT estimates due. Kallas Restaurant Accounting closed for Independence Day July 15 Corporations: Taxes due for April year end corporations. Corporations: Estimated Taxes due for corporations with fiscal year ending January, April, July or November. July 20 Michigan Sales, Use and MBT estimates due. July 25 July 31 UIA form 1020 due for 2nd Quarter. Deposit FUTA owed through June if more than $500. File Form 941 for the second quarter of August 10 File Form 941 for the second quarter of 2015 if you timely deposited all required payments. August 15 Corporations: Taxes due for May year end corporations. Corporations: Estimated Taxes due for corporations with fiscal year ending February, May, August or December. August 20 Michigan Sales, Use and MBT estimates due. 645 Griswold, Ste 1500, Detroit, MI (313)