Five Tax Scams to Avoid

Every year, The IRS releases its list of the top 12 tax scams and schemes. These scams – known annually as the Dirty Dozen – are illegal and can lead to problems for taxpayers who risk significant penalties, interest and possible criminal prosecution. Here are five scams from the 2009 Dirty Dozen list every taxpayers should be aware of this summer.

1. Phishing Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS, that contain enticements for the recipient such as additional money back on their previous year’s tax return. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. The Internet-based scam artists use the personal information obtained through these e-mails and Web sites to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. If you receive an e-mail that you suspect is a phishing attempt or directs you to an imitation IRS Web site, please report them to the IRS at phishing@irs.gov. You can also visit the IRS Web site at IRS.gov and enter the keyword phishing for additional information.

2. Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.

3. Abusive Retirement Plans The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits.

4. Hiding Income Offshore Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.

5. Misuse of Trusts While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

For more the full list of 2009 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit IRS.gov.

Link: Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

For additional information contact Hewitt Business Consultants at (919) 341-1585 or email  laurice@hewittbusinessconsultants.com.

10 Great Reasons for Outsourcing Payroll Services

While peace of mind may be reason alone for outsourcing payroll, below are additional reasons why outsourcing payroll services may be a great solution for your small business:

1. Save time by letting payroll specialists do the work.

2. Save money by focusing your time on building your business.

3. Avoid penalties where errors in federal, state and local taxes and filing requirements may be avoided.

4. Reduce costs by comparing in-house processing wages to outsourced processing fees.

5. Avoid the hassle of needing to stay on top of payroll rules and regulations.

6. Add employee benefits such as direct deposit and 401(k) plan options.

7. Avoid payroll processing headaches having to upgrade in-house systems or software.

8. Leverage outside expertise on regulations, withholding rates and government forms.

9. Eliminate payroll disruption if your payroll person leaves.

10. Security,  most payroll services firms have technologies that can spot and alert clients to various types of payroll fraud, such as payment manipulation and “phantom workers.

For additional information contact Hewitt Business Consultants at (919) 341-1585 or email Ms. Hewitt directly at laurice@hewittbusinessconsultants.com.

Seven Tips for Students with a Summer Job

Many students get a summer job during their time off from school. Here are the top seven things the IRS wants everyone to know about income earned while working a summer job.

1. Taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct, visit the Withholding Calculator on IRS.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

• You are in the business of delivering newspapers.
• All your pay for these services directly relates to sales rather than to the number of hours worked.
• You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

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SUMMER HIRING RULES FOR 2009

Firms owned by parents that employ their children:

Owners’ children can work for the firm, regardless of age, number of hours worked or time of day—if the parent(s) own 100% of the business. Children under 16 cannot do hazardous work such as use lawn mowers, sewing machines, etc., work where food is cooked, or work near flammable or hazardous material.  Minimum wage: 100% of owners hiring only immediate family members need not pay the minimum wage. But if owners regularly employ non-family members, they must pay even family members the minimum wage.

• Owners’ children under 21: Wages are exempt from FUTA.
• Owners’ children under 18: Wages are exempt from FICA—if the parents are sole owners or sole partners—but FITW must be withheld on W-2s filed for the children.
• Other children under 18: Obtain an age certificate recognized by the U.S. Department of Labor (DOL) and your state Wage and Hour Division (WHD) and return it to the workers upon termination. DOL generally accepts a state age certificate, but ask your state WHD to be sure. These workers may not perform hazardous work.
• Other children aged 14-15 can work 8 hrs/day, 40 hrs/wk, June 1-Labor Day, between 7 a.m. and 9 p.m. if school is not in session. Exceptions: These limits do not apply to news carriers or children who are employed exclusively by a parent/sole-proprietor. For agricultural jobs, contact the DOL.
• Other children under 14 cannot be hired unless they work for a parent/sole owner.
• Paid holidays. Under federal law, paying part-time and summer help for holidays is optional any time of year.
• Paid vacation. No law requires paid vacation, but if you give paid vacation, some federal and state laws apply.
• Benefits. Providing health insurance or other benefits to temporary and part-time employees is optional; if not available, it should be so stated in a written benefits plan.
• Federal W-4 – Obtain from all summer employees, even students working part-time and foreign students.
• FITW -  Withhold from all summer employees unless their W-4 results in no withholding.
• FICA -  Withhold from all workers, even those receiving Social Security benefits and high school students, unless under 18 working for sole-owner parents.
• Overtime pay under federal law. Pay overtime for all hours physically worked over 40 hours in the workweek. When computing overtime, you need not include paid time-off (e.g., holidays or vacation days). Do not try to substitute paid nonork hours for work hours to make all hours straight time, thus avoiding overtime pay.
  

For additional information and a free consultation, contact Hewitt Business Consultants at (919) 341-1585 or email Laurice Hewitt directly at laurice@hewittbusinessconsultants.com

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Well, dah it does work!If so many people are using this application,why did I question if it worked appropriately? It is as good as its user