Archive for Payroll Services

Husband and Wife Businesses

Wednesday, April 14th, 2010

One of the advantages of operating your own business is hiring family members.  However, the employment tax requirements for family employees may vary from those that apply to other employees.  Below are some issues to consider when operating a husband and wife business.

How spouses earn Social Security benefits – A spouse is considered an employee if there is an employer/employee type of relationship, i.e., the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse.  If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding.  However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists and the business’s income should be reported as a partnership on IRS Form 1065 or as a qualified joint venture (see below).

Both spouses carrying on the trade or business – A provision of the tax code generally permits a qualified joint venture whose only members are a husband and wife filing a joint return not to be treated as a partnership for Federal tax purposes.  A qualified joint venture is a joint venture involving the conduct of a trade or business, if: (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision apply.

Under the provision, a qualified joint venture conducted by a husband and wife who file a joint return is not treated as a partnership for Federal tax purposes.  All items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective interests in the venture.  Each spouse takes into account his or her respective share of these items as a sole proprietor.  Thus, it is anticipated that each spouse would account for his or her respective share on the appropriate form, such as Schedule C.  For purposes of determining net earnings from self-employment, each spouse’s share of income or loss from a qualified joint venture is taken into account just as it is for Federal income tax purposes under the provision (i.e., in accordance with their respective interests in the venture).

This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based.  However, this may not be true if either spouse exceeds the social security tax limitation.

One spouse employed by another – If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for him or her.  The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.

If you have questions related to the tax treatment of your specific husband and wife business, please give this office a call at 888-564-5777.

Categories : Business
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Little-Known – But Important – Credit Card Rules for Merchants

Thursday, March 11th, 2010

Businesses that accept credit and debit cards must comply with privacy laws that aim to protect customer identity.  There are regulations that even the most seasoned of merchants aren’t always aware of.  It’s important for merchants, as well as consumers, to be aware of these little-known credit card rules to protect themselves and their information.

Stay Compliant with Federal Laws – The Fair Credit Reporting Act is the federal law that establishes the foundation of consumer credit rights. This law regulates the collection and use of consumer credit information by merchants.

Passed as an amendment to the Fair Credit Report Act, the Fair and Accurate Credit Transaction Act prohibits merchants from showing credit card numbers on receipts.  To comply with this law, businesses must truncate credit card information on electronically printed receipts.  Merchants can include no more than the last five digits of the card number and must delete the card’s expiration date.

Example: ACCT: **********00714
Exp: **-**

The law does not apply to imprinted or handwritten receipts; however, merchants using these are also required to protect customer identity. For more information, check out the Federal Trade Commission’s guide Slip Showing?

Comply with State Laws
After complying with the Fair Credit Reporting and Accurate Credit Transaction Act, be sure to familiarize yourself with your state’s laws on the use of consumer credit information.

Many states have laws that establish what kind of information merchants can and cannot ask for or write down when a customer uses a credit card. For example, California prohibits merchants from requesting or requiring that a consumer write any personal information (like their address or telephone number) on any form associated with their credit card transaction.

Not all states have additional laws that specifically regulate credit card practices.  For more information, read more about state merchant laws, or check with a small business expert in your state.

Beyond the Law – Merchant Contracts
Beyond these government regulations, credit card practices are also policed by the credit card companies themselves through terms of service or rules manuals.  These agreements details how transactions using their cards should be carried out.

Interestingly, many merchants cannot require a customer to provide identification as a requirement for accepting a credit card.  Although a merchant is allowed to ask for identification, customers can refuse without suffering a penalty.  The rules manual for popular cards like Visa or MasterCard state that a merchant must accept their card regardless of whether or not the customer provides personal identification. Note: If a customer prefers to be asked for identification, they can write “See I.D.” or “Ask for I.D.” on the back of their card. Although merchants are not required to follow this request, many happily comply.

