Tax Notices: What to do When They Come for You

Posted on May 24, 2012 | Leave a comment

So you received a tax notice, what is the next step? First of all, don’t panic. Justbecause you received a notice does not mean you are under audit, nor does it always mean that your return was filed incorrectly. Tax notices can be sent for a variety of reasons and frequently can be resolved with a simple letter or phone call.

Although notices can be sent for a number of reasons, some of the most common reasons include: a change to the return has been proposed, there is a variance between estimated taxes paid as reported on the return compared to actually paid, or because additional information is required to support the information as reported on the return. As I mentioned, these are only a few of the most common reasons. A more comprehensive list can be found on both the IRS and Ohio Department of Tax websites, including the codes that categorize the notice.

Notices may be sent from a variety of taxing agencies, including the Internal Revenue Service (IRS), states, cities and school districts. If there is an issue and you receive a notice from the IRS, it is not unusual to receive a notice from another taxing agency for the same issue. It is important to respond to each notice you receive, even if it is for the same issue. Resolving an IRS notice will not resolve a notice for any state or local notice automatically.

When you do receive a notice, do not just put the notice under a pile of papers and hope it goes away! Just because you can’t see it, does not mean the taxing agency will forget about it. It is important to open and read the notice so that you have an understanding of what the notice is for, then provide a copy of the notice to your tax advisor.  If you ignore a notice the taxing agency will assume that you accept whatever changes they are claiming should be made to the return. If these changes result in an amount due, interest and penalties will begin to accumulate on the amount they consider unpaid, even if a response would have resolved the matter with no additional amount due.

In many cases, notices simply require additional information be provided to support the return as originally filed and changes are not made to the return. Often times, notices are computer generated and pick up any items considered discrepancies, even if the return is correct as originally filed. This is not always the case though, so it is important to provide a copy of the notice to your tax advisor to analyze and prepare the appropriate response or action. If you receive a notice with an amount due, do not just pay the amount due. Notices provide time for the claim being made by the tax agency to be reviewed, so your tax advisor will be able to let you know how much to pay, if there is still an amount due.

Also note, if you receive a notice from Ohio and you actually do have an amount due remember the Ohio tax amnesty program currently in act. The program runs until June 15, 2012. Additional information can be found on our blog or on the Ohio Department of Tax website.

So, what will you do if a notice comes for you? Don’t panic, open and read the letter, then provide us a copy here at William Vaughan Company. We will review the notice and provide you with guidance to resolve the matter and give you peace of mind.

By: Mark Sawyer, CPA

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Posted in Tax

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Is It O.K. To Pay Employees “On The Side” As Contractors?

Posted on May 22, 2012 | Leave a comment

Hiring employees to do “side jobs” for your company has been a growing trend versus trying to search for someone else to perform the job from outside the company.  Some types of jobs performed by independent contractors could be cleaning, computer work, or repair & maintenance.

Example:  A receptionist who is an employee who makes extra money by cleaning offices during non-business hours as an independent contractor.

If the job the independent contractor is hired for ends up paying more than $599 in a calendar year, a 1099 Misc form will have to be issued.  The IRS pays close attention to individuals who receive a both a W-2 and 1099 form from the same company in the same year.  A possible employment tax audit for the entire business could be triggered from doing this.

If the job is performed outside of the normal employee’s work hours and the job has no relation to the regular work of that employee then it could be an exception, but be prepared to have to prove that to the IRS.  If the employee has a legitimate independent business with separate Federal ID number and works for other companies who pay the employee for that job would be the safer option.

Even though it may be easier to hire a current employee, it could open your company up to an audit risk and isn’t usually advised.   You can have the independent contractor fill out the IRS form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) and let the IRS determine the status of the work performed.

By: Sandra Stone, Accountant

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Posted in Audit & Accounting, Business Consulting, Tax

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Does My Business Have An Ohio Sales and/or Use Tax Liability?

Posted on May 17, 2012 | Leave a comment

Most businesses are aware that their activities could result in an Ohio sales and/or use tax liability.  However, many companies struggle with determining their actual exposure to these taxes and how to apply Ohio’s sales and use tax guidelines to specific transactions.  These businesses should consider undergoing a formal sales and use tax analysis to highlight potential weaknesses in the application of these taxes and accurately determine the total exposure generated from their past and present operations.

