The IRS has launched a new program that may help employers to resolve past worker classification issues (Independent Contractor vs. Employee) at a relatively low tax cost by voluntarily reclassifying their workers.

As regular readers know, IRS’ attitude on this issue has been less than helpful in the past. Personally, I do not know of even one instance where a client has obtained IRS consent to treat payments to a sub as contract labor. For the last five years, this has been a major area of exposure for clients even when the vast preponderance of evidence was in their favor.

According to our friends at IRS, “the new IRS Voluntary Classification Settlement Program” (a/k/a IRS’ Fresh Start) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government,” according to the IRS.

Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The IRS program is available to many organizations, tax-exempt organizations and government entities that now erroneously treat workers as non-employees or independent contractors, and want to reclassify them as employees.

To be eligible, an applicant must:

• Consistently have treated the workers in the past as non-employees.
• Have filed all required Forms 1099 for the workers for the previous three years.
• Not currently be under audit by the IRS, the Department of Labor, or a state agency concerning the classification of these workers.

Here are the results for employers accepted into the program:

• They will pay 10 percent of the amount of employment taxes that would otherwise have been due on compensation paid for the most recent tax year to the workers, calculated under the reduced rates of section 3509 of the Internal Revenue Code.
• No interest or penalties will be due.
• The employers will not be audited on payroll taxes related to these workers for prior years.
• Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Is this an “all or nothing” offer?

Not at all – the program permits taxpayers to reclassify some, or all, of their workers. However, once a taxpayer chooses to reclassify certain of workers as employees, all individuals in the same class must be treated as employees for employment tax purposes.

For example, a construction firm currently contracts with drywall installers, electricians and plumbers to perform services at housing construction sites. The company wants to voluntarily reclassify its drywall installers as employees. Once a closing agreement is executed with the IRS, the company must treat all drywall installers as employees for employment tax purposes.

As with all tax moves, be sure to contact us before you contact anyone else.

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This initial podcast was intended for doctors but it’s applicable to others as well.

Asset protection expert Martin Shenkman gives advice on how to keep your net worth secure.

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Security professionals advise changing passwords from time to time. Here’s how you do it with the client portal that we provide. The first screen appears when you login.

There are only two steps.

• Click on my account
• Then replace the current password and you’re done. (The screenshots can be enlarged by clicking on them.)

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Our tongue-in-cheek humor as we look at the reporting and sale of investments.

A great time to invest?

What some stockbrokers really think

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Clients with S-Corps – Don’t forget that you cannot deduct your health insurance costs without loading them onto your W-2. Here’s how to do it.

Download (PDF, 661.2KB)

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For clients using Quickbooks, here’s a useful tip from one of our most trusted sources for software training. The instructors at K2 Enterprises will walk you through the process of limiting your Quickbooks data file to the current year. This will make QB run faster and more efficiently, but this does not solve the IRS problem we wrote about at this link.

It may be a helpful feature to know, but clients are strongly advised to call us for a better way to deal with this problem.

How to limit Quickbooks data to your current year

Good idea but not a solution to the IRS problem

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We’ve known for some time of the IRS’ stated intent to educate at least one member of every audit team with advanced knowledge of Quickbooks and Peachtree Accounting. Given that these two programs have over 80% of the small business software market, one could understand this goal.

The unsettling news is that IRS intends to routinely demand a backup copy (and the administrator’s password) of your Quickbooks or Peachtree file on any business audit!

Just consider what’s in that backup file:

• Administrative passwords that are often duplicated on your business server and other programs,
• Credit card information on your customers,
• Employee’s social security numbers, birthdays, and other personal data,
• Trade secrets via special product vendors, patent amortization data, customers lists, etc., etc.

We have firsthand knowledge of this request being made to some clientele.
SCA has developed some specific ideas on how you should handle this request. Current clients should email us for details.

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Confused by all the new twists and turns in technology? Tech-wizard and author Terry Brock gives a summary of the newest
tech applications for your business!