Another little-known, but common, rule is that credit card companies generally prohibit merchants from establishing a “minimum purchase amount” when processing transactions with their cards. It is very common to walk into a store and see a sign stating that credit card transactions require a $10 minimum purchase.  Credit card companies want to promote the use of their cards and usually include rules that prohibit merchants from making these statements. More often than not, these merchants are violating their processing agreement with their card companies. Official rules vary from card to card but it is safe to say that it is either strongly discouraged or explicitly prohibited in many agreements. Unfortunately, for small businesses, transaction fees often mean that a small purchase made on a credit card hurts their profits.

It is not uncommon for merchants to ignore aspects of their rules manuals, usually because many are unaware the rules even exist.  Businesses should be sure to review the rules manuals for each company whose card they accept as payment.  Consumers should do the same to be aware of the rights they have for each card they carry.

If you have questions, please call this office at 888-564-5777.

Categories : Bookkeeping
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Are You Required to File 1099s?

Friday, March 5th, 2010

If you use independent contractors to perform services for your business or rental and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses.  The 1099s for 2009 must be provided to the independent contractor no later than February 1st of 2010.  Generally, this due date is January 31, but when the due date falls on a Saturday, Sunday or holiday, it is not due until the next business day.

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year be $600 or more.  As a result, you overlook getting the information needed to file the 1099s for the year.  Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services.  Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts.

IRS Form (W-9, Request for Taxpayer Identification Number and Certification) is provided by the government as a means for you to obtain the data required to file the 1099s from your vendors. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. We highly recommend that you have a potential vendor complete the Form W-9 prior to engaging in business with them. The form can either be printed out or filled onscreen and then printed out. The W-9 is for your use only and is not submitted to the IRS.

In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by the last day of February. However, the due date is extended to March 1, 2010 since the last day of February 2010 falls on a Sunday.  This must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form.  This service provides recipient and file copies for your records.  Use the worksheet to provide us with the information we need to prepare your 1099s.

Please attempt to have the information to this office by January 20, so that the 1099s can be provided to the service providers by the January 31st due date.

If you have questions, please call this office at 888-564-5777.

Categories : Bookkeeping, Payroll
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To Terminate or Motivate?

Tuesday, February 16th, 2010

You come in to your office each day to an employee who lacks motivation and does the minimal amount of work to “get by”. He or she may leave early or come in late, all too often. Maybe they spend too much time surfing the web. You may have avoided terminating this person because you don’t want to expose yourself to the “risks” of termination or deal with the time it takes to replace him/her, all valid thoughts to consider. Yet, consider the repercussions of not terminating this person.

When an employee is not motivated to do their job and their performance is not up to par, it can affect more than their own productivity. Other employees are seeing a lower work standard set. Employee morale may be impacted. In addition, you spend time and energy to coach and monitor this person. All of these issues affect the focus of the business and ultimately, impacts your bottom line.

Before terminating this employee, there are steps to take to mitigate risks of litigation. Ensure that you have provided this individual with feedback regarding their performance or lack thereof. Have you been conducting performance reviews that show where the employees’ performance needs improvement? Is he/she aware, through face to face conversations or written documents, that you are not happy with their effort (site specific actions) or commitment to the organization? If you have given them verbal feedback, make sure you have documented and filed those conversations.

If you feel confident in your ability to terminate this person with minimal risks, know that now is a good time to replace this person. Your recruiting efforts will reap many more candidates than you have seen in recent years. With the economy still down and the unemployment rate high, there are plenty of eager candidates available, making your chances of finding that employee, who may shine, that much easier.

Terminating employees, while a difficult decision, is not one to be taken lightly. However, it is an undertaking that should be considered if there are legitimate, non discriminating reasons for the action. It is always advisable to consult with an HR Professional or an Employment Attorney before taking action.

If you decide to keep this employee on payroll, at least until you have been able to provide proper documentation, remember that feedback to employees should not just be about what they are doing right or wrong, but specific actions that need to be taken to improve performance. You may be surprised to find performance improving with direct communication and that the employee can be a productive member of your team.

For More Information on Payroll and Bookkeeping Services in the San Francisco Bay Area, give us a Call at 888-564-5777 or take our online assessment on this site.

Categories : Payroll
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