An appropriate analysis provides the following:

  1. A thorough review of the same information and documentation that an Ohio auditor would request (readying your business for audit should one occur).
  2. As assessment of your operations/business activities to determine if your business qualifies for an exemption from sales and/or use tax (reducing your tax exposure).  Many companies are not aware of the exemptions for which they qualify.  The study would underscore applicable exemptions and identify the support needed to substantiate these exemptions.
  3. Application for Ohio sales tax amnesty if applicable.  This amnesty program is only available from May 1st, 2012 until June 15th, 2012.  This program allows you to avoid penalties and one half of the interest owed on prior unreported sales taxes.
  4. Application for Ohio use tax amnesty if applicable.  Use tax amnesty is available until May 1, 2013.  This program allows your business to report activity from January 1, 2009 and forward, avoid penalties and all of the interest owed on prior unreported use taxes.  What this means is that your potential liability will be waived from before January 1, 2009 and your business will only owe the tax incurred on purchases from January 1, 2009 and forward.
  5. Issuance of a report highlighting your business’s deficiencies, if any, and providing suggestions for ongoing best practices.

The June 15, 2012 deadline for the Ohio sales tax amnesty program of is quickly approaching.  Consequently, now is a great time for your business review its sales and use tax position.

William Vaughan Company offers an Ohio Sales and Use Tax Analysis based upon guidance provided in the Ohio Revised Code and applicable court cases.  In addition, William Vaughan Company’s analysis is conducted by professionals who have direct experience in the application and reporting process associated with Ohio’s amnesty programs.  Please contact your William Vaughan Company representative for further information regarding this opportunity.

By: Nate Bernath, CPA

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Posted in Business Consulting, Tax

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Profitable Dental Practices

Posted on May 15, 2012 | Leave a comment

Dentists face incredible challenges today. They have to do so many things well. Not only do they have to provide superior patient care, but they also have to keep up with the latest clinical techniques and technologies, manage the practice, lead their staff and run a successful practice. For the majority of dentists, the biggest challenge is the business side of the practice. Dental schools do a great job of preparing dental students to be excellent clinicians, but few dentists are trained with the management skills to effectively and successfully run a profitable practice. In this economy, many dentists are struggling to increase production; but it is attainable, if you have the right systems in place.

Most dental practices have great profit potential, but often that potential remains unrealized for a large portion of a dentist’s career because he or she never received the business training to fully maximize it.

Practice success depends on combining both excellent clinical skills and excellent business skills. The best leaders realize that they can’t do everything, and perform effectively. That’s why highly successful dentists surround themselves with excellent management systems and professionals. This allows them to focus on what they do best—practice superior dentistry and provide excellent patient care. William Vaughan Company can help you with best practices and assist your staff in getting the systems in place that allow you to focus your time on what you best.

By: Jennifer L. Furey, CPA

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Posted in Healthcare

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Does My Retirement Plan or Health Plan Need Audited?

Posted on May 14, 2012 | Leave a comment

Many businesses may be asking themselves this question. According to the Department of Labor (DOL) there are some general rules regarding the auditing of retirement/health plans.  First, one has to decipher whether their plan is a “small” or a “large” plan.  Plans with 100 or more participants at the beginning of the plan year are considered “large” plans.  Plans with less than 100 participants at the beginning of the plan year are considered “small” plans. “Small” plans are generally exempt from DOL audit requirements.  “Large” plans  are not exempt from the annual audit requirement.

Additionally, there is an exception for those plans that routinely fluctuate between slightly more or less than 100 participants at the beginning of the plan year that would not require the plan to switch between being categorized as a “small” plan or a “large” plan due to inconvenience.   This rule is known as the 80-120 Participant Rule.  This basically states plans with between 80-120 participants at the beginning of the plan year may elect to complete the current year return using the same category (“small” versus “large”) that was used in the prior year.  Thus, if your plan had 110 participants at the beginning of this plan year but was considered a “small” plan in the prior year, then in the current year your plan is considered a “small” plan, which would generally not require an audit.  Also, in this instance, the plan would not require an audit in subsequent years until the number of participants exceeds 120.  On the other hand, if the plan had 110 participants at the beginning of this year, and was considered a “large” plan in the prior year, the plan would be considered a “large” plan in the current year and would need to meet the audit requirement.

The following table provides a summary of the 80-120 Participant Rule:

Number of Participants at Beginning of   Current Year

 

 Requirements Followed for the Previous   Year Form 5500

 

Requirements to Be Followed for the Current   Year Form 5500
Fewer than 80 “Small” plan “Small” plan
Fewer than 80 “Large” plan “Small” plan
80-99 “Small” plan “Small” plan
80-99 “Large” plan May elect to file Form 5500 again as a “large” plan or   switch to a “small” plan
100-120 “Small” plan May elect to file Form 5500 again as a “small” plan or   switch to a “large” plan
100-120 “Large” plan “Large” plan
More than 120 “Large” plan “Large” plan
More than 120 “Small” plan “Large” plan

This is just a general guideline.  There are other factors that may influence whether an audit is required or not required by the DOL.  Contact your William Vaughan Company representative for further information.

