2010 TAX SEASON IS HERE

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1 February 2011, Vol. 25 No. 100 In This Issue... State Subsidies At Work New Rule For Making Payroll Deposits Checklist of New Laws That May Affect You Tax Tip When Buying An Existing Restaurant or Bar Kallas Saves Taxpayer $52,468 In IRS Penalties IRS Tidbits Services To Make Your Job Easier Call Early For Your Tax Appointments New 1099 Rules And More TAX SEASON IS HERE THERE ARE MANY CHANGES THIS YEAR Editor: George Kallas, C.P.A. T he 2010 tax season is upon us. And as usual, it means finding bills, accumulating paperwork, thinking about everything you did last year and trying to figure out ways to keep that darn tax bill to a minimum. Our goal is to make sure you do not pay Uncle Sam any more than necessary. As a business owner, there are ways of presenting information, making judgements and using tax laws to lower your tax bill. We have the experience to make use of all the techniques that are available and we work very hard to think of new ways to use new laws to keep your taxes low....we work very hard to think of new ways to use new laws to keep your taxes low. And we never forget to use our experience and judgement to keep you out of dangerous areas of tax law. This year, Nick Kallas, Karen Walega and I will be preparing your personal taxes. Jim Humenik and Cathy Infantado will be preparing your business taxes. There are many changes this year and many changes that will affect you in You can keep your tax preparation costs down and help us to identify potential tax savings by answering the questions on the tax organizer as completely as possible. Along with the organizer, you should be submitting to us all W-2 s, 1099 s, closing statements on purchases or sales of real estate, mortgage interest statements and broker statements. (continued, page 2...)

2 (... continued from page 1) You can also help us by mailing your information early. Remember, we know you and your situation very well. Most questions can be answered over the phone and by mail. You can help us and also keep your tax preparation cost down by answering the questions on the tax organizer as completely as possible. We will be E-filing all returns again this year. What this means is that your personal and business returns will be prepared like normal and a paper copy mailed to you. You will have an opportunity to review the return. If everything looks good, you will sign a one-page authorization and mail it back to us. No more need to rush to the Post Office on April 15 and your refund will get to you about 4 weeks quicker. Please remember, the more organized your data, the less we have to charge. We charge extra for appointments, adding bills or organizing information, follow-up phone calls, missing data, tax advise or consultation, research, alternative calculations, rerunning returns, adjusting estimated taxes or reviewing legal documents. STATE SUBSIDIES AT WORK WHEN ARE WE GOING TO WAKE UP A n article in the Detroit Free Press reported, Companies are searching for a billion dollar breakthrough in battery design. General Dynamics is working on a zinc-air cell battery. Ford is actively interested in a sodium- sulfur cell. Gulton Industries and General Motors are tinkering with lithium... All the activity is bound to pay off probably within the next five years. That promise sounds so good it seems worth it for Governor Granholm and the Michigan Legislature to authorize $500 million worth of taxpayer subsidies and tax breaks for battery makers. Unfortunately, that article appeared in the Detroit Free Press on July 24, Our state government is broke and can t do the jobs it is supposed to do. Yet politicians find any justification to take our money and spend it picking winners and losers in business. We hear those flowery speeches about how we are going to create jobs by bringing movie making to Michigan. Well where are those jobs? And more importantly, what could have been done with the money we gave to movie producers to film here. And what happens when the subsidies disappear? If the state gave restaurant owners a 30% cash incentive,(like we do film makers) how many new restaurants would you see? The point is government is getting into areas it shouldn t and we as voters allow it. Next time you hear a politician talk about incentives tell that politician if he or she wants to be a speculator to use his own money and not yours and mine. NEW RULE FOR MAKING PAYROLL DEPOSITS eginning January 1, 2011, the IRS is no longer B accepting tax coupons from your bank. You MUST pay your federal payroll tax deposits electronically. The IRS will charge you a 10% penalty for each non-electronic deposit. You can use a free IRS service to pay your taxes electronically by going to irs.gov/epay or call Or you can use the Kallas TPS service. With the TPS service, Kallas will pay all your payroll taxes not just federal you have a no-penalty guarantee, you do not have to pay attention to due dates and the IRS does not have your bank account information. Call Maryann at Kallas to set yourself up. Page 2