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by Guest Editor
Rick Viall  rviall@viallins.com

Millions of Americans donate time—their most valuable asset—to serve as a volunteer board member on non-profits, booster clubs, churches, PTAs and civic organizations, just to name a few. The decisions these folks make can have a dramatic impact on their respective organization—and not always for the better. If a volunteer endeavor goes bad, would a volunteer board member have coverage against a lawsuit under his or her homeowner’s policy?

Homeowners’ Insurance
The last thing volunteers want to consider is what would happen if their favored organization file suit against them as a result of their efforts. But it happens, and not infrequently. This does happen, especially when volunteers make decisions that directly influence the finances of an organization. Often, the only insurance these volunteers have to back their efforts is a homeowner’s policy. Unfortunately, this policy may be of little assistance.

The reason homeowners’ policies do not usually cover liability stemming from actions as a volunteer is the nature of the claim. The policy is designed to cover claims of “bodily injury,” such as someone slipping on cracked pavement in your driveway; and/or “property damage,” such as accidentally setting your neighbor’s house ablaze when burning some brush on a windy day.

Claims against board members do not usually involve bodily injury or property damage. Rather, they involve bad decision making that results in financial loss to the organization, such as the decision to invest in an IT system that turns out to be a debacle, costing the organization tremendous time and money.

There is another problem. Homeowners policies do not cover “professional services.” This is important to note, because board members are often asked to serve in a capacity consistent with their profession. For example, a church member who is a CPA may be asked to serve on the church’s board as finance chairman. Even though he is not paid for his services, the “professional services” exclusion under his homeowner’s policy would still apply.

In addition to the above, homeowners policies do not cover claims of personal injury unless this coverage is specifically added. Personal injury insurance is added to the homeowner’s policy to cover claims such as libel, slander, wrongful eviction, and false advertising.

What to Do
Events causing claims are unpredictable. While the reasons shown above prove it’s unlikely, not all claims against volunteer board members are excluded by a homeowners policy. Decisions to purchase personal injury coverage and a personal umbrella policy will increase your ability to find coverage for a suit against you.

The best method for insuring the actions of board members is for the organization to purchase a directors and officers (D&O) liability policy. These policies are relatively inexpensive for most non-profits. Before volunteering, request information on the organization’s D&O policy. The absence of this insurance leaves you at risk of having no personal insurance to defend a suit brought against you by the organization and should influence your decision to serve.

For help in sorting your situation out call Rick Viall, Viall Insurance Agency, 770-487-8310.

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by Guest Editor
Rick Viall  rviall@viallins.com

How safe is private information when stored electronically?

You may not want to know the answer to that question. But if you’re just a bit curious, consider visiting privacyrights.org/data-breach.

The site allows you to scroll through a frequently updated chronological list of reported breaches of private data. Some data are lifted from large companies everyone’s heard of. What’s surprising is how many of the breaches occur at smaller organizations.

The information on this site should serve as proof that when it comes to the safety of personal data, businesses big and small must be on alert!

While it’s the large breaches that make headlines—think Citigroup or Bank of America—smaller businesses may be at a greater risk. They often lack the infrastructure and resources to protect from cyber criminals.

What does a cyber crime cost? According to the Ponemon Institute’s First Annual Cost of Cyber Crime Study, published in July 2010, a business can expect to pay an average of $204 per customer record that is lost or stolen.

Cyber Crime Defined
According to the Ponemon study, the list of cyber crimes is rapidly growing. While many are aware of common cyber crimes, such as identity theft, the list also includes other crimes that can cause damage to a business’s electronic infrastructure. Examples: theft of a business’s intellectual property, the creation/distribution of viruses and malicious code, and the publishing of private data in a public forum online.

Business owners may struggle to keep up with these often-sophisticated threats. Such threats place a tremendous burden on business owners to prevent these losses. Many states have turned to legislation that requires business owners to spend money notifying consumers when a potential breach has occurred.