By: Ryan Leininger, CPA

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Posted in Audit & Accounting

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National Nurses Week May 6th – 12th 2012

Posted on May 3, 2012 | 1 Comment

Most of us are well aware of heath care reform and the issues facing the healthcare profession, but many do not fully understand or appreciate just how important nurses are to healthcare and the effects of heath care reform on them.  Today the roles of nurses are changing.  These professionals are qualified to complete additional tasks and are often responsible for implementing healthcare reforms and spearheading research.

Nurses work to promote good health and prevent illness.  They educate patients and the public about various medical conditions,  treat patients and help in their rehabilitation, and provide advice and emotional support to their patient’s families.  Being a nurse is more than being a caregiver.  They embrace technology and new ways of thinking .

The US Department of Labor’s Bureau of Labor Statistics states registered nurses are the largest healthcare occupation and are projected to create the largest number of new jobs among all occupations through 2014.  They also spend the greatest amount of time in delivering patient care as a profession.  Nurses therefore have valuable insights and unique abilities to contribute with other health care professionals in improving the quality and safety of care as envisioned in the Affordable Care Act.

According to the Association of American Medical Colleges, by 2020 our nation will have a shortage of about 45,400 primary care physicians.  In order to deal with this potentially harmful shortage, many medical professionals believe it is important to train more nurses to become nurse practitioners.  In addition to providing many of the same services less expensively than physicians, nurse practitioners are focused on patient-centered care and preventive medicine.  Nurse practitioners may have less medical education than doctors, but they have far more training in skills like bedside manner and counseling.

Most individuals have some contact with a nursing professional. They may be a relative, friend or acquaintance and National Nurses Week is an excellent time to let them know we understand and appreciate the importance of their roles in the healthcare profession.

By: Diane Allman, CPA

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Posted in Healthcare

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Steps a Charity Needs to Take When Receiving a Donated Vehicle

Posted on May 1, 2012 | Leave a comment

So you are an employee or Board member of a nonprofit organization and learn that someone wants to donate a vehicle to your organization.  As a tax-exempt organization, you may be asking, “what is the organization required to do after accepting the vehicle donation, and is there any risk of it being taxable to the organization?” The IRS does, in fact, have specific rules spelled out in a user-friendly pamphlet (even with pictures)  for charities who receive donated vehicles.  To summarize the items in the pamphlet:

Q. What can a charity do with a donated vehicle so not to affect its tax-exempt status?

There are four actions a charity can take with a donated vehicle that have no adverse effect on its tax-exempt status:

  1. Sell the donated vehicle and use the proceeds to fund its charitable programs.
  2. Use the vehicle for a significant period of time to conduct activities that further its charitable programs.
  3. Make significant improvements to the vehicle, then sell it and use the proceeds to exclusively further its charitable programs.
  4. Distribute the vehicle at a price significantly below fair value to needy individuals if its charitable purpose is to provide the needy with means of transportation.

Q. What filings and disclosures are required of a charity receiving a donated vehicle?

Scenario 1 – Vehicles with a fair value of less than $250 - no filings or disclosures are required by the charity.

Scenario 2 – Vehicles with a fair value of at least $250 but not more than $500 – the charity must send by the date on which the donor files his or her individual federal income tax return an acknowledgment (using its own written or electronic statement or Form 1098-C – Copy C only) to the donor that includes the name of the charity, a description (but not value) of the vehicle, and one of the following:

  • A statement that no goods or services were provided by the charity in return for the donation, if that was the case
  • A description and good faith and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation, or
  • A statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case

Scenario 3 – Vehicles with a fair value of more than $500 up to $5,000 – the charity must send within 30 days of the date it sells the vehicle or, if it does not intend to sell the vehicle, 30 days from the date of the contribution, an acknowledgment (using its own written or electronic statement or Form 1098-C – Copy C only) to the donor that includes the donor’s name and taxpayer ID number, the vehicle identification number, the date of the contribution, and one of the three bullet points noted above in Scenario 2.

All Scenario 3 acknowledgements must also include information on what the charity did or intends to do with the vehicle (see pages 5-8 in the pamphlet for additional required information) AND the charity must also report to the IRS on Form 1098-C – Copy A by February 28 (March 31 if filing electronically) of the year following the year in which the charity provides the acknowledgment to the donor.

Scenario 4 – Vehicles with a fair value of more than $5,000 – the charity must prepare the same information as in Scenario 3, plus an authorized official of the charity must complete  a portion of Section B of Form 8283 provided by the donor and sign it.   If the charity sells or otherwise disposes of the vehicle within three years after the date it received the vehicle, it must file Form 8282, Donee Information Return with the IRS within 125 days after the charity disposes of the vehicle.  The charity must give the donor a copy of the completed Form 8282.

By: Brent Ringenberg

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Posted in Non-Profit, Tax

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