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New tax laws to create flurry of paperwork for
business
New
healthcare law includes expanded 1099 reporting rules
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Companies need to brace themselves for an
onslaught of increased paperwork in the com ing years, thanks to the new federal healthcare
law. Beginning in 2012, businesses will be required to
file 1099s for many more services, and as a result, will be required
to obtain Tax Identification Numbers (TIN) for any number of vendors
in order to properly file the forms. At the same time, business
owners must be prepared to provide their TIN to other companies who
must also file 1099s.
Businesses have long been required to report payments to individuals
in excess of $600 for services and merchandise, but for the first
time, 1099s must be sent to corporations for any product or service
purchased.
Under the new rules, businesses will need to report on Forms 1099
payments for commissions, fees and other compensation paid to a
single recipient in excess of $600 in a calendar year, as well as
interest, rent, royalties, annuities and income items paid to a
single recipient.
As it now stands business owners could have to give a 1099 to a
hotel, restaurant, food vendor and any other person or entity they
did business with during the year 2011. The new rules can be summed
up easily: If a purchase crosses the $600 threshold, it requires a
1099.
Consider: A business owner could take several customers out to dinner
and have to get a W-9 completed along with his dinner check so that a
1099 could be issued later in the year;
An office manager who runs to the office supply store to pick up a
computer will need to issue that store - even a big-box retailer like
Best Buy or Staples - a 1099;
A person who sells a piece of equipment to someone for over $600 can
expect to receive a 1099; or
A business owner takes a business trip, and that person could end of
issuing 1099s to the hotel, several restaurants, and the car rental
agency.
Other examples that could be added to the 1099 burden: the phone
company, the postage meter vendor, anyone from whom advertising was
purchased, and the list goes on.
This all means that not only will businesses have to issues perhaps
thousands of 1099s each year, they will also be responsible for
obtaining and reporting correct tax identification numbers,
addresses, names and so forth or risk accuracy-related
penalties. As with current 1099 rules, businesses will be
required to withhold and remit income taxes for payees for whom they
don't have a federal ID number.
So, starting in 2012, a business that pays a corporation $600 or more
in during the 2011 calendar year must report the total amount on a
1099 form. This business must also obtain a TIN from each affected
payee or will be subject to backup withholding of federal income tax.
Likewise, if this business sells property or is a corporate business,
it will have to supply its customers with the TIN.
"There is no doubt this will be an administrative nightmare for
many businesses in the first year or two," Jamie Downey, a
partner at Downey & Co., told The Boston Globe. "Have
a large business-related meal at a restaurant, this will need to be
reported on a 1099. Spend a week in a hotel in Waco, Texas, you will
need to send a 1099."
An SMC Business Council survey of its members showed they file an
average of 10 1099 forms a year, each of which takes about 30 minutes
to prepare. SMC's survey found that adding the number of 1099s filed
for just services purchased from corporations would push that number
to at least 200 filings per year for a typical small business -
adding an estimated $6,000 to the cost of preparing the average tax
return. This does not even account for the requirement that 1099s
will need to be filed for purchases of goods, CNNMoney.com reported.
"It's a pretty heavy administrative burden," Bill Rys, tax
counsel for the National Federation of Independent Businesses, told
CNNMoney.com.
The rationale behind these new rules appears to be an effort to
capture unreported or underreported income, which could be used to
offset the cost of implementing the new healthcare law. Indeed, the
IRS estimates the federal government loses more than $300 billion
each year in tax revenue on income that goes unreported, according to
CNNMoney, and some experts believe the IRS's attempt to collect lost
revenue from companies that underreport income is expected to raise
$17 billion over 10 years.
Challenges to this new law are already underway. U.S. Rep. Daniel
Lungren (R-Calif.) introduced on April 26 legislation to repeal this
provision of the new healthcare law.
We strongly suggest you contact your Congressmen and Senators and urge them
to work to repeal this law, delay implementation or increase
exemptions.
Sources: The Tax Strategist, June 2010, AccountingWEB.com, May 26, 2010,
"Stealth IRS changes mean millions of new tax forms," CNNMoney.com, May 21, 2010.
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Retirees can breathe easier with tax relief
New
Ga. law rolls back retirement income tax
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 Beginning in 2012, retirees in Georgia will see
their taxes on retirement income ease. Legislation enacted this year phases
out the Georgia personal income tax on retirement income beginning
with the 2012 tax year. Taxpayers between the ages 62 and 65 years
during that year, or who are permanently and totally disabled, can
exclude up to $35,000 per year. Taxpayers 65 and older can exclude up
to $65,000 for tax year 2012. That exclusion continually rises until
the 2016 tax year when taxation on retirement income is completely
eliminated for those 65 and older. Retirement income includes
interest income, dividend income, net income from rental property,
capital gains income, income from royalties, income from pensions and
annuities and up to $4,000 of an individual's earned income.