3 CHECKLIST OF NEW LAWS THAT MAY AFFECT YOU LOTS OF TAX BENEFITS IN NEW LAW LOTS OF NEW COMPLIANCE BURDENS T he HIRE Act, the Small Business Jobs Act and the Tax Relief Act were all passed in The result is a mixed bag for restaurants. There were some major goodies related to depreciation write-offs but there were also some major administrative burdens added. Here is a list of the provisions that generally relate to restaurants and bars. Expensing of large purchases of equipment (section 179 property) was to go down to a maximum of $25,000 in The new act increases the amount you can write off in the year of purchase to $500,000 (with certain limitations). This is a big benefit for those buying or building new restaurants or making major renovations in Section 179 expensing was extended to leasehold improvements. And for restaurant buildings, a first year $250,000 write off is available.. Income tax rates have changed to reflect the loss of the Making Work Pay credit and the new tax reduction, the so called FICA Holiday. Employees FICA taxes are reduced 1/3 to 4.2% of gross pay instead of 6.2%. This change will be made automatically using the Kallas payroll service. This change will not affect your total payroll costs as the savings goes to the employee. The Alternative Minimum Tax, marriage penalty relief, tuition credits and other deductions and phase-outs that benefitted taxpayers and were scheduled to expire were extended until The Estate Tax is reinstated starting in 2011 but instead of a 55% rate on estates over $1 million, the rate is 35% on estates over $5 million. A temporary provision allows self-employed persons to deduct health insurance from self-employment taxes for 2010 only. The enhanced deduction for food contributed to charitable organizations was renewed. Credit card companies will start reporting your credit card sales in 2011 to the IRS. Health insurance paid by the employer will have to be reported on the employees W-2 starting in If you own a rental property you are required to file a 1099-MISC to any person, contractor or corporation that you pay over $600 in See the accompanying article in this newsletter. In 2012 the 1099-MISC reporting requirement will be expanded to apply to all businesses If you have a foreign bank account exceeding $10,000 the reporting requirements have expanded starting in For 2010 and beyond you may convert your traditional IRA s and 401K plans to Roth plans without penalty. Tax compliance and the reporting requirements for businesses are expanding rapidly. We intend to keep you up to date through this newsletter but if you have any questions about your personal situation, please contact our tax department. Hard work and diligence is still the formula for success says Dan Johnson, one of the owners of Ironwood Grill in downtown Plymouth. He and his partners found a nice location, moved a liquore license and built from the ground up. The customers followed. Now, the goal is consistancy and keeping costs in line. Page 3

4 TAX TIP WHEN BUYING AN EXISTING RESTAURANT OR BAR KALLAS SAVES TAXPAYER $52,468 IN IRS PENALTIES D id you know that when you purchase an existing restaurant or bar you inherit the unemployment rate of the previous owner? W e saved a new client $52,468 in penalties. That is not the big news. We do that kind of thing all the time. Sometimes this is a good thing and sometimes this is a disaster. A good rate may be as low as one half percent and a bad rate could go as high as 11.5%. A bad rate could therefore cost you thousands of dollars in unnecessary taxes at the very beginning of your new endeavor. If you are unaware of the bad rate it could even put you out of business. It is not unheard of that a bad inherited rate can kill an otherwise good purchase of a restaurant or bar. If the prior owner has a good record with unemployment not having a lot of collections against his or her account and paying all quarterly returns then the rate you inherit will be low. If, on the other hand, the prior owner had collections against his or her account or was delinquent in filing and paying returns then the rate could reach the maximum. There is a way around the problem of an inherited high unemployment rate. When you purchase a business you are required to file applications with the state unemployment office. The application asks questions to determine whether you are a successor employer. If you are a successor, you inherit the prior owner s rate. To avoid being determined a successor you need to show that you did not purchase the employees of the previous owner. If the prior owner s rate is bad, the purchase paperwork should specifically state that the purchase does not include the current staff and your attorney should indicate in the paperwork that you will fire all existing employees. After all the prior owner s employees are fired you can hire them back and start at the new employer rate of 2.7%. This technique is not fool-proof. Unemployment law is sometimes interpreted by low level employees and when you rehire people you just fired, you may end up in a fight to get the lower rate. Page 4 The real news here is that this was a restaurant business that came to us after trying to prepare their own payroll using a popular payroll program. And we see this type of thing all the time. Preparing payroll seems somewhat easy to do yourself especially if your payroll is reasonably consistent. The big problems occur when something goes wrong or at year end. Like the saying goes, You don t know what you don t know. If you don t know tax law you can get yourself in trouble pretty fast. We charged less than $3,000 to get the liens lifted and resolve that $52,468 penalty. Now we charge that restaurant $240 per month to prepare their payroll, pay their taxes, answer their payroll correspondence and take care of all their payroll headaches. Do the math. Cost of payroll program, cost of time to do work, cost of knowing payroll laws, cost of making mistakes, plus $3,000 to professional to get out of trouble compared to $240 per month. It s a nobrainer. IRS TIDBITS E ver wonder why the cost to comply with taxes keeps going up? From the Wall Street Journal: In the late 1990 s, there were typically fewer than a dozen tax provisions that had just a limited lease on life and needed to be renewed every year or so. Today there are 141. The Treasury Inspector General for Tax Administration has found that there were nearly 23.7 million errors on returns through May 2010, an increase of 7.1 percent from the previous year. (continued, page 5...)