And some such laws go as far as to require the business owner to help pay the cost of the consumer’s data recovery. In March 2010, Massachusetts became the first state to pass comprehensive legislation requiring business owners to take preventative measures to protect data before the loss happens. Failure to do so can result in fines against the business owner.
Business owners in other states also may be impacted by this law, as it’s designed to protect residents of Massachusetts regardless of where the breach occurs. That means your business, even if located in another state, may be subject to fine if your records contain private information on Massachusetts consumers and those records are breached.

Protecting Your Firm
There are a number of insurance products available to help business owners to deal with the cost of cyber crime. Policies may address both first and third-party losses.

What is a first-party loss? This is a cost the business owners may absorb to cover the firm’s own expenses caused by a cyber crime. Examples may include:

- Notification and credit-monitoring for compromised individuals. (Most states currently have laws in place requiring the business to pay the cost of notifying all consumers that may be victimized by a breach. Most laws require these costs to be paid regardless of whether or not the consumer has suffered financial damages resulting from the breach.)

- Cost to restore data that has been stolen or damaged.

- Lost income resulting from down time caused by a damaged network, lost information or data breach.

How about a third-party loss? When a cyber crime occurs against a business, other parties also could be impacted. A third-party loss describes costs that appear when others incur expenses that can be attributed to the cyber crime. Examples may include:

- Defense costs.

- Judgments and settlements for lawsuits brought by customers, employees and other third parties—such as a company claiming its network was damaged by a virus from another infected network.

- Costs associated with fines or penalties imposed by a regulatory body.

Why Coverage is Critical
Cyber insurance is designed to protect a business when costs are incurred due to a cyber crime. Business owners should note that common insurance policies such as commercial property, . business income, and general liability often restrict—and in many cases exclude—cyber-related damage.

Business owners beware: You should be skeptical of enhancements to such common policies designed to address the cyber exposure. These so-called “cyber enhancements” are often very limited and should not be relied upon without thorough examination of an insurance professional.

Final Note
If you’re a business owner, threats to your data come from a variety of sources. Whether you’re the victim of a random hack, disgruntled former or current employee, angry competitor or anyone else, cyber crimes can serious damage your business. Worse, if the crime results in a breach of private consumer data, state law may impose significant fines that could devastate your firm’s bottom line. For more information about insuring against these growing exposures, call Rick Viall a Trusted Choice® independent insurance agent today. 770-487-8310

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by Guest Editor
Rick Viall  rviall@viallins.com

Remember the days of curling up to the radio on a Saturday night, torturing yourself through commercials and lame tunes just to be able to crank it when Mr. DJ played your favorite song?

No longer does one require the patience to spend an entire evening anticipating the next round of “Love Me Tender” or the BOC’s “Godzilla.” File-sharing programs make an instant world faster—obtaining music and video clips with a click. Popular versions like iTunes legitimize the process through pages of service agreements and per-transfer fees, but every program is not so “official.”

Unauthorized file sharing is easy, cheap (meaning free) and illegal. Consider the recent case of BMG Music et al v. Cecilia Gonzalez. In this case, a federal court ruled that the illegal downloading of songs by a consumer (as in the individual doing the downloading, not the entity responsible for the file-sharing platform) constituted copyright infringement. The damages awarded against her totaled $22,500—for downloading 30 songs at $750 penalty per song.

Seem steep? It could have been much worse. The defendant had actually downloaded 1,370 songs. Federal law permits an assessment of $30,000 per song. Had they chosen the full course of action, damages against Gonzalez in this case would have resulted in over $41 million!

This case is proof that the federal government intends to secure the integrity of copyrights, even if it means rendering judgment against individual consumers. The bad news for these consumers is that such a judgment will not be covered by homeowner’s insurance.

Personal liability afforded under a typical homeowners insurance policy does not cover liability claims that do not involve bodily injury or property damage arising out of an “occurrence.” Since “occurrence” constitutes an accident or exposure to harmful conditions, it is not likely the insurance company will look any further to find a reason to provide you with coverage (downloading that latest Springsteen track for free was no accident).

Even if you did jump that hurdle, you’re still fighting an uphill battle. Property damage constitutes physical injury to tangible property: ripping off mp3 files hardly fits the bill.