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Do the math
Two
financial measurements help gauge strength of business
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By Freya Meyers, CPA
McDonald's owner/operators should use two benchmarks to take the
financial pulse of their restaurants: liability turnover and net
equity percentage. These are two of th e balance sheet measures that McDonald's calculates to
determine the solvency of an organization.
Liability Turnover in Days is computed when an
operator's working capital is negative. This happens when
"current assets" are less than "current
liabilities." This number identifies the number of days of next
month's sales that are needed to cover this deficit. According to
McDonald's guidelines, this should be fewer than seven
days.
To compute liability turnover, divide the company's negative working
capital by the average daily sales. Average daily sales is calculated
by dividing the trailing twelve months sales (TTMS) by the number of
days open for business during the year. For example,
TTMS
$2,500,000
/ No. of days open during year
363
= Average Daily Sales
$6,887
Negative Working Capital
$20,661
/ Average Daily Sales
6,887
= Liability Turnover
(Days) 3
Days - meets less than 7-day target
Net Equity Percentage is the percentage of a business'
value that is not financed with debt. This is computed by
taking the estimated value of the business, subtracting the required
reinvestments, current liabilities and long-term liabilities, then
adding back current assets. This number is the company's net equity,
which is then divided by the business' value to arrive at the net
equity percentage. McDonald's requires that the net equity
percentage be at least 25 percent.
Consider this example when calculating your net equity percentage:
Value of the
Business
$1,800,000
- Required
Reinvestments
(50,000)
- Current
Liabilities
(200,000)
- Long-term
Liabilities (700,000)
+ Current
Assets
500,000
= Net Equity 1,350,000
/ Value of the
Business
1,800,000
= Net Equity
Percentage
75 percent - meets 25 percent target
Please contact us if you would like our assistance in computing
either or these financial measures for you or if you have any
questions.
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McDonald's: Public sides with Happy Meals
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By Cheryl V. Jackson
Chicago Sun-Times
 The Happy Meals toys are staying, according to a letter
sent this week by McDonald's CEO Jim Skinner to a health watchdog
group that criticized the popular kids' meals and how they are
marketed.
The Center for Science in the Public Interest in June threatened a
lawsuit against the fast-food giant to get it to dump the toys that
accompany Happy Meals.
Forget it, Skinner said, defending Happy Meals in the written
response sent to the Washington, D.C.-based group.
"Internet sites, blogs and network surveys suggest that public
opinion is running overwhelmingly against your premise," Skinner
wrote. "Our customer Web sites and phone lines at McDonald's are
also busy, with more than nine out of 10 customers disagreeing with
your agenda."
The strong public response is uncommon for the company, whose
dominance in the fast-food industry makes it a target of a range of
activist groups.
"CSPI is wrong in its assertions, and frivolous in its legal
threats," Skinner said, calling the group's claims
"over-the-top rhetoric."
Seeking to turn the tables on the group, Skinner called for an
apology.
"CSPI's twisted characterization of McDonald's as 'the stranger
in the playground handing out candy to children' is an insult to
every one of our franchisees and employees around the world,"
Skinner wrote. "When CSPI refers to America's children as 'an
unpaid drone army,' you similarly denigrate parents and families,
because they are fully capable of making their own decisions. You
should apologize.
"Parents, in particular, strongly believe they have the right
and responsibility to decide what's best for their children, not
CSPI," he wrote. "It's really that simple."
When it threatened to sue last month, the group called the use of
toys to entice kids to eat Happy Meals "unfair and deceptive
marketing" that "is illegal under various state consumer
protection laws."
Source: "Happy Meals here to stay: McDonald's,
Watchdog group wanted fast-food giant to dump toys,"
Chicago Sun-Times, July 8, 2010
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The
Internal Revenue Service requires us to inform you that any tax advice
contained in this letter cannot be used for the purpose of avoiding
penalties under the Internal Revenue Code or for promoting, marketing
or recommending to another party any transaction or matter addressed
herein.
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Visit us online!
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www.sparkmon.com
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Words to
live by ...
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Another way to look at life is to see it as a
different kind of department store. A store where such things as
worldly success, love of music, enjoyment of painting, a 6-handicap
golf game, a close relationship with your son or daughter, and many
other similar things are for sale. But the commodity with which they
are purchased is not money but time. And quite contrary to the way
the capitalist system works with money and goods, every one of us is
given exactly the same amount of time in each hour, in each day and
in each year. It is a limited amount, and it is impossible for anyone
to be so rich in time that he can enjoy every single one of the
things which time may buy.
So there is a choice to be made ..."
-William Rehnquist, 16th Chief Justice, U.S.
Supreme Court
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Keep tabs on profit and loss
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It is imperative that McDonald's operators
review their profit and loss statements on a monthly basis. The
monthly P&L provides feedback on the financial performance of a
restaurant, so operators should review their costs as soon as
possible after the end of each month to determine which costs need to
be more closely watched or whether theft may be occurring. Without this
timely and consistent oversight, any problems will become more
significant. McDonald's requires that monthly P&Ls be
submitted by the 25th of the following month, but it is recommended
that these statements are submitted by the 15th.
-Freya Meyers, CPA
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