5 (... continued from page 4) The same Inspector General study found 125,762 individuals received nearly $111,400,000 in erroneous Stimulus Recovery Act benefits in In addition, 10,581 individuals claimed $65,600,000 in erroneous Homebuyer Credits and 109,665 individuals incorrectly received $29,700,000 in Making Work Pay benefits. SERVICES TO MAKE YOUR JOB EASIER C all Kallas Restaurant Accounting for electronic services that can make your job easier. Electronic filing and payment of your payroll taxes. We file all your payroll tax returns and make all payments with a no penalty guarantee. Electronic filing and payment of your sales taxes. No need to scramble each month to sign and pay. And a no penalty guarantee. Employee Direct Deposit Service. No more paychecks to have to sign and hand out. Checks are deposited in employee bank accounts automatically. Paycards/Debit Cards. Paycheck is automatically deposited to an employee card they can use like a credit card. Contact Maryann at to get started. DO YOU OWE THE STATE OF MICHIGAN? NEW TAX AMNESTY STARTING MAY 15, 2011 I f you have failed to file a return or pay a tax due to Michigan for taxes due prior to January 1, 2010, you may want to take advantage of Michigan s new Amnesty Program beginning May 15, 2011 and ending June 30, On October 5, 2010, Governor Granholm signed bill L.2010, S884, (P.A.198) that creates a tax amnesty for unfiled and/or unpaid taxes. The taxpayer must make a written request for a waiver of all criminal and civil penalties for failing to file a return or failing to pay a tax due. The taxpayer must submit any unfiled returns and make full payment of the tax and interest due no later than June 30, There is no additional penalty for not participating in the amnesty. If you pay in full during the amnesty period, the only amounts waived by the state are the penalties. To participate, specific forms must be filed so call Kallas for advice and to get the ball rolling. CALL EARLY FOR YOUR TAX APPOINTMENTS TAXES CONSUME THE BIGGEST PORTION OF MOST PEOPLE S CURRENT EARNINGS AND FUTURE RETIREMENT INCOME. O ur job at Kallas Company is to help you maximize tax savings and help you create future wealth. For the greatest savings over time you need to plan ahead. Call us before you sell stocks, sell your business, buy a business or make any substantive changes to your financial situation. By now you should have received your 2010 tax organizer. If you have not received your tax organizer, call our office for another one. The tax organizer helps you organize your tax information and allows us to receive your information in such a way as to help us find tax savings for you. If you need help completing it or would like an appointment, call Dawn at Tax interviews prior to March 15 are $90 per hour. After March 15 they are $120 per hour. Thank you again for your continued patronage. Remember, if you send us a new business or tax client you receive a gift certificate worth $100 towards any accounting or tax services. In the years that we have had the gift certificate program, our clients have redeemed thousands of dollars worth of valuable tax services. To contact George Kallas, CPA or Kallas Company, call 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 needs 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 Company clients. For information or subscription rates, contact: Kallas Publishing, Inc Penobscot Building Detroit, MI Page 5

6 NEW 1099 RULES N E W L AW W I L L I N C R E A S E PAPERWORK BURDENS any of you have heard through media accounts M of a new law requiring all businesses to produce a 1099 form for all vendors you pay over $600 in a year. There has been a cascade of complaints about the rule because of the enormous amount of recordkeeping that is involved. Imagine having to obtain information about every vendor you pay and having to produce and mail a 1099 form at year end for each and every vendor. It would be like a second set of W-2 s for everyone you pay through your general checking account. That rule was part of the Health Care Act and does not go into effect until January 1, 2012, but a more limited version of the 1099 rule does begin in 2011 for rental property owners... a more limited version of the 1099 rule does begin in 2011 for rental property owners. Under the Small Business Jobs Act passed in late 2010, landlords will need to issue a 1099-MISC to report payments totaling $600 or more during the course of the year for any expenses relating to their rental properties. The penalties for not filing a 1099 will be increased to the following: $30 penalty per 1099 for filing not more than 30 days late. $60 penalty per 1099 for filing more than 30 days late but before August 1 of each year. $100 penalty per 1099 for filing after August 1 each year. $250 penalty per 1099 for intentional failure to file. These penalties are pretty severe and can add up. There are no extensions for giving the recipient their copy each year. Call Kallas for more information and how to best comply with the new law Penobscot Building Detroit, Michigan 48226