Even homeowners with personal injury liability (which extends liability insurance to pay claims such as libel, slander, and violation of privacy rights) are exposed: This insurance says nothing of covering claims of copyright violation, nor will it cover criminal acts.

This information should serve as a somber reminder that households downloading illegal files are in danger of incurring a large out-of-pocket expense that no personal insurance intends to pay. Parents should be especially careful; in many households it is not mom or dad downloading the copyrighted music. A look at the music library on many children and teenager’s computers could shock you—they could have hundreds or thousands of songs. If your children are file-sharers, check their preferred sources for legitimacy and remind them why this is important.

When it comes to downloading music, “free” can come with a big price. Enjoy the tunes but proceed with caution. Ask Rick Viall at 770-487-8310 a Trusted Choice® independent insurance agent to talk with you about these and other possible exposures.

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Congress has once again adjusted the dollar amount of allowabe mileage,social security limits,estate rates, and a host of other deductions.

Here’s a handy scorecard for 2012.

Your 2012 reference tool

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It’s still early in 2012, but for our clients wanting to start their tax planning here
are the updated numbers for this year.

Retirement Plans Limits  Plan

Bold and Red indicates the Limit changed in  2012.

Adoption Flexible Spending Accounts Limit
The 2012 limit changed to 12,650.

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One of our clients is offering these retrofitted calculators. If you’ve followed the current budget -you’ll know why. Since the cash for clunker law was a disaster, maybe we could have calculators for Congress!

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Who’s really being greedy here?

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When moving to the beginning of your tax year in Peachtree Accounting, be sure to adjust for the new state unemployment rate.

This will insure the accuracy of Peachtree’s calculation of the amount you’ll pay at the end of the first quarter.

Make these adjustments at the beginning of your tax year

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A list of your assets is great for estate planning but, in addition, what
your heirs will appreciate is a map to find the items they need after you’re gone.  This downloadable form (see the link below) will not only make sure you have the vital estate documents, but will help your heirs to locate them as well.

Download (PDF, 142.05KB)

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 For our clients using Peachtree Accounting:

If you own one of the Premium versions of Peachtree Accounting, you’ll get the following screen during the year end close at period 24.

Check this before closing

By checking the Archive Company box, you’ll cause the system to create an extra company and preserve the ability to view all reports of prior year data.

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One way to determine the power of any organization is to take a look at their numbers. 

Without commenting on the good accomplished or the harm done, one has to grant the Unions are  powerful forces in the social and political structure of America.

Need some proof? Here are some convincing stats. Take special notice of the last two lines.

Financial Information

Annual Dues Paid to Unions: $8,217,838,676
Total Union Assets: $8,804,794,935
Total Spending
Representational Activities: $4,081,097,858
Political Activities: $579,624,489
External Contributions: $321,121,214
Overhead: $3,905,927,269

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Unions that fail to pass Department of Labor audits: 92%

Union Officials

Total union officers and staff members: 173,503 people
Total compensation paid to union officials and officers: $1,141,540,980
Total compensation paid to union employees: $2,562,757,481

Diversity

Major Unions with White Presidents: 94%
Major Unions with Male Presidents: 89%

Labor Law Violations

Unfair Labor Practices filed against unions in the last 10 years: 65,529
Duty of Fair Representation 32,235
Hiring Halls 2,236
Actions of Picketers 1,742
Union Security Related (including Beck) 1,636
Coercive Statements 1,376

Source: National Labor Relations Board Case Activity Tracking System database.

Union Membership as a percentage of total U.S. Labor Force

Total Union Members: 14.7 Million
Percentage of Workforce that is Unionized: 11.9%
Private Sector Employees: 7.0 million (6.9%)
Public Sector Employees: 7.6 million (36.2%)

Source: UnionStats.com analysis of Bureau of Labor Statistics ‘ Current Population Survey.

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For estate tax purposes, there are some terrible states to die in this coming year (2012).
Hover over the selected states in the map below and you’ll see what we mean.

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